Capital Gearing Share Discussion Threads

[veldt] 11/10/2011 19:55

Thanks very much for the reply. I'll get googling now!

[miata] 11/10/2011 19:37

They are treated as shares (you should hold them in an ISA).

If you Google something like 'Invesco XYZ Corporate bond fund prospectus' you should find confirmation in the taxation section of the prospectus.

[veldt] 11/10/2011 14:37

Hi there, I was wondering if anyone can help me.

I have recently sold some corporate bond Funds and have made some profit. Most of the Funds (such as Invesco, Aegon etc) hold only qualifying corporate bonds in their funds. I see from the HMRC website that there is no CGT on qualifying corporate bonds; does this mean there is no CGT to pay on the sale of Funds that hold a selection of qualifying corporate bonds? Or are Funds treated differently?
Thanks very much in advance for an answer,
Veldt.

[sillyname] 26/9/2011 08:43

Thank you Gengulphus for your comprehensive response. I have indeed learnt more than a few things and like you say, the minor details (i.e. how I word things) is just as important as the numbers themselves.

[miata] 25/9/2011 18:13

No. The date that matters is the date you actually sell them. That defines the tax year. Its your level of taxable income in that year that determines whether you are a basic rate taxpayer and if the sum of your income and capital gains will mean you are charged CGT at 28%.

[2bolty] 25/9/2011 17:24

im trying to get my head round cgt if i bought shares in a co in 2006 lets say at 10p and on 22 june 2010 they were 50p and i hold enough to go over the threshold but i still hold the shares and today they are 90p so do i pay 18% up to june 2010 and 28% there after and i presume you woulkd have to know the price on 22 june 2010 i expect im being thick but would appreciate some plain english advice many thanks

[miata] 25/9/2011 16:55

And just to add some more esoteric detail, REITS often pay non-PID dividends. For example all British Land dividends in 2009/10 were non-PIDs.

[gengulphus] 25/9/2011 16:38

Sillyname,

Salary: £28k
Personal Allowance (for single person: £6475

So taxable income is: £28k - £6475 = £21525

Dividends: £300

So taxable income is: £21525 + £300 = £21825 (this bit I'm a little unsure of i.e. should I be adding the dividends to my taxable income, since the tax on dividends have already been collected)

In principle, you should be adding the dividends and their tax credits to your taxable income - i.e. £21525 + £300 + £33 = £21858, in the same way that you should be adding any interest you receive and the tax deducted at source from it to your taxable income. The tax deducted at source from the interest is later taken off your tax bill as tax that has already been paid, just as tax deducted at source from your salary by PAYE is. The tax credits associated with your dividends are treated similarly and deducted from your tax bill, though there are two slight differences. First, those tax credits are not in fact tax that has already been paid - no tax is actually deducted at source when a dividend is paid (*) but the tax calculation pretends that the tax credit was earned as income (which is why you have to add them to your taxable income) and deducted at source. Secondly, the tax credits can only be deducted from the tax due on the dividends, not from tax due on anything else (this only becomes relevant if your non-dividend income is less than your personal allowance, making some of the dividends untaxed - not the case in your example).

In practice, the system is designed so that as long as you stay within the basic-rate band and have enough non-savings income to cover your personal allowance and starting-rate band, the extra Income Tax due because of interest and dividends increasing your taxable income is precisely counterbalanced by the amount you can deduct from that Income Tax due because of interest deducted at source and tax credits on the dividends. I.e. in such cases, you could leave the interest, the tax deducted at source from the interest, the dividends and the tax credits on the dividends out of your calculation, and you would still end up calculating the correct amount of Income Tax to pay.

But doing the calculation that way does risk mistakes - in particular, if you omit those items from your calculation, you might miss the fact that your taxable income calculated the correct way had gone over the higher-rate threshold and you had higher-rate Income Tax to pay. Also, you would overestimate how much of your basic-rate band you'd left unused, and that could affect whether all your capital gains above the CGT allowance were taxed at 18% or some of them went up to 28%. And I certainly wouldn't present such a calculation to HMRC: doing it the right way is a bit more work to get what may well be the same answer, but doing it the wrong way risks a lot more work if a tax inspector spots it and decides to enquire into what you're doing...

(*) Though note that Property Income Distributions (PIDs) paid by REITs are like dividends in many ways and easily confused with dividends - but for tax purposes they are not dividends. They have 20% tax deducted at source and are treated as property income, not dividend income, with the result that they behave more like bank interest with its 20% deduction at source than like dividends.

Upper limit of the Income Tax basic rate band: £37,400
Less taxable income: £21825
Amount of Income Tax basic rate band available for gains: £15575

The last two figures should be £21858 and £15542 respectively because of having to include the dividend tax credits. Doesn't make any difference on the amount of gains in your example, but would on sufficiently large gains.

