Capital Gearing Share Discussion Threads

[induna123] 23/3/2012 10:04

So If I sell a stock and make a profit of say £10k, and then buy back the same shares within 30 days then I can't use that profit against the ctg allowance, it's as though I never sold them, is this right?

[rajauk] 22/3/2012 08:05

Sorry did try maybe my search phrase wasn't right.;-)!!!
Thanks
Raja

[miata] 22/3/2012 07:54

"I have searched google but can't get an answer."

Try harder.



Our CFD trading is taxed as 'capital gains' (if there are any gains) and all the CFD trades are taxed using the 30 day rule, because they are ordinarily liable to capital gains tax.

[rajauk] 22/3/2012 07:29

Could someone please tell me if "bed and breakfasting" rules apply to CFD's. I have made money trading in and out of one particular stock in my CFD account which means if this rule does not apply to CFD's then I will have a CGT charge for this financial year. I have searched google but can't get an answer.
Raja

[daveperry] 22/3/2012 01:34

Capital gains tax

CGT is paid by individuals, trustees and personal representatives of the recently deceased when an asset is sold or given away, or upon receipt of a large sum of capital. It covers land, buildings, personal possessions worth £6,000 or more, shares or business assets. There is currently a basic CGT rate of 18%, while taxpayers on higher rates pay 28% on their capital gains. The annual tax-free exemption for CGT is currently £10,600, having risen in line with inflation.


Will have to earn less money, always had 28% in my head

[david77] 21/3/2012 18:59

If you've got a co-operative broker and spread-bet company, they may buy the shares off you at mid-price to reduce your costs and use these to open your spread-bet account. I used Hargreaves Lansdown to do the opposite - to buy the underlying shares from my spread-bet account with IGIndex some time ago. I had too many to sell into the market - they may have influenced their co-operation.

[rajauk] 21/3/2012 17:36

offerman Yes there is a way but only if you are willing to Spreadbet. Sell your normal shares then open a position to match that in a Spreadbet account. If you buy in sreadbet account after selling shares in same company, the B&B rule does not apply. After a month close your spreadbet position and buy normal shares again.

[miata] 21/3/2012 17:34

The shares might cost more, but they might also cost a lot less (general market historic seasonality "sell in May and go away" is based on fact).

However unless you are referring to AIM shares you could immediately buy some back in an ISA and some more in an ISA after 5th April and take a spreadbet over the remainder.

If you are married your wife could buy some.

[offerman] 21/3/2012 17:22

Hi,

I was told today by a broker if i have £40k of shares and £7k profit so total £47k then i would have to sell the whole lot to realise that profit.
He then said i have to wait 30 days before repurchasing those shares as its classed as B&B by the government.

Problem is though if i wait then taking the 7K tax would potentially be useless as to buy back the shares might xost that much more is they go up then actually having less shares than before i offload to take the tax.

Is there any way i can sell the shares to beneit the tx then repurchase so my new holding would not show a profit thus allowing more for the new financial year i.e 10800 or whatever it is.

Thanks

[karateboy] 18/3/2012 22:04

Getting ready for CGT calculations for 2011/2012! For CGT calculator, how can I use the output from CGT calculations for 2010/2011 as an input for 2011/2012 calculations? Regards

[karateboy] 18/3/2012 21:54

Thanks Dave and Gengulphus. I am happy with your explanations.

[gengulphus] 18/3/2012 19:54

karateboy,

BUYING BACK WITHIN 30 DAYS NOT GOOD FOR YOUR WEALTH...SEE EXAMPLE BELOW, how third and fourth buys at about £0.4035, treated as AVG buy at 0.34409!!!

BUY: SECTION 104 HOLDING. 27997 BAO shares of 27997 bought at average price of £0.34381
AVG price bough (0.34381) is significantly less than actual price paid (0.4035) So one will be paying bigger CGT than you expected... I have no explanation, I don't know if CGT calculating it right...It is amazing! Can any body explain the logic ?


