Capital Gearing Share Discussion Threads

[miata] 30/12/2011 15:31

The sensible ones have their millions in SIPPs and ISAs or in the Cayman Islands.

[tehmac] 30/12/2011 13:07

You didn't answer my question. Was my analysis correct? Surely, over the course of a year, pretty much everyone will have to submit a CGT form if we go by disposal proceeds as outlined in my above post, and the amount of people who don't need to submit one are very VERY rarely trading and if they are are playing with pennies.

[miata] 30/12/2011 12:50

Its not that daft; the more trades made the more likely there will be errors and the more frequent the trades the greater the possibility of misapplication of the rules for pooling and 30 day matching. The greater the size of trades the more likely the errors will be material.

[david77] 30/12/2011 12:42

It's not difficult if you use either of the free on-line calculators, but it can be a nightmare if you try to do the work by hand. Every time you do the calcs, you make a different mistake, and every result is different. That is why I wrote one of the calcs.

[tehmac] 30/12/2011 12:12

So, say I only ever buy in £1000 amounts, and say I always broke even and sold it for £1000 again (after x days). My disposal proceed on each trade is equal to £1000, correct? Therefore, if over the course of one or two months, I have made 41 purchases, then 41 sells, my disposal proceeds equal £41,000, which is higher than the "tax free allowance" of £40,400, and I have to report everything regardless?

This seems daft. What if you make only 2 trades during a whole tax year, break even on both, but each trade you were in you sold for the sum of £21,000. You have to do the CGT paper work for that.

Am I way off here?

[tehmac] 30/12/2011 11:31

"As a frequent trader you should be aware that if your total receipts are more than four times the capital gains tax annual exempt amount you may have a lot of CGT paperwork to submit to HMRC even if your gains are less than your annual allowance."

Can you expand on this please? Thanks.

[david77] 30/12/2011 11:05

The stonebanks calculator wants

company
date, b or s, quantity, price/share(p), consideration(£.p)

The consideration is what YOU pay (inc costs) or receive (after costs have been taken).

[miata] 30/12/2011 11:03

Cash realised (ie after commission, trade reporting charge, etc)
LESS
Cash paid (ie including stamp duty, commission, trade reporting charge, etc)
EQUALS Profit or Loss.

In that respect it is as simple as you think.

As a frequent trader you should be aware that if your total receipts are more than four times the capital gains tax annual exempt amount you may have a lot of CGT paperwork to submit to HMRC even if your gains are less than your annual allowance.

[tehmac] 30/12/2011 10:48

Thanks for this thread. Great source of information. I will not have made enough to need to fill in a tax form this year, but hopefully by next!

2 quick questions.

1). Can we take into account commissions and stamp duty in any way?

2). Just to make sure this is as simple as I think it is. I trade shares on AIM and the main market, usually holding for a day or two. Am I correct in saying that any profit I make after selling the shares is seen as a "gain", and any loss I make after selling the shares is regarded as a "loss". It is the loss I want to check, as there are so many definitions of what a loss is that I want to make sure it really is as simple as that.

Thanks.

[miata] 29/12/2011 17:54

They are so limited (eg for venture capital trust investments) they are almost certain not to apply.

What might apply is you could use the loss you make in your own business (I'm not being rude, most businesses make a loss initially) against your capital gains.

[gengulphus] 29/12/2011 16:55

Sorry, about all I know about that is that offsetting capital losses against income is usually not possible, but that there are exceptions in some special circumstances. Exactly what special circumstances allow you to do that, I don't know - and that's clearly crucial information, so I cannot really help.

Gengulphus

[qipincha] 29/12/2011 11:06

Gengulphus,

Thank you very much for your detailed reply. It does make a sense to me now. Do you think if it is possible to offset the tax charged on my future salary? I notice it is mentioned on HM website, but not in a great detail.

And the other possibility is, if I set up my own busienss, may I be able to use the loss to offset my future gain?

Many thanks again.

Qipincha

[gengulphus] 29/12/2011 10:18

qipincha,

For the 2010/11 tax year, it only matters when the gains were made. Gains made before June 23rd 2010 are taxed at 18% regardless; gains made on or after June 23rd 2010 are taxed at 18% up to the amount of your unused Income Tax basic-rate band and at 28% after that. (So in particular, if you're a higher-rate taxpayer, you have used all of your Income Tax basic-rate band and so all of your gains realised on or after June 23rd 2010 are taxed at 28%.)

It does not matter when the losses were made: you get to offset them against the year's gains regardless. And this is one of those situations I referred to in passing in my reply on the other CGT board, where you get to choose (*) which gains they are offset against. Since the gains made on or after June 23rd are always taxed at the same rate or a higher rate than the gains made before that date, it's obviously better (or the same) for you to offset losses against gains made on or after June 23rd, and only move on to gains made earlier if you run out of them.

The same principle applies to using the CGT allowance.

So the correct calculation in your example is:

* Offset the £600 losses and the £10,100 CGT allowance against the £14,000 gains realised on or after June 23rd, leaving £3,300 gains that are subject to CGT.

* Tax those gains at the appropriate rate. If you're a higher-rate taxpayer, that rate is 28% and so you owe 28% * £3,300 = £924 CGT. If you're a basic-rate taxpayer with at least £3,300 of unused Income Tax basic-rate band, the rate is 18% and so you owe 18% * £3,300 = £594 CGT. If you're a basic-rate taxpayer with less than £3,300 of unused Income Tax basic-rate band, part of the £3,300 will be taxed at 18% and the rest at 28% and you'll owe somewhere between those two figures in CGT.