Profits from share dealing: £14k (all shares sold in March 2011)
Less CGT Allowance: £10,100
Taxable Gains: £3,900

Gains taxed at 18%: £702

As a real nitpick, the gains taxed at 18% are all of the taxable gains, i.e. £3,900, while £702 is the tax due on them. So I would probably present the calculation as something like:

Taxable gains of £3900 fall within unused basic-rate band, so are taxed at 18%.
CGT due: £702

I doubt it makes much difference - tax inspectors must be quite accustomed to people misdescribing things in that sort of minor way! But my experience is that if I spot a minor error in some work, the person who has done the work may well have made further mistakes in it due to not really understanding it, being habitually sloppy, being over-tired when they did it, or such like. So I tend to look rather harder for anything else that might be wrong... Since that's not a reaction I particularly want to provoke in the taxman, I try to get even minor things like this right!

I should add that I agree totally with the suggestion of doing it online and getting the HMRC system to do the calculations, not least because it will automatically describe the figures accurately from the taxman's point of view. Knowing how to do the calculation by hand is still worthwhile, though, because:

* It provides a consistency check. One of the big dangers with using computer calculations is that one tends to believe what the computer says, when the truth is that the computer will just as happily give you a completely wrong answer if you've made a typo in the data you gave it as a right one if you didn't... Building in consistency checks is a powerful tool against such errors - for example, if you're inputting details of share trades into your computer, you only really need to input four of the five data items (buy or sell), (number of shares), (price per share), (costs) and (final amount of money paid/received) from each contract note, as any one of them can be deduced from the other four. But it's a good idea IMHO to input all five and get the computer to tell you whether they're inconsistent (preferably by something really obvious like using conditional formatting in a spreadsheet to turn the background red), because that way it's highly likely that any typo in any of the data items will be brought to your attention quickly.

Doing at least a rough hand calculation of the tax due and making certain it isn't too different from what HMRC's online system calculates is a similar consistency check.

* Doing "what if?" and similar calculations. E.g. if you're getting to the end of the tax year and want to know how large the capital gains are that you can realise without straying into the 28% CGT rate, I think you need to do the calculation yourself, because HMRC's online system won't start doing this tax year's calculations for you until next tax year...

Gengulphus

[someuwin] 24/9/2011 14:22

Sillyname. If you do it online all the calculations are done for you automatically. makes it a lot easier.

[sillyname] 24/9/2011 13:56

I'm about to fill in my self-assessment forms. I just want to know, do I need to provide calculations to demonstrate which tax band (18%/28%) I'm in for my CGT? Let's assume these are the details:

Salary: £28k
Personal Allowance (for single person: £6475

So taxable income is: £28k - £6475 = £21525

Dividends: £300

So taxable income is: £21525 + £300 = £21825 (this bit I'm a little unsure of i.e. should I be adding the dividends to my taxable income, since the tax on dividends have already been collected)


Upper limit of the Income Tax basic rate band: £37,400
Less taxable income: £21825
Amount of Income Tax basic rate band available for gains: £15575


Profits from share dealing: £14k (all shares sold in March 2011)
Less CGT Allowance: £10,100
Taxable Gains: £3,900


Gains taxed at 18%: £702


Is the above correct?

[joe say] 23/9/2011 08:43

guess with the markets the way they are, this time next year the thread will either be dead, or will be entirely focussed on how to relieve losses !!!

[ntbb] 23/9/2011 08:41

thanks gengulphus

[gengulphus] 22/9/2011 23:03

As spreadbets are not subject to either Income Tax or CGT, and CFDs are subject to CGT, spreadbets are more tax-efficient if you're making profits - all else being equal. As always with tax-saving schemes, though, keep an eye on ways in which all else may not be equal, such as fees changed by the provider...

Can't give more specific advice, though, as you're well out of my area of tax-saving - I tend to work with long-term holdings, relying on (a) the tax-efficiency of dividends; (b) the fact that CGT rates are lower than Income Tax rates; (c) the fact that CGT isn't charged until the holding is sold, so that its effect tends to be reduced for long-term holdings by being deferred a long time (or even got rid of entirely by being deferred until death).

If you're at all likely to be near the upper end of that £10k to £100k range, consider splashing out by spending a few £k on good professional tax advice - it can be well worthwhile, both in terms of assurance that you're dealing with your tax affairs correctly and quite possibly in terms of the tax adviser spotting tax-saving opportunities you haven't. Beware of anything they suggest that looks 'artificial', though - it's their job to bring such schemes to your attention, but if you go into them, you need to go in with your eyes wide open, aware of and willing to accept things that can go wrong with them...

Gengulphus

[ntbb] 22/9/2011 17:22

gengulphus thanks alot, do you know which way to go about the best tax efficent way if lets say you make 10k - 100k a year on cfd or spreadbet

[gengulphus] 22/9/2011 12:57

Spreadbetting winnings are basically classified just like other betting winnings: they're not subject to either Income Tax or CGT, and you don't tell the taxman about them.

The flip side of that is that it works both ways: if they're losses rather than winnings, they cannot be used to offset either income made elsewhere or capital gains made elsewhere.

