Capital Gearing Share Discussion Threads

[jeffian] 22/5/2020 13:24

I have just had a rather unpleasant shock, although this may come as no surprise to the thread experts. My wife held shares in a family company from way before 1982. That company was taken over in 1998 for shares and cash and the acquiring company has itself now been taken over in a cash-only bid. We had constructed a spreadsheet in 1998 to establish the base cost of the shares, starting with the known March 1982 value and adjusting for various transactions - additions, disposals, Rights issues and so on - including, of course, indexation. I am aware that indexation was frozen at 1998 and removed in 2008 but, having had the calculations back from my accountant, I wasn't aware that the indexation element of the 1998 cost was actually withdrawn and the base cost for CGT purposes goes back to the cost of the original holding. This smacks of retrospective taxation, surely?

[stasper] 21/5/2020 09:19

zangdook, no, it is not a spread betting account. It only deals in stocks. In fact, it is quite a standard margin account that almost any broker will provide.

[zangdook] 21/5/2020 08:48

This may be completely irrelevant, but if the margin account is a spread-betting account, as I understand it it's not taxed the same way as regular share dealing. I don't know enough to go any further.

[orchestralis] 21/5/2020 07:26

It all sounds a far to complicated way of making money

[stasper] 21/5/2020 07:15

Update: As I thought, I didn't get any useful help from Interactive Brokers. Their tax infrastructure is US oriented. In the meantime, it has dawned upon me that with a margin account, when you buy a share registered in the US on margin, you borrow the USD needed, so effectively you sell USD short. Ergo, the computation of foreign currency gains and losses includes (maybe quite heavy) short selling of USD. So, with margin accounts in foreign currency, what is really needed is a CGT calculator that can deal with short selling. In my case, a possible complication is that in the end of the tax year I still have open short positions in USD. Standard calculators do not deal with short selling and I don't know how to treat unmatched open short positions. Any help around? Gengulphus perhaps?

[picardy] 18/5/2020 21:04

Gengulphus - thank you so much for your answers and example computation. Much appreciated!

[stasper] 17/5/2020 14:08

Orchestralis, thank you very much for your suggestion. I will ask Interactive Brokers, but I don't expect much from them. They have lots of info about US tax on their site, but not about UK CGT. But if anyone here has a margin account with them and has faced the problem before, please share your experience. The following site hxxps://timetotrade.eu/cgt_uk.php provides an application that claims it can handle CGT for foreign stocks, including currency variations, but you have to open a pro trading account with them at a steady cost of 50 GBP per month just to get access at the calculator... and I am not sure it can handle margin accounts, so this is out of the question. On the other hand, calculators like CGTcalculator can handle the stock disposal part if you feed them with the acquisition and disposal prices in GBP (doing the conversion yourself using the prevailing exchange rates at the time of acquisition and disposal), but can't handle the currency acquisition and disposal part, as far as I can see. If anyone knows of an appropriate calculator that can do the job, they are most welcome.

[orchestralis] 16/5/2020 16:29

I would seek some advice from the interactive broker. Surely they have reports/tools that can calculate the cgt. This can't just be affecting you.

[stasper] 16/5/2020 16:17

My daughter decided in May 2019 to invest an amount of 44,000 GBP into an Interactive Brokers margin account and, on my advice, has been dealing exclusively in US listed stocks. During the tax year 2019-2020 there were around 200 positions opened and closed. Because of the stock market crash in February, there is an estimated net loss of 4,000 GBP which she intends to report in her tax return. I am now trying to help her with her CGT, and we are both finding the situation quite complicated. Fortunately, we found excellent advice in this forum, for which I am grateful to the members and especially to you, Gengulphus. At this point, and having read the relevant posts, I think I understand pretty well the part which has to do with the disposal of the stocks themselves, including the same day and the 30 days rule. I have familiarized myself with the standard calculators and I am pretty confident that I did this part of the calculation correctly. And then comes the acquisition and disposal of the US currency during the buy and sell transactions. I read very carefully the excellent example posted by Gengulphus 8 years ago (on 28 Feb 2012). However, I still have questions: 1) I have the problem of applying the suggestions in the post to a MARGIN account. With a margin account, purchasing shares does not reduce the already existing capital, but is done on borrowed capital, and there I cannot see how to apply Gengulphus's suggestions. Can you please help? 2) There are about 200 individual sales of stocks during the tax year. Supposing that we solve the problem of how to deal with the foreign currency, I guess there will be an equal number of disposals of foreign currency, resulting in more than 400 total disposals. Am I correct in this? And with each disposal having an average value of 8,000 GBP, we would have to report a figure of around 3,200,000 GBP for the total proceeds. All this from an account which started with 44,000 GBP and ended up with 40,000 GBP. Won't this look strange to HMRC or are they used to encountering such large numbers from moderate sized accounts? I would appreciate any help I can get, especially on the first question, but also some insight on the second one. Thank you.

