Capital Gearing Share Discussion Threads

[bigwavedave] 14/10/2014 11:59

OK, silly question time. Assuming a person's sole income is from trading shares, what costs, if any, can he include to offset CGT (other than brokers fees)? Can general office expenses, travel/hotel for AGMs, subs to ADVFN etc be included?
HMRC only refers to brokers charges from what I can see.
Thank you.

[red nutter] 10/10/2014 15:58

Thanks Gengulphus - much as I thought!

[gengulphus] 10/10/2014 15:37

I declared cgt share losses with HMRC in 2004/05 and have still to claim these. I anticipate making a profit in excess of the CGT allowance this year.

Am I able to offset my prior losses from 2004/05? or is there a time limit to offset these?

"Claiming" capital losses just means declaring them to HMRC, either in a tax return or in a stand-alone letter. So as long as you mean that and not for instance happening to mention the losses during a phone call, you have claimed them.

Once losses have been claimed, there's no time limit on using them: they hang around until used or until your death cancels everything to do with your CGT.

Note though that it's not your choice whether you use them: they get used when the CGT rules say they get used, even if you would prefer them not to be used. That means:

* In the tax year in which the losses were realised (i.e. 2004/2005 in your case), they get used against gains realised in the same tax year if at all possible, and only start to be carried forward if there are no more same-year gains that you can use them against. (So normally, you only start to carry losses forward if you realise more losses than gains in a tax year.)

* Losses that have been brought forward from earlier tax years get used against gains realised in a tax year if, after using any losses realised in that tax year (i.e. in accordance with the last bullet), the gains are above the CGT allowance for that tax year. If that happens, enough brought-forward losses are used to reduce the gains to the CGT allowance, or all the brought-forward losses are used if there aren't enough to reduce the gains to the CGT allowance.

In the tax years before the 2008 CGT simplifications (i.e. the tax years 2005/2006, 2006/2007 and 2007/2008 in your case), that reduction of gains by brought-forward losses happened before applying taper relief. That could lead to losses having to be wasted offsetting gains when taper relief would have taken the gains below the CGT allowance anyway.

Since the 2008 CGT simplifications, taper relief no longer exists and so that can no longer happen.

So it's not completely automatic that losses realised in 2004/2005 and claimed within the time limit can be used now; they could potentially have been forced to be used in 2004/2005 or (less likely but possible) some of the tax years between then and now. But as long as they weren't, they're still around to be used - and indeed must be used if your net realised gains for the current tax year turn out to be above the CGT allowance, either to the extent of reducing those net realised gains to the CGT allowance or completely.

Gengulphus

[red nutter] 10/10/2014 14:39

Apologies if a silly question.

I declared cgt share losses with HMRC in 2004/05 and have still to claim these. I anticipate making a profit in excess of the CGT allowance this year.

Am I able to offset my prior losses from 2004/05? or is there a time limit to offset these?

Thanks
red

[someuwin] 07/10/2014 22:46

Numpties...

Liberal Democrats plan CGT increases to pay for tax cuts

Last updated: October 7, 2014 9:36 pm

"...Mr Clegg wants to fund an across-the-board tax cut for 29m people by raising the capital gains tax rate for higher earners from 28 per cent to about 35 per cent.

Currently £10,900 a year is exempt from CGT but that would be cut to £2,500 under the Lib Dem plan, raising a further £250m."

[david77] 18/9/2014 17:39

Barclays advice on CGT

[karateboy] 12/9/2014 21:54

Thank you Gengulphus...I will drop my SIPP provider a line.

[gengulphus] 12/9/2014 09:00

karateboy,

About your question 2, I'm fairly (but not absolutely) certain SIPPs remain exempt from Income Tax and CGT for as long as they actually remain SIPPs. But for added certainty, check with your SIPP provider whether the account will remain exempt before actually taking any action to change its status. (Note they cannot give you tax advice - i.e. tell you what they think you ought to do about tax - but they can (and should) give you tax facts about the account they're providing to you. So make certain any question you ask them is a factual one about the account. And if they respond saying they cannot give you tax advice, try again making it clear that you are after facts, not advice - it has been known for inexperienced customer service staff not to know the difference!)