Suppose the following transactions:
B 28-Feb-11 BAO 11671 0.255 8.95
S 11-Mar-11 BAO 11671 0.336 8.95
B 23-Mar-11 BAO 27997 0.4035 8.95
S 05-APR-11 BAO 27997 0.47 8.95

It's correct. The key point is that the 11-Mar-11 sell is not matched to the 28-Feb-11 buy. That's because it's followed within 30 days by the 23-Mar-11 buy, triggering the 30-day rule and causing it to be matched to 11671 out of the 27997 shares bought on 23-Mar-11.

So when it comes to time to match the 05-Apr-11 sell, it has to be matched to the remaining 16326 shares bought on 23-Mar-11 and the 11671 shares bought on 28-Feb-11, and their average price is 0.34409.

As you note, that does cause a larger gain to be calculated for the 05-Apr-11 sell than if it were matched straightforwardly to the 23-Mar-11 buy. But it also causes a loss to be calculated for the 11-Mar-11 sell when straightforward matching to the 28-Feb-11 buy would have calculated a gain. If you look at the overall gain calculated for the two sells combined, it comes out the same either way, and in both cases is just equal to the overall amount raised by the two sells minus the overall amount spent on the two buys. (So you might wonder why you do the calculation in the more complex way... The answer is that it can affect the way gains and losses are split across tax years. E.g. if the 05-Apr-11 sell had instead been on 06-Apr-11, it would make the difference between having gains in both tax years, or a loss in one followed by a bigger gain in the other.)

Gengulphus

[karateboy] 18/3/2012 15:17

BUYING BACK WITHIN 30 DAYS NOT GOOD FOR YOUR WEALTH...SEE EXAMPLE BELOW, how third buy at about £0.4035, treated as AVG buy at 0.34409!!!

BUY: SECTION 104 HOLDING. 27997 BAO shares of 27997 bought at average price of £0.34381
AVG price bough (0.34381) is significantly less than actual price paid (0.4035) So one will be paying bigger CGT than you expected... I have no explanation, I don't know if CGT calculating it right...It is amazing! Can any body explain the logic ?


Suppose the following transactions:
B 28-Feb-11 BAO 11671 0.255 8.95
S 11-Mar-11 BAO 11671 0.336 8.95
B 23-Mar-11 BAO 27997 0.4035 8.95
S 05-APR-11 BAO 27997 0.47 8.95

Results generated from www.cgtcalculator.com

SUMMARY INFORMATION

Year CapitalGain Exemption UsePrevLosses TaperRelief ChargeableGain Tax*
-------------------------------------------------------------------------------------------
10-11 2699 10100 0 0 0 0

*Please note that tax values are based on capital gains only and assume zero income.

TRADE MATCHING INFORMATION

TAX YEAR 10-11

1. SELL: 11671 BAO on 11/03/2011 at £0.336 gives LOSS of £825.00
Matches with:
BUY: 23/03/2011 11671 BAO shares of 27997 bought at £0.4035
CALCULATION: Loss = £825.00 = ( 11671 * 0.336 - 8.95 )
- ( 27997 * 0.4035 + 8.95 + 56.48395 ) * ( 11671 / 27997 )

2. SELL: 27997 BAO on 05/04/2011 at £0.47 gives CAPITAL GAIN of £3,524.00
Matches with:
BUY: SECTION 104 HOLDING. 27997 BAO shares of 27997 bought at average price of £0.34381
CALCULATION: Gain = £3,524.00 = ( 27997 * 0.47 - 8.95 )
- ( 27997 * 0.34381 )


CURRENT PORTFOLIO

Your portfolio is currently empty

STATISTICS

Total amount paid in stamp duty = £71.36
Total amount paid in broker's fees = £35.80

Total number of trades = 4
Total number of buys = 2
Total number of sells = 2

INFO FOR TAX RETURN

10-11: Disposal Proceeds = £17,080.00 , Allowable Costs = £14,381.00 , Disposals = 2
10-11: Year Gains = £3,524.00 Year Losses = £825.00
Gain till 23/06/2010 = 0. Gain from 23/06/2010 to 05/04/2011 = 3524. Losses for 2010-2011 = 825

[gengulphus] 18/3/2012 14:10

The short answer is that it's the day the trade was agreed that counts, so in your example the sale is dealt with in your 2010/2011 CGT computations.

