Capital Gearing Share Discussion Threads

[roperman] 23/10/2011 12:59

PS: The Company referred to was an AIM company. rm.

[roperman] 23/10/2011 12:39

Gengulphus, thank you for your very detailed reply. The administrator said in last year's letter to shareholders that it is extremely unlikely that there will be any return and as a consequence my shares have a negligible value. He went on to say that his letter can be used as evidence when completing my tax return to show that my shares no longer have any value.

From your reply it seems that I incurred a loss last year i.e. in the tax year 2010/11 for which I have to presently send a SA tax return. As I said previously I do have a gain for that year which is below the annual exemption so I would have thought that it would be silly of me to claim it for last year. Do you agree? Or do I have to record it in 2010/11 SA? It comes down to the fact that if I don't have to report the loss in that tax year I don't have to do a paper SA return by 31 October 2011 but can do an online SA return later on.

As I think it is very unlikely that I will have any gains at all for 2011/12 tax year would it be a good idea to record it in that year?

As I said I have never been in this kind of situation before and I'm still not clear about when I should be recording this loss or claiming the negligible value. Is there anyone out there who could explain in simple terms what my options are?

I am running out of time in which to submit a paper SA return if I do have to report the loss now (i.e. not claim negligible value) will someone please tell me?

rm

[gengulphus] 22/10/2011 10:03

When you see it on HMRC's negligible value list you can use it.

If you see it on HMRC's negligible value list, you can use it. That does not necessarily mean that waiting around for it to appear on the list is the right thing to do (I realise that you haven't actually said that it is, but it's the impression the above quote will leave a lot of readers with), for two reasons:

* HMRC's negligible value list only covers main market London Stock Exchange shares. If the company concerned wasn't listed there (e.g. if it was an AIM share), you would end up waiting forever...

* Shares only get on to HMRC's negligible value list once someone has made a successful negligible value claim about them. So if everyone were to sit around waiting for the company to get on to the list, it would never get on to the list even if it was listed on the main market of the London Stock Exchange...

It's also worth pointing out that even if the shares have got on to HMRC's negligible value list, that makes no difference to whether you need to make a negligible value claim. All it does is (a) give you certainty that your claim will be accepted, provided it is technically correct with regard to dates, etc; (b) give you an easy thing to point to to establish that the shares have become of negligible value.

With regard to both that and the statement that "Negligible value can not be claimed after the company has been dissolved.", it's worth understanding what negligible value claims are for. There is a general rule for CGT that if an asset has ceased to exist at all, its former owner is counted as having disposed of it when it ceased to exist, triggering a capital loss on that date. For shares, dissolution of the company causes its shares to cease to exist, and so if you still own the shares when the company is dissolved, you realise the loss on that date - no choice, no negligible value claim needed (or even possible - see below), just detail the loss in your CGT computations like any other gain or loss.

There is however an intermediate position, where an asset still technically exists but has become worthless. It's a position that shares in failed companies often get into and stay in for years, because while the administrators know that there is no realistic prospect of the shareholders getting anything, the company has to remain in existence until all of its affairs have finally been settled.

Negligible value claims are there to deal with that situation. They can basically be made for assets that are in that position of being worthless but still existing (which is the reason why a negligible value claim cannot be made after the company has been dissolved - the shares are no longer in that position by then, since they no longer exist). If successful, they cause the taxpayer to be treated for CGT purposes as having disposed of the asset for the negligible value (typically nothing at all) on a date named in the claim. As a result, the loss is realised on that date.

The shareholder gets some choice about which date to name in the claim, which gives some freedom to choose to realise the loss on a date when you can most effectively use the loss. The limitations are basically that the asset must have become of negligible value by that date, and that the date must be in the tax year that the claim is made or one of the preceding two tax years. (So if the asset became of negligible value three or more tax years ago and still actually exists, you can still make a claim, but you've got to choose a later date than the date that it became of negligible value.)

