Taxation considerations

Capital gains are taxable income, and tax payable on this income reduces your net profit. However, you can write gains off against losses, and if the time frame is 12 months or more only half the capital gain is taxable. For short-term trades this relief is of no benefit, but for longer term trades it’s an important consideration. For example, if you’ve bought shares and held them for 10 or 11 months, it may well pay to keep them for a month or two more rather than sell, even though the price may fall in the intervening period. Of course, do your calculations carefully to decide which is the best option.

Tip

Teach Yourself About Shares contains more information about taxation considerations (for both capital gains and dividends), as well as formulas and worked examples that help you decide whether to sell or hold.