For a longer answer, there's a link to a "What date did I realise my gain or loss on shares?" FAQ answer under the "As it applies to shares" link in the thread header.

Gengulphus

[karateboy] 18/3/2012 13:53

If you sell a share say 5/April 2011, with 3 day settelement one gets the cash on 9/April/2011. For CGT calculations should one include the transaction as part of 2010/2011CGT calculations or 2011/2012....?

Thanks

[miata] 15/3/2012 08:45

Well I'm not going to argue with you - as I said they can be reduced, though you have omitted to mention statutory accounts and corporation tax costs, but the time, hassle and loss of privacy can't.

[goliard] 15/3/2012 07:52

Miata, your costs are way off the mark.

You can get standard articles that allow investment from lots of online formation companies for £100.

You no longer need a company secretary and even if you did you can do it yourself very easily.

Companies house and annual return costs are minimal.

This isn't a listed company, so you take your own minutes of AGM, ie no cost.

Share dealing can be done for £10 per trade with TD Waterhouse.

You have double or triple counted in the Annual Return / Accounts / Accountant costs.

There are no data protection / compliance costs for a privately held company unless you are handling data for other individuals and there is no sign he wishes to do this.

You use your home as the registered office. No costs here at all.

Total costs excluding fees you would incur anyway, ie stamp duty and trading and cost of buying shares should be no more that £500 to £1000.

I have operated many limited companies and set up many for clients and acted as company secretary for a listed company on the LSE.

With that said, I still think it is simpler to just sell the shares, take the gain and buy them back after 30 days.

[1144523] 15/3/2012 00:16

Thanks for the response Gengulphus,

Unfortunately I'm not married so I can't take advantage of the 'bed and spouse' procedure.

Last night I put together a brief analysis to show a variety of outcomes based on buying at 4:30pm and selling next morning at 8:00am. With the stock being AIM listed I decided that the risk of the share price opening up much lower was too great. I have decided to carry the gain forward.

[gengulphus] 12/3/2012 20:42

As you are aware the annual tax free allowance for capital gains tax is 10,600 in the current tax year. I currently have gains in excess of 10,600 which have not been realised yet. The stock is Shanta Gold and unfortunately it cannot be traded in an ISA.

I take it that you're also not married? If you were, a "bed and spouse" would do the trick: you sell, your spouse buys as nearly simultaneously as possible.

Failing that, if the existing gain is big enough, buying more of the share then selling it the next day would seem a possibility provided either that you've got the cash to do so or that your broker will allow you to buy on long settlement terms and sell on shorter settlement terms to cover the purchase without having the cash available upfront.

E.g. if you had a holding bought for £20k and now worth £50k, and you bought another £30k worth of shares, you would then have a 'Section 104 pool' of 1.6 times as many shares bought for a total of £50k. If you then sold 3/8ths of your holding the next day (to avoid the same-day rules), that sale would be matched to 3/8ths of the pool (*), which is 0.6 times your original number of shares bought for £18.75k. Assuming the price hadn't changed much overnight, the sale would give you £30k, realising a basic £11.25k gain, and your holding would then be a Section 104 pool of your original number of shares bought for £31.25k.

All less trading costs, of course, and there is a risk of a sharp overnight move in the share price - don't start this the day before an expected announcement! Stamp duty on the £30k purchase would be £150 on its own, and the bid/offer spread could easily add another 2-3 times that to the costs - which on the example I've chosen could well take the gain down to the CGT allowance. But it also means that you might well be paying out several hundred pounds in costs to eventually save CGT of 28% of £10,600 = £2968. Worthwhile if there's no other acceptable alternative, but quite an expensive cost : tax benefit ratio.