As a footnote to the above, there is an additional consequence of a successful negligible value claim - it hardly ever really comes into play, but it does tie up some loose ends. As well as being treated as having disposed of the asset for the negligible value on the date named in the claim, the shareholder is also treated as having re-acquired it for the same negligible value on the same date (in a way that won't match the disposal under the same-day rules). That means that when the company is finally dissolved and the shares cease to exist, the disposal is matched to the re-acquisition and the loss realised at that point is therefore just the negligible value, i.e. basically nothing. It also means that in the very rare event that the shares turn out to have some value after all - e.g. if the administrators discover an unexpected and valuable asset - and a payment gets made to shareholders, that payment counts as a realised gain.

Gengulphus

[miata] 21/10/2011 18:30

"A Company I invested in went into administration last Summer so the shares became of negligible value."

They became of negligible value to you, but HMRC will not necessarily recognize that until the administration is complete and no payout is made to shareholders. Negligible value can not be claimed after the company has been dissolved.

When you see it on HMRC's negligible value list you can use it.

[roperman] 21/10/2011 18:21

I am doing my 2010/11 SA tax return. I have experienced a situation that I haven't encountered before. A Company I invested in went into administration last Summer so the shares became of negligible value. HMRC have simply said read Helpsheet 286, which I have but I am still scratching my head over what to do.

For tax year 2010/11 I have a gain which is below the annual exemption so I don't want to claim it for that year do I? I think it is very unlikely that I will have any gains at all for 2011/12 so should I claim it for that year?

I'm not sure if there is a difference between recording or claiming a loss. It seems to me that once claimed one is stuck with when one claimed it. Should I simply leave it in abeyance to set against some (hopeful) future gain?

I have read that a Form CG34 might be needed to value this loss or is it when one claims it?

Any help or views would be appreciated.

rm

[miata] 18/10/2011 15:33

6331, Answered on the TAX thread.

[miata] 18/10/2011 15:24

6330,Your online tax return must reach HMRC by midnight on 31 January next year.
(You only have longer than this if you received a letter, telling you to send a tax return, after 31 October. In that case you'll have three months from the date you received that letter.
There's an earlier deadline of 30 December if you want HMRC to collect any tax due through your PAYE (Pay As You Earn) tax code. You can only ask for this if you owe less than £2,000. Although HMRC will try to collect the tax due through your code, they can't always do so.

[red nutter] 18/10/2011 14:41

Hi,

Hope someone can help – I'm soon to be made redundant and was thinking of working as a contractor afterwards.

Does anyone know what are the advantages of setting us as Limited Company and if they would recommend it.

What tax rate and NI rate would I have to pay if I was paid my salary as a Limited Company. Can I also put through my share dealing activities through this tax return rather than as self-assessment as at present, and if so how do I switch.

Also can I put through as expenses such items as Fuel, Laptop (looking to buy) and reclaim the VAT.

Hope someone can help.

Thanks

red nutter

[soundbuy] 18/10/2011 11:33

Quick clarification

first electronic/online CGT, previously paper. Was going to submit next week but quick gander looks as if the deadline is 31st Jan next year, not 31st Oct. this yr.?

Have I got this wrong?

TIA

[holmes1957] 13/10/2011 14:54

thanks again.looks like he can buy aim shares in germany,so hes going to work it out from there.

[gengulphus] 13/10/2011 10:53

Holmes1957,

is it possible for me to set up an account online for my brother who lives abroad-germany and buy some shares for him.just wondering if its legal any tax he would obviously pay.

As MIATA says, it's possible (though probably only some brokers will do it) and legal. On the tax-paying front, note that he's liable to have to deal with both British and German tax. I'm pretty certain there will be a double tax treaty in effect, and the usual rule is that it allows him to offset any British tax paid against the corresponding German tax. But there can be oddities, so it would be a good idea for him to check up on the details with a German tax expert before deciding whether to do it.

Gengulphus

[gengulphus] 13/10/2011 10:35

serratia,

I'm aware that capital gains tax is paid on the average price paid versus sales price for shares purchased recently.I have shares dating back to a purchase date of 1993 and for a number of following years.Do you still use the average price paid or some other calculation?If the latter is there a link to the methodology.

Basically yes, as MIATA has replied, but be careful about shares already "matched" under other rules: they don't get included in the average. Also don't include purchases after the sale you're dealing with in the average.