As a second example, if you instead had made £10,000 of the gains on or after June 23rd and £4,000 of them before June 23rd, then you would:

* offset the £600 losses against the £10,000 gains realised on or after June 23rd, reducing them to £9,400;

* offset £9,400 of the CGT allowance against those gains, reducing them to zero;

* since you've run out of gains realised on or after June 23rd, offset the remaining £700 of the CGT allowance against the £4,000 gains realised before June 23rd, reducing them to £3,300;

* have to pay CGT of 18% * £3,300 = £594 regardless of what Income Tax band you're in.

Note that if the £600 losses and £14,000 gains figures you've given are net figures for the before-June-23rd and on-or-after-June-23rd periods, you've calculated the wrong figures and your CGT cannot be safely determined from them. Back off to the separate gains and losses figures and calculate it from there.

For example, if the £600 losses before June 23rd are really the combination of £3,000 gains and £3,600 losses, and the £14,000 gains on or after June 23rd are really the combination of £20,000 gains and £6,000 losses, then the figures asked for by the tax return are £3,000 gains before June 23rd, £20,000 gains on or after June 23rd, and £3,600 + £6,000 = £9,600 losses for the full tax year. And the calculation goes:

* offset the £9,600 losses and £10,100 CGT allowance against the £20,000 gains realised on or after June 23rd, leaving £300 of such gains;

* as you have nothing left to offset, leave the £3,000 gains realised before June 23rd unchanged;

* you have 18% * £3,000 = £540 CGT to pay on the gains realised before June 23rd, and an amount to pay on the £300 gains realised on or after June 23rd that depends on your unused Income Tax basic-rate band. If you're a higher-rate taxpayer, that amount is 28% * £300 = £84, and so your total CGT owing is £540 + £84 = £624.

Hope this clarifies things for you.

(*) I believe the "you get to choose" part of this is correct in principle. In practice, the taxman won't ask for such a choice and you don't find such a question on the tax return: he'll simply assume that you offset against gains realised on or after June 23rd in preference to those realised before June 23rd, as anyone interested in minimising their tax bill would. The point about it being correct in principle is mainly that I believe you could (if you really wanted to) insist on offsetting in a different way and so end up owing more tax... The rest of it is that there are a few fairly obscure cases where a loss is only usable against some gains, such as the one about "clogged losses" - in such cases, if the loss cannot be used against a gain made on or after June 23rd but can against a gain made before June 23rd, it's got to be used against the latter.

Gengulphus

[gengulphus] 29/12/2011 09:12

Just to clarify a bit further:

* The point of claiming a loss is to enable you to use it against gains realised in the same tax year or a later tax year - but not earlier tax years except in a few special circumstances.

* Claiming a loss is not the same thing as using it. Claiming a loss basically just means telling the taxman about it, either by including it in the capital gains part of your tax return or by writing a letter to him giving him details of the loss and saying that you're claiming it. Using it means actually offsetting it against gains.

* There is a time limit on claiming a loss - currently the end of the 4th tax year after the tax year in which you made the loss. If you don't claim it within that time limit, the loss becomes completely unusable (*).

* After a loss has been claimed, there is no time limit on using it. But note that the rules about using losses generally don't give you any choice about whether to use them (only about which gains to use them against, which sometimes makes a difference but often does not), so that doesn't mean that you can keep them around as long as you like - just that for as long as the situations in which they have to be used don't happen, they'll stay around waiting until such situations do happen.

(*) Except that if you made the loss in the 1995/1996 tax year or earlier, the need to claim the loss before using it doesn't apply and so no time limit applies to the loss.

Gengulphus

[miata] 28/12/2011 12:48

You can claim the loss (to use in FUTURE tax years to reduce your taxable FUTURE gains if any), you cannot claim this amount BACK.

[qipincha] 28/12/2011 12:36

thanks again Miata.

Just one more question here:

If I made loss of 600 before 23 June and made 14,000 after 23 June. will the calculation still be:

(14000-600-10100)*0.18 = £594 ?

or I should consider it like this? as the 600 loss was made before 23 June?
(14000-10100)*0.18

Many thanks.

[qipincha] 28/12/2011 12:30

Hi Miata,

just realise there is so much information to digest

I am reading HM website and found the section regarding claiming a loss:

How to claim a loss - and the time limits for doing so


it sounds I can claim the loss?

[miata] 28/12/2011 11:41

Details and examples here:

[qipincha] 28/12/2011 11:22

MIATA,

2. that's really something I was worrying about! 10% is a lot different. In that case, do I need to provide taxman the detail of which transactions were done before 22 June? or after?

[qipincha] 28/12/2011 11:15

thanks MIATA and Gengulphus,

that's very helpful information. I am now thinking of the worst case, which I will pay the CGT about 6k for last tax year. However, next year, may I claim this amount back as I made a significant loss for the current tax year?

[miata] 28/12/2011 10:53

Use one of the CGT calculation programs.

[4711phil] 28/12/2011 10:50

I have been buying and selling shares in the same company since March 09,sometimes on the same day sometime months later.If in the next tax year,2011-2012 i sell all my shares,to calculate my average price(104 holding)do i include every deal.

TIA...Phil.

[miata] 28/12/2011 10:44

Fair point. You appreciate the difficulty of being concise, though unless trumps only.