Capital Gearing Share Discussion Threads

[alan russell] 13/6/2011 11:19

I posed this question back in March:
>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>

Here's a question for the experts!

The circumstances are that two properties are owned jointly by two persons. They wish to simplify their holdings by exchanging interests so that each person wholly owns one property. This will occur during 2011/12 tax year. So will they incur CGT on the disposals of the half shares?

Roll-over relief appears to allow the option of "carrying forward" the gain until ultimate disposal. Pages CG73000 of the manual and following deal with this. They fulfil the conditions set out in page CG73002 of the manual.

The example set out in page CG73008 specifies that the persons are not "connected persons". The two persons in this instance are "connected persons" in that they are spouses of brothers.

The manual makes the distinction in that the example applies only to persons who are not connected but gives no indication (at least that I can find) of what happens if the persons are connected. Accordingly can connected persons can avail themselves of this relief?
>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>

I had written to HMRC, no response, tried phoning again and again. Eventually got through to be told this relief was only available to non-connected persons so forgot my cunning plan. Recently a reply arrived to my letter saying connected persons could make use of this relief! Might be useful to someone to know.

[cwa1] 13/6/2011 11:01

Hi

Wonder if anyone can help?

I bought some Independent Resources Group(IRG) through Selftrade in my ISA. I hadn't noticed they were an AIM share and assumed that I wouldn't have been allowed to buy them in an ISA.

Now Selftrade have discovered the mistake and have given me the option of selling them or shifting them to my dealing account free of charge.

My question is: at what price would they be considered to be "bought" for CGT purposes if they were simply transferred to my dealing account? The original buying price, or the price at the date of transfer(NB: They are NOT being sold and rebought if I understand Selftrade correctly).

I've made a loss on them since they've been in the ISA so the original buying price would be very handy for me but I don't suppose it's going to work that way!

If any further information is required please feel free to ask.

Can anyone advise on this one? Any advice much appreciated.

[antrant] 09/6/2011 07:21

Thanks for your good advice MIATA and Gengulphus.

[gengulphus] 08/6/2011 17:17

Antrant,

I am about to fill in a CG34 to get a valuation check on a deemed disposal of shares (IVE and IDD) worth negligible value. This is ensure that if I enter the losses on my return to work out my capital gains liability they will hopefully be accepted and offset. If I have no capital gains liability but I do have income (dividends from a limited company) can I offset these capital losses against my current year income? If so I may be owed money if claimed all in one year as the losses are large and my dividends will be low...

The general answer is no, you cannot offset capital losses against income. There are some limited exceptions as described in - note that they only apply to shares you have subscribed to (i.e. bought them from the company when the company issued them, not bought them on the market) and that there are significant conditions on the company, mainly restricting it to being a very small trading company.

Other CG34 Questions:

What date do I enter for 'date of disposal' if I still own the shares but they are worth nothing

Which will always be the case for a negligible value claim - its whole purpose is to create a deemed disposal when you still own the shares and there has therefore not yet been an actual disposal, and it can only be done when the shares have become worth nothing.

The answer is that you enter the date that you want your deemed disposal to take place, subject to the limits on making negligible value claims. They're in the same link; a quick summary is that:

* The date you claim to have made the deemed disposal must be in the same tax year as the date that you actually make the claim or one of the two preceding tax years.

* Both on the date that you make the claim and on the date you claim to have made the deemed disposal (if different), you must still own the shares and they must have become of negligible value during your ownership of them (i.e. changed from being of non-negligible value to being of negligible value).

Note that the date that the shares actually became of negligible value might not be a legitimate date to use on the claim, if it is three or more tax years ago. Even if it is, you might want to use a more recent date, e.g. because the loss on the deemed disposal is going to be of more use to you if it is treated as being realised in a more recent tax year.

For share valuations full accounts are required for 3 years up to the valuation date. I held the shares through Barclays Stockbrokers, do I just provided the valuation statements I received on a 3 monthly basis from Barclays? Is that enough evidence?

No - it's asking for the company's accounts, not for the market value of your shares. They're generally part of its annual report and accounts, often just called its "report". They might still be available from the company website if the company collapse is recent; failing that, as MIATA has said, the RNS announcement of the company's results for the year might well be acceptable, though strictly speaking most of them are not actually its formal accounts. If not, the ultimate fallback is Companies House - all companies have to submit their accounts to Companies House each year.

