Securities, in the context of investing, refer to financial instruments that you can trade on the financial market. Originally, when investments were paper-based, a security was a certificate that served as proof of investment. Nowadays, with digital transactions, the term "securities" encompasses a broader range of tradable financial assets, including:
- Shares in a company
- Bonds (also known as debt securities)
- Derivatives such as CFDs (contracts for difference), futures, and options
When it comes to taxation on securities, the focus is on the profits made from trading. The tax implications vary based on your trading activity:
- Full-time traders may owe Income Tax on their profits.
- Casual or side traders could be liable for Capital Gains Tax (CGT) depending on their earnings.
Securities are considered assets by HMRC, meaning profits from selling them may be subject to Capital Gains Tax. The CGT allowance for the 2022/23 tax year is £12,300, allowing you to earn up to this amount as profit tax-free. Any profit beyond this threshold is taxed at the following rates, depending on your income tax band and the type of asset:
- Shares: 10% for basic rate taxpayers, 20% for higher rate
- Residential property: 18% for basic rate taxpayers, 28% for higher rate
- Cryptocurrency: 10% for basic rate taxpayers, 20% for higher rate
- Other assets: 10% for basic rate taxpayers, 20% for higher rate
It's important to note that profits from securities held in an ISA account are always tax-free, exempting them from Capital Gains Tax.
To pay any Capital Gains Tax due, you'll need to submit a Self Assessment tax return by the 31st January following the end of the tax year for which you're paying.