[zangdook] 12/5/2020 09:29

Thanks for the reply. In fact it was 1p for the whole shareholding, not per share. The transfer was made well after the 30-day limit, as they were not paying attention. However, I shall probably not pursue it (at present) because the aggravation of dealing with sleepy and unhelpful stockbrokers outweighs the small danger that any eventual returns will push me far into CGT territory.

[gengulphus] 12/5/2020 08:38

zangdook, That reminds me of something which happened to me a couple of years ago: A company in my ISA was delisted and its shares were transferred out to my non-ISA account, and the broker simply listed the entire shareholding at a purchase cost of 1p (without explanation - when I queried it they asked me "what price do you want us to put?"). Is that correct practice when a delisted company is de-ISAed, or would the cost be the closing price on the last day of listing, or something else? I doubt there's been any sort of regular trade in the shares since delisting. I don't know exactly how the delisted company is supposed to be valued in those circumstances. But what I do know is the following link: https://www.gov.uk/guidance/how-to-manage-an-isa-investment-fund#withdrawals-investments-stocks-shares-lifetime It starts: "On the transfer to an investor of an investment, the manager must provide the investor with details in writing of the market value of the investment as at the date of withdrawal." and it goes on to give some details of how the ISA manager should determine that market value in various circumstances. I.e. it's the ISA manager's responsibility to determine the market value as at the date of withdrawal and to tell you what it is - not your responsibility to tell the ISA manager what it is! So their "what price do you want us to put?" rather smacks of them shirking their job... However, I should also note the following link: https://www.gov.uk/guidance/stocks-and-shares-investments-for-isa-managers#changes-to-investments-held-in-a-stocks-and-shares-isa A few paragraphs in, it says: "Where the new investments are not qualifying investments, managers must, within 30 calendar days of the date on which they became non-qualifying investments, either: * sell them (in which case the proceeds can remain in the stocks and shares ISA) * transfer them to the investor to be held outside the ISA." The point that strikes me about that is that the date of the transfer out is up to 30 days after the delisting. So it can have happened on a date when there was no longer any market for the shares, and I would guess it almost certainly did. That obviously makes the market value of the shares much harder to determine - though it will probably be considerably lower than the last market price before the shares were delisted simply as a result of unlisted shares being much harder to market. So assuming you've been given the figure of 1p/share in writing (which I believe covers emailed documents as well as those printed on paper), the way I would treat the situation depends on whether that seems at all realistic as a share valuation, bearing in mind the fact that as an unlisted share, its valuation could be several times less than it was as a listed share. If it does, I would simply use it, make certain that I keep that valuation among my records so that if HMRC question it, you have evidence that that's the valuation the ISA manager gave you. If it doesn't seem to be a realistic valuation, then I would be inclined to raise the question again with the ISA manager, pointing out that HMRC say the obligation to provide it is on them, not you - and be prepared to raise the issue to a formal complaint or even to the Financial Ombudsman if they refuse. But I say that I would be inclined to do that, not that I would definitely do it, because even if 1p/share is clearly far too low (making the eventual gain and the CGT payable too high), the amount of money involved might not be worth the potential hassle. That depends on the number of shares involved, how big the undervaluation is, and how much money you feel is worth making a fuss about - not matters I can judge for you! Gengulphus

[zangdook] 01/5/2020 13:48

That reminds me of something which happened to me a couple of years ago: A company in my ISA was delisted and its shares were transferred out to my non-ISA account, and the broker simply listed the entire shareholding at a purchase cost of 1p (without explanation - when I queried it they asked me "what price do you want us to put?"). Is that correct practice when a delisted company is de-ISAed, or would the cost be the closing price on the last day of listing, or something else? I doubt there's been any sort of regular trade in the shares since delisting. The company, ERET, is being liquidated, albeit rather slowly, and there may be some return when the liquidation is finished.