Gengulphus

[gengulphus] 08/6/2011 16:46

HugePants,

Does anyone know the tax treatment when a company returns a proportion of its cash balance by way of a capital repayment? I tried googling but couldn't find anything.

Depends on how the company does it. The usual possibilities are that it is:

* a dividend, subject to Income Tax;

* a capital distribution, subject to CGT and with the possibility that the simpler "small" capital distribution treatment might be available; or

* a purchase of shares from you by the company, subject to CGT and without the "small" capital distribution treatment being available.

To resolve which it is for a UK company (foreign companies go beyond my experience or knowledge), I would normally check the company's RNS announcements about the return of capital, and look to see whether it has produced a shareholder circular about it. If it has produced a shareholder circular about it, there is normally a section in that circular describing the UK tax treatment; if not, I would normally expect something in the RNS announcements to describe the payment as a "dividend" (most likely) or describe it as a "capital distribution" or indicate that you get it by selling some of your shares to the company. If neither of those resolved it, I would contact the company's investor relations department to ask whether they can give any guidance as to the nature of the payment. (Take care to keep the question you ask restricted to asking what the nature of the payment is for tax purposes and not to ask what you should do about it - the latter is liable to be interpreted as a request for financial advice, which they're not allowed to give.)

Gengulphus

[hugepants] 08/6/2011 09:30

Extrader thanks.

[miata] 08/6/2011 09:19

Quick answer:
- No.
- Enter the date you believe they became worthless
- No, if accounts were produced they are probably available,
eg:

[antrant] 08/6/2011 08:51

I am about to fill in a CG34 to get a valuation check on a deemed disposal of shares (IVE and IDD) worth negligible value. This is ensure that if I enter the losses on my return to work out my capital gains liability they will hopefully be accepted and offset. If I have no capital gains liability but I do have income (dividends from a limited company) can I offset these capital losses against my current year income? If so I may be owed money if claimed all in one year as the losses are large and my dividends will be low...

Other CG34 Questions:

What date do I enter for 'date of disposal' if I still own the shares but they are worth nothing
For share valuations full accounts are required for 3 years up to the valuation date. I held the shares through Barclays Stockbrokers, do I just provided the valuation statements I received on a 3 monthly basis from Barclays? Is that enough evidence?

[extrader] 08/6/2011 07:19

Hi HP,

As I understand it, that's precisely the position !

See last year 'dividends' from EML and URU : a large income receipt (I normally have little/no income to use agst pers. allowance) accompanied (post subsequent sale) by a very useful capital loss to offset agst gains elsewhere....I hope zangdook will be along later with the specifics.

ATB

[hugepants] 07/6/2011 22:11

I may be wrong but I think its treated as income (effectively a dividend)



Then again it can't be taxed as income surely? That wouldn't make sense. ie. you could get a huge payment and have to pay income tax even though you may be well under-water on the share purchase.

[hugepants] 07/6/2011 22:04

Hi
Does anyone know the tax treatment when a company returns a proportion of its cash balance by way of a capital repayment? I tried googling but couldn't find anything.

[gengulphus] 07/6/2011 12:12

2Toadstool,

Basically yes, as david77 says.

But understanding the rules yourself helps! For example, you could plan when to do a repurchase by trial and error using the calculators - just try out later and later dates in the calculators' input until they switch to giving you a gain based on the original purchase price. But it's a lot less work if you simply know that you've got to wait until the 31st day after the sale...

Gengulphus

[david77] 07/6/2011 07:33

They should - and you can compare results from the two free on-line calculators to give you added confidence in the figures produced.

[2toadstool] 07/6/2011 04:48

would i be right in saying the cgt calculator works out everything correctly anyway (in terms of matching), if buy and sell same stock within 31 days? (if you traded a stock couple of times within this period and you know what the overall gain or loss was and its the same number per cgt calculator than)

so even if your not 100% sure on this rule ,the cgt calulator workings will keep you straight?

tia

[gengulphus] 07/6/2011 04:18

strow,

It's the 30-day rule, not the 28-day rule (unless you're talking about something I haven't heard of!). Could be important if you're trying to repurchase as soon as possible without running into it: you need to wait until at least 31 calendar days after a sale before repurchasing if you don't want the rule to apply.

