How to sell shares and what to watch for

If you invest through a platform, the process of selling shares is relatively simple. You can log into your account, see the quoted price, and click through to sell. But, to ensure the transaction is as efficient as possible, and that you’re making a smart choice, here’s what to keep in mind.  

Knowing when to sell

Realistically, no one knows the perfect time to sell a share. People often may think a share has reached its peak and sell before it skyrockets once again or hold on too tight to a company that turns out to be a sinking ship. This process can be quite tumultuous, so many people opt to have a strict set of rules they follow to decide when to sell.

For some, this is a set price or valuation. Once the company reaches this level, they automatically sell. Others have a maximum drop amount. For example, if a stock falls by over 7%, they automatically sell.

Regardless of your metric, it may help to consider what drew you to the investment in the first place and if those values are still in place. For example, if you bought a company that you believe has great potential with a new technology, and is currently undervalued, is the potential still there? Or has the situation changed?

Making the sale  

If you’ve decided to sell, and deal with AJ Bell, you can log into your account (either online or via our mobile app) and choose ‘Buy and Sell’ to look at your investments and do any dealing. If you want to deal right away, you’ll need to do this during ‘market hours’. These are the opening hours of the stock market where the stock is listed; for those listed on the UK stock exchange, it’s between 8 am and 4:30 pm.  

You can also opt to place a limit order if there’s a specific price you know you’d like to sell at. On AJ Bell, this order lasts for 90 days, and means that if it is ever possible to sell at the price that you set, your order will be executed automatically.  

For those that would rather automatically sell after a certain amount of loss, you can set a stop loss order, which essentially sells the investment once it drops to a specific price. Learn about how to set up either of these triggers.

The costs that come with selling

The biggest potential cost associated with selling your shares is capital gains tax. If your shares are inside an ISA, you won’t need to worry about this charge because your investments are in a tax-protected wrapper. Otherwise, if you make a gain on the shares you sell, you’ll start eating into your capital gains tax allowance of £3,000 per year. If you go over this amount, you’ll be charged at a rate of 18% for basic rate taxpayers and 24% for higher and additional rate taxpayers. This payment isn’t automatically collected when you sell your shares. Instead, it will be calculated on a yearly basis, so you’ll need to keep this in mind for tax year end and report it to HMRC accordingly. If you have made a loss, you should register this with HMRC too, as it can be used against future gains.

The other fees you may see on your transaction is a PTM levy of £1.50, but this will only be charged on transactions over £10,000. In addition, you will face a dealing charge. At AJ Bell, this is £5 per share trade, reduced to £3.50 if you make ten or more trades in a month.

Remember the 30-day rule

If you’re selling investments outside an ISA or pension, there are share matching rules to be aware of. The so called ‘30 day’ rule is designed to match sales and repurchases of the same shares in a quick period. Without the rules, shares could be sold to trigger losses (or gains) and make use of capital gains exemptions, despite an intention to hold the shares for the long term. If you sold an investment for a loss and don’t wait 30 days before deciding you’d actually like to buy back in (outside of an ISA or pension), your capital loss will be calculated based on the price you buy back in at, and the starting value of your investment for capital gains tax purposes would be the original purchase price, not the second purchase price.  

For example, let’s say Leo purchases 100 shares in X Company for £500, and two years later, they’ve dropped in value to £250. He then decides to sell the shares, and by selling gets £250 that can be used to reduce future capital gains. 15 days later, the price of X Company’s shares had increased again, and those 100 shares are worth £275. Leo decides he’d like to buy back in. However, by buying back in, he loses that £250 credit. Instead, he gets a £25 credit, representing the difference in cost when he sold out versus when he buys again. Going forward, Leo’s capital gains tax calculations for the X Company shares will be based on the original price he bought for, £500, instead of the £275 he rebought for.  

What to do with the proceeds

Once you’ve sold a share, you’ll either have the option to reinvest that money, or remove it from your account. If you plan to remove it, be aware it may take a few days for the money to appear in your account because of the settlement time. However, if you’d like to reinvest your money by purchasing a new share, or a fund, you’ll be able to place the instruction right away.

If you are planning to sell and buy another share instead of using the money, it may be a good idea to have an idea of what you’re planning to buy ahead of time. That way, you won’t lose time in the market by waiting until a few days after the sale to make a decision. And remember, when you purchase a new share, you’ll be faced with dealing charges again, as well as the potential PTM levy and, if it is a UK stock, the stamp duty reserve tax charge of 0.5%.