For completeness, there is the clear exception that if you set yourself up in business as a provider of betting services - e.g. as a bookmaker or as a spreadbetting firm - then the gains you make on your bets with your customers would become taxable and the losses you make on those bets would become offsettable against the gains. They would be taxed by Income Tax if you were acting as a sole trader or as a partnership, and by Corporation Tax if you set up a company to do the business.

And there are also some somewhat murky cases around the borderline of that "bookmakers are taxable on their gambling winnings; ordinary punters are not" distinction. I don't think someone indulging in ordinary spreadbetting is likely to run into them, but if you want to see the taxman's view on such issues, take a look at the various "Betting and gambling" pages accessible from .

Gengulphus

[ntbb] 22/9/2011 11:31

someone plse tell me if im making money on spread betting do i pay cgt and do i have to let tax people know, thanks and also does anyone know tax advisors that deal with this things thanks again

[gengulphus] 21/9/2011 20:37

WOOSTER4,

Probably not relevant in your case, but it's worth mentioning that the same principle applies to offsetting losses. You can set them against the gains that will be subject to the highest CGT rate - and that applies regardless of when during the 2010/11 tax year the losses were realised.

Gengulphus

[loafofbread] 21/9/2011 13:14

Excellent. Thank you.

[wooster4] 21/9/2011 13:05

many thanks

[miata] 21/9/2011 09:02

(10,100-8,000=2,100) (15,000-2,100=12,900) 12900 X .18 = £2322.

If you have gains which are charged at different rates, you need to decide how to use your Annual Exempt Amount. You use it against the gains charged at the highest rates to minimise the tax you owe.

Example
Mr W's total income, after deducting allowances and reliefs is £60,000. In May 2010 he made a first gain of £5,000. This is taxable at 18 per cent. His second gain in February 2011 of £12,100 is taxable at 28 per cent.
Mr W uses his Annual Exempt Amount of £10,100 against the second gain after 22 June 2010 and pays tax on the remaining £2,000 at 28 per cent. He pays tax at 18 per cent on the first gain of £5,000 before 23 June 2010.

[wooster4] 21/9/2011 08:53

just doing my 2010/11 return. Made a capital gain of approximately 23K. After allowing for the cgt allowance, chargeable gain is approximatly £13K. However, of the total capital gain, £15K was made prior to the increase in rates (at 18%) and the balance (£8k) after charged at 28%. How do i allocate the £13K chargeable gain between the 18% and 28% rates - do i apportion it or is there some other approach. Thanks in advance.

[gengulphus] 19/9/2011 08:43

loafofbread,

I am aware that if I hold shares in my name I can transfer them into the name of my wife, and using the original buying price use her CG allowance to offset the gain.

I have built up a worthwhile gain in my CFD account on a certain holding. Has anyone tried to use the above rule within a CFD account, or any advice on a way forward?

The rule that assets transferred to your spouse are treated as being transferred at the total of your costs (so that you make neither a gain nor a loss on them, and your spouse's costs are the same as yours) applies to all assets, not just shares. So things work the same way in that respect for CFDs as for shares - or indeed for bonds, for investment properties, etc.

Gengulphus

[radhaz] 18/9/2011 21:41

Hi david77

I tried using your stonebanks calculator, this time using Opera.
Sure enough after a long wait the program processed all the data - unfortunately the end results were garbage (said I had made a loss of £1.6 million)

Looking at the data it seem the problem is that the number of shares has a comma in which is confusing your prog. The following records are taken from the CGTCalculator format of my Selftrade dealling history...


S 04/01/11 Condor_Resources 39,509 0.0925 12.50 0.00
B 04/11/10 Condor_Resources 39,509 0.02487 12.50 4.911

Feeding the above into your data conversion tool gives..


CONDOR_RESOURCES
04/01/11, S, 39, 50900, 19838.41
04/11/10, B, 39, 50900, 19863.52

Which is clearly wrong.

Any ideas?


EDIT: found a workaround - I pasted my data into Excel, formatted column 5 without 1000s seperator. resaved, pasted into the calculator. Now seems to work well and results are very close to CGTCalculator.

[loafofbread] 18/9/2011 15:38

I am aware that if I hold shares in my name I can transfer them into the name of my wife, and using the original buying price use her CG allowance to offset the gain.

I have built up a worthwhile gain in my CFD account on a certain holding. Has anyone tried to use the above rule within a CFD account, or any advice on a way forward?

TIA

[david77] 17/9/2011 21:10

My conversion prog was rounding to four decimal places so 0.24665 was getting rounded to 0.2467 - that's what was causing the 12.69 commission figure instead of 12.5

It's now rounding to six decimal places and produces the correct 12.50 commission.

S 01/09/10 Iofina 3780 0.24665 12.5 0
B 19/08/10 Iofina 3780 0.2599 12.5 4.91

S 01/07/10 Sunkar 4053 0.1906 12.5 0
B 17/06/10 Sunkar 4053 0.244 5.99 4.94

I don't know why the commission is shown as 5.99 for the last record. Is this correct?