About your other questions, sorry, I cannot help - I don't understand the intricacies of SIPPs beyond my own very simple use of one! And as this thread's subject is CGT rather than SIPPs, it might be a good idea to find a thread about SIPPs and ask your question there...

As a starting point, putting "SIPP" into the EPIC box above finds a number of threads ( ). I haven't checked them out, though - that's your job!

Gengulphus

[karateboy] 11/9/2014 21:25

I have a SIPP which I want to start withdrawing income as soon as I am able to do so from age of 55. I believe I can take 25% of the SIPP value as lump sum tax free. I want to use the Lump sum to help my children to get into property ladder. My questions are..
1.can I open another SIPP account as I am not retiring from my day job yet.
2.is my first SIPP still subject to no capital gain tax as it hopefully grows?
3. Is my first SIPP as it grows, the growth from date of crystallisation will not be included in the life time allowances?
Thank you

[karateboy] 11/9/2014 21:17

I have a SIPP which I want to start withdrawing income as soon as I am able to do so from age of 55. I believe I can take 25% of the SIPP value as lump sum tax free. I want to use the Lump sum to help my children to get into property ladder. My questions are..
1.can I open another SIPP account as I am not retiring from my day job yet.
2.is my first SIPP still subject to no capital gain tax as it hopefully grows?
3. Is my first SIPP as it grows, the growth from date of crystallisation will not be included in the life time allowances?
Thank you

[gengulphus] 10/9/2014 17:36

I'd suggest you post the input data that is producing the error - diagnosing software problems without knowing both the program and the data it is acting on is hard!

Gengulphus

[jrrhya] 10/9/2014 12:35

Buy and sell 277 shares transections in RMG in October 2013 shows error not accepted in input info for CGTcalculator. Any help welcomed.

[royaloak] 21/8/2014 23:38

Thanks Gengulphus

I am so thankful now that most of my dealings are now in ISA's, especially since AIM shares were allowed!

[gengulphus] 21/8/2014 16:27

AVS, sorry had not looked at the thread for a time, I opted for the income option of 110p per share, which I of course had a tax credit of 10% deducted from the gross. ...

Not really - you were given a notional tax credit equal to 1/9th of the gross (where the 'gross' means the money that left the company and was received by you - they're one and the same, no actual money gets diverted to the taxman inbetween). For tax purposes, you're treated as having received both the actual cash and the tax credit as income, basic-rate tax is assessed at 10% on that income, and the tax credit is treated as having paid that basic-rate tax... The words "treated as" in that are important: a notional sum of money can neither be actual income for you nor actually pay your taxes! But it can be treated as doing either or both.

... I did not look too closely at the b/c shares.

So I suspect that you are saying when I sell I will have to reduce my purchase price accordingly?

Yes, though "accordingly" does not necessarily mean by the exact amount of the dividends you received - the calculations involve an apportionment according to market values and so will probably produce a somewhat different answer.

More important, I'm not just saying that you might have to reduce your purchase price for your Ordinary shares if and when you sell them in the future. I'm also saying that you might already have realised a loss on your C / Deferred shares, without actually realising you've done so. Whether you have done so depends on whether the company has redeemed the Deferred shares, and if so, when.

Gengulphus

[royaloak] 21/8/2014 15:20

Gengulphus

AVS, sorry had not looked at the thread for a time, I opted for the income option of 110p per share, which I of course had a tax credit of 10% deducted from the gross. I did not look too closely at the b/c shares.

So I suspect that you are saying when I sell I will have to reduce my purchase price accordingly?

Many thanks.

[smurfy2001] 16/8/2014 15:39

Thanks. I'll try and find out, it's an interesting one!

[gengulphus] 16/8/2014 12:23

If l make a rental loss of say £10K and next tax year make capital gains exceeding the allowance (let's say £2K profit), will l still have to pay tax on the gains??