Also, MIATA's reply is a bit ambiguous, because the "if you do" can be read either way. So just to make certain you've got it the right way around:

* If you repurchase 30 days or fewer after you sell, your sale is "matched" to the repurchase and so you realise a gain or loss based on the sale price minus the repurchase price.

* If you repurchase 31 days or more after you sell, your sale is "matched" to the original purchase and so you realise a gain or loss based on the sale price minus the original purchase price.

For example, if you were to sell 1000 shares today (June 7th) at £10 each that you had originally bought for £5 each, and repurchase them at some point in the future for £10.25 each, then you would realise a gain of £5 per share if you repurchased them on July 8th or later, but a loss of 25p per share if you repurchased them on July 7th or earlier (in each case adjusted for trading costs).

Gengulphus

[strow] 04/6/2011 23:02

Miata-thanks again-your help is always invalueable.

[miata] 04/6/2011 19:37

No. Just that HMRC will assume that if you do the original purchase cost applies for CGT.

With ISAs, SIPPs etc this rule is easy to circumvent.

Details:

[strow] 04/6/2011 19:01

Can anyone help? I am confused about the "28 day rule" and what it means exactly.
Does it mean that having sold some shares in a stock,that i am not allowed to repurchase the same quantity of those same shares within 28 days?? TIA

[ndogg] 04/6/2011 11:17

Thanks Gengulphus.

[gengulphus] 03/6/2011 17:16

Just leave it and only produce the evidence if they ask for it. The general rule is not to send in stuff unless the instructions for the tax return say to do so, e.g. the instructions for the Capital Gains Summary pages saying that you must accompany them with your computations of the gains and losses, and even then only send them what they ask for (i.e. send your computations, but not the original contract notes that they are based on).

In the case of Gift Aid, the donations are reported on the main tax return, and the instructions for it ( ) do not say to accompany it with evidence. So don't do so - keep the evidence so that you can produce it if requested. Don't rely on the taxman retaining bits of paper he hasn't yet asked for... Nor indeed ones that he has asked for - if he asks you for the evidence, send it in but take a copy first!

Some professionally-done tax returns I have seen do attach "taxpayer schedules" of items such as interest, dividends and Gift Aided donations to charity. Those are just lists breaking down the totals in each box - such an amount given to charity A, another amount given to charity B, etc - not the original evidence. I don't believe they're required, but they're clearly acceptable if you want to produce them, and I believe they are useful in two ways: firstly, as a reminder kept with the tax return (because they are actually part of the tax return!) of what went into each total, and secondly, as a way for the professional drawing up the tax return to explain to the client how on earth the figures were arrived at from what the client supplied. They might also forestall some enquiries from the taxman - but I wouldn't bet on it!

Gengulphus

[ndogg] 02/6/2011 23:00

Gengulphus you were correct, I completed the online assessment for CGT and basically got 10% relief (28% higher band less 18% lower band)on the Gross amount I gave to the charity ie. My original amount plus the 25% Gift Aid!!

I haven't submitted it yet but was wondering if I should attach the Charity Donation + Gift Aid receipts with the assessment or should I just leave it and only produce the evidence should they ask for it?

[gengulphus] 27/5/2011 08:50

Ndogg,

I donated a fair bit last summer and was wondering is it any point claiming Gift Aid on those donations because as far as I can tell only the higher rate 40% Income Tax payers get relief on Gift Aid? Whereas I'm in the 28% CGT bracket!!

All payers of Income Tax and/or CGT get relief on Gift Aid donations, but there are two different mechanisms for providing that relief:

* The first is that the charity claims 25% of the donation off the taxman. This is designed to reclaim the basic-rate tax and finishes the job of reclaiming the tax in straightforward cases involving basic-rate Income Tax payers. E.g. if you're a basic-rate taxpayer and you earn £1000 of gross pay that you would like a charity to have, you donate £800 to the charity (i.e. that £1000 with 20% basic-rate tax taken off) and the charity reclaims 25% of the £800 donation off the taxman, which gives it the extra £200 needed to make up the £1000 you wanted to donate, that you have paid or will pay in basic-rate tax on the £1000.