[gengulphus] 30/4/2020 20:11

Yes, indeed. Shares held in SIPPs and ISAs are effectively invisible to CGT, so when shares are taken out of an ISA (either compulsorily if they've ceased to be eligible for holding in an ISA, or because the ISA holder has voluntarily withdrawn them) they effectively pop into existence in the ISA holder's possession as far as CGT is concerned. CGT treats that as an acquisition at market value on the date they come out of the ISA (*), and any loss between then and any subsequent disposal can be claimed, including ones that are deemed to have been realised because of a negligible value claim. Note that one of the conditions for a negligible value claim to be valid is that the shares must have become of negligible value during your period of ownership - i.e. they've got to have been of non-negligible value when they came out of the ISA and subsequently become of negligible value. And ISA managers aren't supposed to immediately remove shares from ISAs is they've ceased to be eligible for holding in an ISA, but to give the ISA holder a period (30 days IIRC) to decide what should be done with them. So exactly what can be done with negligible value claims may well depend on exactly what happened and when. (*) By the way, ISA managers are supposed to tell the ISA holder at the time what that value is - so if anyone has had that happen to them and not already had the market value on the date of withdrawal from their ISA manager, ask for it! David (aka Gengulphus)

[gengulphus] 30/4/2020 19:34

Gooner1886, Whats percentage of cgt on trading account ? 10% The standard CGT rate on gains exceeding the CGT allowance is: * 10% on a first slice of them, that slice being the amount of your basic-rate Income Tax band that you haven't used against your income. * 20% on the rest of them. Those rates apply to most assets, including shares and other securities whether or not they're held in a trading account. The exceptions are (a) that CGT doesn't apply at all to assets that are exempt from CGT, such as those held in ISAs and SIPPs and most 'chattels'; (b) residential property, which is taxed at rates 8 percentage points higher, i.e. 18% and 28% in place of 10% and 20% respectively in the above. So assuming tax-exempt assets and residential property are not involved: * In the case that you're a higher-rate or additional-rate taxpayer as far as Income Tax is concerned, you've clearly used your entire basic-rate band against income, and so the answer that applies to you is 20%. * In the case that you're a basic-rate taxpayer as far as Income Tax is concerned, you've also certainly got some unused basic-rate band left, and so the answer that applies to you is 10% for some or all of your taxable gains, 20% for the rest (if any). Just how much gets 10% depends on how close you are to the higher-rate threshold: little if you're close to it, lots if you're a long way below it. * In the case that you're a non-taxpayer as far as Income Tax is concerned, the answer that applies to you is 10% for gains up to the your basic-rate band, 20% for any further gains beyond that. Gengulphus

[1jpb] 30/4/2020 16:58

Hi David, Thank you very much for your reply. After making some more investigations, I have found that any shares that were held in an ISA but then subsequently moved out due to delisting regs etc into a “fund and share” Acc, could turn be claimed (if any value at all after the move)as they are no longer held in a tax wrapper. I have had a couple of these, The value after move (effectively sold from ISA and rebought at price of delist into Fund and Share Acc) (HL) Obviously no where near the original price, but every little helps.

[gengulphus] 30/4/2020 16:38

1jpb, I have a question about fling a Negligible Value Claim on my SA return. I have held a few shares in both ISA and SIPP that have gone south. I have heard conflicting reports about writing these losses off for future CGT? I did even call HMRC and was told to file the losses as “they were still capital losses”, I’m not convinced the chap I spoke with was confident in his reply. Any advice or links to HMRC guidelines on this regarding ISA/SIPP NVC’s would be a massive help. I'm pretty certain your lack of confidence in the reply you got from HMRC is correct. I'm not certain whether you're technically allowed to file a negligible value claim for the shares concerned - it may well be that you are. But look at what HS286, the HMRC Helpsheet about negligible value claims says about them: "This helpsheet explains how to make 2 different types of claim: • a negligible value claim allows you to treat an asset as being disposed of, even though you still own it - that disposal will normally result in a loss, which needs to be notified to HMRC • ... ... 1. Negligible value claims If you own an asset which has become of negligible value in your ownership then you may choose to make a negligible value claim so that you’re treated as having disposed of an asset even though you remain the owner." The important thing there is that a successful negligible value claim does not directly realise a loss. It only does so indirectly, by causing you to be treated as though you had disposed of the asset. As it says, being treated as though you'd disposed of an asset normally causes you to realise a loss - but that "normally" implies that there are exceptions for cases when a sale would not normally cause you to realise a loss. And holding the shares in an ISA or SIPP are two of those cases... So basically, I'm uncertain whether you're technically allowed to make a negligible value claim when the shares are in an ISA or SIPP. But even if you are and the claim is successful, it will be a complete waste of time because it won't enable you to claim any allowable losses. And if you're not allowed to make the negligible value claim, it could get you into trouble with the taxman (though I'd guess only mild trouble of the slap-on-the-wrist variety). To summarise, I think making a negligible value claim about shares in an ISA or HYP is pointless at best, and claiming losses on shares in ISAs and SIPPs is not allowed, regardless of whether the shares have had a negligible value claim made on them or not. David