I don't quite get how the loss carries over is categorized i.e., if it's only allowed to offset income (such as future rent) against the loss???

My suspicion is that the rental loss can only be used against rental profits and not against capital gains, and I don't remember ever seeing anything in my study of the CGT rules indicating that rental losses can be used the way you want to.

However, I cannot give a definite answer - the reason being that I've never had anything to do with property renting (*) and so have no experience of the rules about property income and losses. That also means that it's quite possible that I've encountered a mention of rental losses in my reading about CGT, skimmed over it as irrelevant to what I was interested in and so not remembered it.

Afraid that's the best I can do.

(*) As the property owner, that is - I have rented a property to live in myself in the past, but that gives no insight into the taxation of the owner of the property.

Gengulphus

[smurfy2001] 16/8/2014 12:02

I don't know if anyone knows the answer to this question....

If l make a rental loss of say £10K and next tax year make capital gains exceeding the allowance (let's say £2K profit), will l still have to pay tax on the gains??

I don't quite get how the loss carries over is categorized i.e., if it's only allowed to offset income (such as future rent) against the loss???

Hope someone can help!

[largeronald] 14/8/2014 15:53

Gengulphus - the shares that I'm currently transferring to my wife will (along with all of her current holding) be bed-and-ISA'd in their entirety. Neither she nor I will be buying further shares in the company in the foreseeable future.

The shares that I plan to transfer back to me from my wife were transferred to her originally some 2 years ago. Again no complications will arise from any further buying/selling within 30 days.

[gengulphus] 14/8/2014 15:42

largeronald,

Gengulphus - thanks yet again. Until today, I was under the impression that the "last in first out" rule still applied. My life has just become considerably simpler.

Yes, I remember that feeling of relief when I realised I was rid of that complication! Now if only they'd got rid of the 30-day rule as well, we might actually have something approaching simplicity...

Just in case it matters: note that the transition rule at the start of the 2008/2009 tax year was that all the separately-dated holdings that had not been "matched" to sales before then by the previous rules got merged to form the initial Section 104 pool. In the case of a long-standing holding that you have previously both bought and sold, with some of the sales before the rules change, but haven't previously had to do CGT computations on (e.g. because the gains and losses in that year were too small), you might have to catch up on the previously not-done CGT computations so get the right initial state of the Section 104 pool. That catching-up would be done under the old rules and so might well involve the LIFO rule...

I.e. not everyone has necessarily seen the last of the LIFO rule! :-(

Gengulphus

[gengulphus] 14/8/2014 15:28

Gengulphus - I added this to my last post after you posted your reply to Royaloak, so I don't know if you saw it:

I didn't, so a good thing you let me know!

Sorry - just to clarify the example :

My wife has 10,000 shares in company at an average cost of 50p per share - total £5000
I transfer to her 10,000 shares in company at an average cost of 150p per share - total £15000
My wife now has 20,000 shares at a total cost of £20,000 and therefore the average cost of each share is 100p.

If she now transfers back to me 10,000 shares, then the cost of my holding would be regarded as £10000 for CGT purposes?

Yes - again assuming that you avoid issues with the same-day and 30-day rules.

In particular, I would strongly recommend taking care in any such manoeuvre to make the two transfers at least 31 days apart. Otherwise, you get silly situations such as:

You transfer shares to your wife on July 1st (who didn't own any shares beforehand) and she transfers them all back to you on July 31st.

Therefore you have disposed of the shares on July 1st and re-acquired them on July 31st, the 30th day after the disposal. That makes the 30-day rule apply, and it says that the shares you transfer to your wife on July 1st are treated as being the shares she transfers back to you on July 31st and having their acquisition costs.

She meanwhile has acquired the shares on July 1st and disposed of them on July 31st. That's a perfectly normal disposal of a Section 104 pool resulting from a single acquisition, so the shares she transfers to you on July 13st are treated as being the shares you transfer to her on July 1st and having their acquisition cost.

