Investment Clubs - Frequently Asked Questions

What is an investment club?

Generally speaking investment clubs comprise a group of friends, neighbours or work colleagues who meet together on a regular basis, pooling their spare cash to buy and sell shares on the stock market.

Does the club have to pay tax?

Investment clubs are not charged to Corporation Tax. The individual member is charged to tax on their proportionate share of any income or gains and is entitled to relief in respect of any share of capital losses.

Can people who are not resident in the UK join an investment club?

HM Revenue & Customs (HMRC) has no rules about who can and can’t be a member of an investment club. However, the tax rules in the overseas country where the investor is resident may not be the same as in the UK. Non-resident members should check for themselves the tax situation locally.

Does the club need a constitution and rules?

Yes. The club should have a constitution and rules, to provide an organisational framework and points of contact for correspondence and official notices. A constitution is also essential to protect the interests of club members.

Where can our investment club find a constitution and rules?

HMRC is unable to offer a model constitution and rules or to give advice on drawing these up. It is a legal matter and not within our remit.

Do I need to register the club with HMRC?

No but the Treasurer, Secretary or other official of the club should ensure they keep sufficient records should HMRC request details of income, gains and members.

How do I know what my share of the club's income eg dividends from shares, and gains are?

An appointed club officer, normally the Treasurer, will be responsible for keeping a record of the clubs dealings in stocks and shares. He or she will apportion any income, gains and losses between the members in accordance with the rules of the club, and should provide each member with a written statement of these for each tax year.

How do I declare my share of income and gains from investments made by the club to HMRC?

Every club member should declare their apportioned share of income or gains received from investments made by the club on a Self Assessment Tax Return.

However, a member does not have to declare their share of investment club gains to HMRC revenue if:

  • Those gains, together with any other chargeable gains for the year are less than the Annual Exempt Amount (AEA). See HMRC's website for details of the current AEA. HM Revenue & Customs: Capital Gains Tax: the basics.
  • Their share of the proceeds from the sale of shares by the club in the tax year, together with any other proceeds from the disposal of other assets, is less than four times the AEA.

If a member does not normally complete a Self Assessment return and they have income or gains to declare they will need to register for Self Assessment.

Read more on how to register

Do I still have to declare my share of any gain arising from a disposal of shares held by the club even though the gain has been retained for re-investment rather than being distributed to me?

Yes, club members will be chargeable to tax on gains whether such gains are retained by the club for re-investment or distributed to club members.

Can I start a club with some friends and transfer shares that I already own into the club?

If you do this, you could incur an immediate tax liability if the value of the shares has gone up since you originally acquired them. This is because the transfer to the club is treated as a disposal of an interest in the shares to the other club members, because you would no longer own the shares absolutely, but would own them jointly with the other club members. The shares would have to be valued at the transfer date to establish the amount of your gain or loss for tax purposes.

What are the tax consequences if I leave a club?

When you leave, the club will pay you the value of your share of the club's investments. And the occasion of your departure represents a disposal of your share of those investments for Capital Gains Tax purposes. To calculate the chargeable gain on this occasion, you will need to deduct from the amount you receive from the club the total of:

  • the sums you have paid into the club from time to time (together with any indexation allowance up to 5 April 1998 relating to those payments)
  • the amounts of income (net of tax or tax credit) and gains allocated to you for each year you were a member, adjusted for
  • any losses allocated to you each year, and any sums paid out to you by the club in the past

Can an investment club only invest in shares and securities traded on the London Stock Exchange?

No. HMRC has no rules regarding the nature of the investments made by such a club. Generally, funds are invested on the London Stock Exchange, but they can also be invested in other assets, including foreign shares and securities, or they can be held on deposit in a bank account.