Currently, shares only get matched under other rules if you buy on the same day as you sold, or within the 30 days following a sale, under the same-day and 30-day rules respectively. But you can still get some cases where it's a bit tricky, e.g.:

Buy 1: 1000 shares on 01/05/10
Buy 2: 1000 shares on 01/06/10
Sell A: 1000 shares on 01/07/10
Buy 3: 1000 shares on 01/08/10
Sell B: 1000 shares on 01/09/10
Buy 4: 1000 shares on 01/10/10
Sell C: 1000 shares on 01/11/10

Sell A is matched normally, as buy 3 is 31 days later, so is matched against the "pool" of buys 1 and 2 - i.e. basically the average of those two buys. Half of that "pool" becomes already-matched as a result.

Sell B is matched under the 30-day rule, as buy 4 is 30 days later. Buy 4 becomes already-matched as a result.

Sell C is matched normally (assuming the above is a complete record of the transactions up to at least 01/12/10) and so gets matched against the "pool". That "pool" consists of what was left after matching sell A, plus buy 3. So the relevant average price is actually the average price of half of buy 1, half of buy 2, all of buy 3 and none of buy 4.

The calculations are actually much easier if you almost completely drop the idea of average prices and instead work in terms of the "pool" of N shares bought for a total of £X. The only time an average comes in is when part of the pool gets sold, when you have to work out how much of the purchase price of the pool is used up on the basis of its average purchase cost of £X/N per share.

One other important point: I started the above description of what shares are already-matched with "Currently". The rules on "matching" shares last changed in a major way on 6 April 2008, and before that there was a major change in the late 1990s (I think offhand on 6 April 1998, but am not certain). So if you have any sales of the shares on or before 5 April 2008, you'll need to work out which buys those sales were matched to under the relevant old rules in order to know which buys are still in the "pool" being used now...

Gengulphus

[ammons] 13/10/2011 06:55

Superthick!!! I understand what you mean now!! No, I've done nothing with the shares or the warrants since then so I should be able to claim the loss. Thanks!!

[miata] 12/10/2011 20:44

Please explain your problem with using the loss. The "taxman's formula" only applies where you separately disposed of the warrants and the shares - otherwise its simple.

[ammons] 12/10/2011 20:40

Maita, haven't used the Marconi loss at all, shares or warrants and the link you provided doesn't lead to anything.

Thanks for replying though.

[fireplace22] 12/10/2011 18:20

He was claiming a loss of about £5,000. And the share is well known on these boards and condsidered a very legitimate claim.

[miata] 12/10/2011 18:15

Weird one. I can only guess that if the estimated liability was large they would spend more time on reviewing the claim rather than just approve it.

[fireplace22] 12/10/2011 18:09

A friend of mine put in a request to the revenue for a negligible value assessment on a defunct share and was asked to give an estimate of his CGT liablity at the end of this tax year. Whats that about, how could anyone possibly know that especially in these markets?

[holmes1957] 12/10/2011 17:36

thanks miata.

[miata] 12/10/2011 17:23

It's legal, I'm not sure whether the broker would require a power of attorney or indeed whether online broker terms and conditions would not allow an account to be operated for someone else.

You might run into 'Money Laundering' hurdles in proving beneficiary identity.

You could do it via a limited company or a family trust or as a joint account.

Probably best if he opens the account and you act as his Authorised Representative.

[holmes1957] 12/10/2011 17:17

miata is it possible for me to set up an account online for my brother who lives abroad-germany and buy some shares for him.just wondering if its legal any tax he would obviously pay.

[serratia] 12/10/2011 10:03

Thanks MIATA

[miata] 12/10/2011 08:30

6314, yes (example
6315, deduct price you paid as a loss - assuming you did not realise shares and warrants separately what is the problem?

[ammons] 12/10/2011 06:39

I've searched the CGT board but cant find any advice on how to treat the old Marconi shares re a neglegible value claim. I really do not understand the formula provided on the tax mans neglegible value list. Can anyone assist? Ta in advance.

[serratia] 11/10/2011 20:17

I'm aware that capital gains tax is paid on the average price paid versus sales price for shares purchased recently.I have shares dating back to a purchase date of 1993 and for a number of following years.Do you still use the average price paid or some other calculation?If the latter is there a link to the methodology.