So what is the acquisition cost of the shares you transfer to her on July 1st? It's the acquisition cost of the shares she transfers to you on July 31st - but what's that? That's the acquisition cost of the shares you transfer to her on July 1st... We're going around in circles: all we know is that the acquisition costs of the shares transferred on July 1st and of those transferred on July 31st are identical, but we cannot tell what either of them actually is!

Fortunately, in that case it turns out not to matter to any other part of the CGT computation what those two acquisition costs are. Things get more complex if your wife started with some shares, or if one or both of the transfers were of only part of the holding, which can result in the acquisition costs of the shares in each of the two transfers depending not just on each other but also on other costs... I'm reasonably certain that all such cases do either end up with pairs of costs that are equal but cannot be determined and don't affect the rest of the computation, or with costs that can be determined mathematically and come out sensibly. But actually resolving them properly is liable to make one's head spin - so I recommend avoiding the need to resolve such things!

Gengulphus

[largeronald] 14/8/2014 15:11

Gengulphus - thanks yet again. Until today, I was under the impression that the "last in first out" rule still applied. My life has just become considerably simpler.

[gengulphus] 14/8/2014 14:56

largeronald,

Your answer also mentions the "Section 104 pool" which I was previously unaware of.

My guess is that there are quite a lot of people who are unaware of it. Well actually I'm quite certain of that, as there are a lot of people who are unaware of CGT rules at all! But I really mean even among those people who are aware of CGT rules, and in particular those are aware of them through occasional past dealings with CGT.

The reason is that they were a feature of the CGT rules up to 1998, when they vanished in the replacement of indexation by taper relief. Taper relief needed to know how long you had held the shares, which meant that shares with different acquisition dates couldn't be pooled (the fact that people would have already pooled past purchases was dealt with by only starting taper relief from the day the change was announced - any shares bought earlier were treated as having been acquired on that day). So Section 104 pools vanished from the system apart from legacy holdings from before the change - and they could basically just be treated as though they had been bought on the day of the change, with the additional feature of having some frozen indexation on them.

The taper relief system proved rather complicated (especially with regard to transfers between spouses, for which a holding could have different acquisition dates for different purposes...) and was eventually abolished in a rather sweeping simplification of CGT in 2008. And at that point the need for the system to track the acquisition dates of sold shares disappeared, and so Section 104 pools were re-introduced...

A couple of years ago, when I was still gainfully employed (I am now retired), a company both I and my wife still have shares in announced a return of capital to its shareholders (which never actually happened as a straightforward dividend) and I was concerned that I (as a 40% taxpayer) would have to pay tax on any dividend received. As my wife was unemployed, I transferred all of my shareholding in said company to her.

Would I be right in assuming that under the Section 104 pool rules, in effect, ALL of the shares now held by my wife would be considered as having the same average value e.g. 100p and if she transferred some back to me, that is the value that would be used for CGT when I sold them in the future?

In effect, yes - assuming that the special cases I mentioned to do with the 30-day and same-day rules don't apply to that transfer back.

By the way, I would generally recommend doing CGT calculations in terms of number of shares and total cost of those shares, rather than number of shares and cost per share. The calculations generally come out easier - for example, when you merge a new purchase into a Section 104 pool, the calculations are just two additions, of the numbers of shares and of the total costs. If you instead keep track of numbers of shares and average costs, it's still just a matter of adding the numbers of shares, but to get the average cost per share of the new pool requires each average cost to be multiplied by the corresponding number of shares, the two products to be added, and that sum to be divided by the sum of the numbers of shares to get the new pool's average cost per share...

Gengulphus

[largeronald] 14/8/2014 14:27

Gengulphus - I added this to my last post after you posted your reply to Royaloak, so I don't know if you saw it:

Sorry - just to clarify the example :

My wife has 10,000 shares in company at an average cost of 50p per share - total £5000
I transfer to her 10,000 shares in company at an average cost of 150p per share - total £15000
My wife now has 20,000 shares at a total cost of £20,000 and therefore the average cost of each share is 100p.

If she now transfers back to me 10,000 shares, then the cost of my holding would be regarded as £10000 for CGT purposes?