[gengulphus] 30/4/2020 15:58

Sorry about the formatting of the computation in the last post! Here's another attempt... Disposal proceeds: 30/04/2020 10,000 XYZ shares sold @ 135p £13,500.00Allowable costs: Acquisition costs 01/05/2020 10,000 XYZ shares bought @ 125p £12,500.00 Incidental costs of acquisition Stamp duty £62.50 Broker commission £10.00 PTM levy £1.00 Incidental costs of disposal Broker commission £10.00 PTM levy £1.00 ========== £12,584.50 ==========Gain (realised on 30/04/2020, i.e. date of sale) £915.50 Gengulphus

[gengulphus] 30/4/2020 15:47

Picardy, Can someone please explain the bed and breakfast tax rule in the simplest terms. So, for example I sell 10,000 XYZ shares for 135p and buy them tomorrow for 125p and continue to hold into the new tax year. How is the gain on this going to be calculated? Many thanks in advance! Sorry I haven't been around here recently... The answer is that CGT treats it as though the shares you buy tomorrow are the shares you sell today - it simply doesn't care that you'd have required time travel or special arrangements about settlement periods for them to actually be the same shares. So your CGT computation ends up as something like: Disposal proceeds: 30/04/2020 10,000 XYZ shares sold @ 135p £13,500.00 Allowable costs: Acquisition costs 01/05/2020 10,000 XYZ shares bought @ 125p £12,500.00 Incidental costs of acquisition Stamp duty £62.50 Broker commission £10.00 PTM levy £1.00 Incidental costs of disposal Broker commission £10.00 PTM levy £1.00 ========== £12,584.50 ========== Gain (realised on 30/04/2020, i.e. date of sale) £915.50 This computation is the same for any case where shares are sold and then the same type of share is bought on any of the next 30 days. Which tax years the dates fall in doesn't affect the calculation of the gain, only which tax year's tax return you need to put the gain in - it's always the tax year containing the date of the sale. By the way, the same computation of the gain also applies if the shares are bought later on the same day as the sale - but it's done under the same-day rules, rather than the 30-day rule (aka the bed-and-breakfast rule). One does however sometimes need to distinguish carefully between the two rules in more complex cases, because they can lead to different matchings up of sales to purchases. Gengulphus

[gengulphus] 30/4/2020 15:42

(duplicate post deleted)

[waterloo01] 24/4/2020 07:47

yes, yes, ...yes, it's called bed and isa and you have to record the sale in a trading account for profit/loss. The 1st £11k of profit is free of any GCT, assuming you have not already used it. As such you would have no tax on £1000, but still need to report it on your tax rtn

[gooner1886] 24/4/2020 05:42

Whats percentage of cgt on trading account ? 10%

[yes yes] 24/4/2020 05:39

thinking of transfering a very small amount of shares in a company(less than £1000) into my ISA a/c. I think the techinal phrase is 'bed and isa'.. whats the tax implication? Does the disposal from the trading a/c have to recorded as an official disposal? Any advise on this is appreciated

[waterloo01] 14/4/2020 20:43

You don't pay GCT on either SIPP or ISA, just trading accounts and yes carried it forward as a loss or offset any profits over the GCT level. Edit: Unfortunately you can't take or carry over any losses from ISA's or SIPP's against tax as there is no tax in either wrapper.

[1jpb] 14/4/2020 20:36

Thanks Sonofabajosinger, you see my confusion, you think not, but my previous conversations thinks yes....

[1jpb] 14/4/2020 20:35

Thanks Waterloo01, were the losses held in ISA/SIPP, and did you write them down as capital losses for future CGT relief?