* The second is via your tax return. It's done by increasing your basic-rate Income Tax band by the grossed-up amount of your donation (i.e. £1000 in the above example, not £800), which typically removes that amount of income from being taxed at higher rate and instead makes it be taxed at basic rate, and so reduces your tax bill by the difference between higher and basic rates on the gross amount (which would be £200 saved by the £1000 being taxed at 20% rather than 40% in the above example).

I say "typically" because your tax situation can change the tax saving in a number of ways. One very intentional one is that if you're only a little way into higher-rate tax before the donation, the saving is limited to the amount of higher-rate tax you would have paid. For example, with the same £800 actual donation, £1000 when grossed up by the basic-rate tax reclaimed by the charity situation as described above, if you were only £500 into higher rate before the donation, then only the first £500 of the expansion of your basic-rate band actually reduces your tax bill and the other £500 remains unused because your income is then all being taxed at basic rate.

If you're a basic-rate taxpayer and your capital gains fit within your unused basic-rate band even before the donation, the expansion of your basic-rate band doesn't change your tax bill at all. So basically the situation is that all taxpayers get the tax relief, but you only need to do anything to claim it if you're something other than a completely straightforward basic-rate taxpayer.

There are other less intentional cases. For example, the rather weird notional-tax-credit-and-special-tax-rates system we have for dividend taxation interacts with it to give a slight improvement on the overall tax relief in suitable circumstances. E.g. if the £1000 expansion of your basic-rate band moves £1000 of taxable dividend income from being taxed at higher rate to being taxed at basic rate, that saves you the difference between the 10% basic rate for dividend income and the 32.5% higher rate for dividend income on that £1000, which is a higher-rate tax saving of £225 rather than the normal £200. I don't think that's very intentional - it's just a side-effect of various taxation rules that is too minor to justify the extra complexity that would be needed to avoid it happening.

Anyway, to get to your particular situation at last, I think that the expansion of the basic-rate band will apply as normal and so will increase the amount of capital gains you get taxed at 18% rather than 28% by the grossed-up amount of your donation. So that same £800 actual donation, £1000 when grossed up by the basic-rate tax reclaimed by the charity situation would result in a £100 saving on the CGT calculated on your tax return as well as the £200 tax reclaim by the charity. (However, I should emphasise that I don't know this for certain yet - it's consistent with how Gift Aid generally works and I haven't seen anything saying it works differently now, but I haven't yet seen positive confirmation of it either.)

Gengulphus

[miata] 25/5/2011 21:29

Making sure you've paid enough tax to use Gift Aid

You can use Gift Aid if the amount of Income Tax and/or Capital Gains Tax you've paid in the tax year (6 April one year to 5 April the next) in which you make your donation is at least equal to the amount of basic rate tax the charity or CASC is reclaiming on your gift. If you make a number of Gift Aid donations, you will need to consider the tax you've paid on each donation on an accumulative basis. If you don't pay enough tax you may be required to pay any shortfall in tax to HMRC.

You don't necessarily have to be working to be paying tax. Apart from tax on income from a job or self-employment, the tax you've paid could include:
tax deducted at source from savings interest
tax on State Pension and/or other pensions
tax on investment or rental income
Capital Gains Tax on gains

But only UK tax counts, so if you only pay tax outside the UK you won't be able to use Gift Aid.

How to check if you've paid enough tax
To work out if you've paid enough tax to cover your donations, divide the donation value by four. For example, if you give £100 in a particular tax year you will need to have paid £25 tax over that period. (£100/4 = £25). (Note that this calculation is based on the basic rate tax of 20 per cent)
If you don't think you've paid enough tax this year, you may be able to carry back your donation to the previous tax year. See the later section 'Carrying back Gift Aid donations to the previous tax year'

[ndogg] 25/5/2011 21:08

Hi guys,

Quick question regarding Gift Aid.

The only money I earn is Capital Gains so no Income Tax related stuff like Dividends or Wages etc.

I donated a fair bit last summer and was wondering is it any point claiming Gift Aid on those donations because as far as I can tell only the higher rate 40% Income Tax payers get relief on Gift Aid? Whereas I'm in the 28% CGT bracket!!

Cheers.

[david77] 25/5/2011 16:18

I would check with your ISA plan manager. Fastrade want the money cleared before they will credit my ISA a/c.