I should add a warning: the above is based on my understanding of how the CGT rules work normally. I'm fairly confident that understanding is correct, but not entirely certain the taxman doesn't have some anti-avoidance rule against it... In particular, I've never deliberately done something of that type myself. I.e. as always with suggestions made on this board, you take them up at your own risk.

By the way, I'm not arguing against MIATA's suggestions of options, CFDs or spreadbets - my guess is that if you can do them, they would be cheaper. I'm just suggesting another possibility...

(*) Provided you then don't buy again until at least 31 days after the sale - if you do, the 30-day rule will take effect and mess things up!

Gengulphus

[1144523] 12/3/2012 18:58

MIATA,

Thanks very much for your response.

Firstly I asked my mate about spread betting and he warned me off it. He said that often they went phone only and getting quantity on an AIM stock could be an issue. I've no experience with spread betting.

The costs of forming and maintaining a company are quite steep when looked at in summary format. I think I will forfeit the annual allowance this time but I might make some enquiries with the bank to see how a trading account differs if registered in the name of a limited company. Sooner or later I may be in business anyway so it might be worth gaining the knowledge in advance.

[miata] 12/3/2012 14:39

CAVEAT - if the values involved are huge, ignore the following.

Have you quantified the costs and hassle?

- Formation costs (including Articles of Association tailored to allow investment)
- Costs of shares (brokers might want the company to have a share capital of say £10,000: check whether they will open a Co dealing account with a minimal capital Co)
- Costs of a company secretary (say £1-3,000+)
- Costs of production of statutory annual accounts and director's report (say £1,000).
- Companies house & Annual Return costs
- Annual General Meeting minutes/resolutions
- Corporation tax calculations/submissions and dealing with HMRC
- Accountancy costs (say £500)
- Bank costs (say £60)
- Sharedealing costs (stamp duty etc) (say £200)
- Statutory records and registers
- Data Protection law compliance costs
- Registered office address/directors names/accounts in public domain
(privacy issues)

All figures above are top-of-the-head and can be reduced with effort but you get the idea.


Personally I'd use options or a CFD or a spreadbet.

[1144523] 12/3/2012 13:46

Rockefella, I use Halifax sharedealing but I format the data before I enter it into the cgtcalculator.



I also have a query of my own, which I would be very grateful If someone would be kind enough to answer.

As you are aware the annual tax free allowance for capital gains tax is 10,600 in the current tax year. I currently have gains in excess of 10,600 which have not been realised yet. The stock is Shanta Gold and unfortunately it cannot be traded in an ISA. I do not wish to use a SIPP yet as I am still very young and wish to have access to all investments in case my circumstances change. Like anyone else I wish to avoid paying tax if at all possible. I wish to somehow use up the annual allowance without losing exposure to the stock. I am highly reluctant to use spread betting. My idea was to do perform the following tasks:-

[1] Form a limited company with myself as director and shareholder. Initially the company would not be used for a trade but for investment purposes. Once I become fully qualified in around a year, there is a good chance I would use the company for a normal trading activity, such as that of consultant. I would be able to form a company myself and the cost would be limited to any Companies House fee.

[2] Set up Company share trading account.

[3] Transfer shares held in my name to the company, realising a gain under my name of £10,600.

[4] Hold shares within the company trading account for 30 days before transferring back to my personal share trading account.

I imagine the company would be classed as a Close Investment Company until the consultancy trade commenced and any gain (above zero) would be liable for corporation tax at 28%. So there is a potential saving but there is also a potential loss should the value of the holding rise too far in the 30 days the shares are held by the company.

Would this approach be classified as tax evasion by HMRC? Would they treat the shares as if they had never been transferred from individual to company and back again?

[miata] 12/3/2012 10:32

I might just add that I imagine you might find Gibraltar itself a bit limiting, but if you have sufficient funds to have an additional home in (say) Sotogrande across the border it could be a very pleasant life.

[knil] 12/3/2012 10:07

Thanks MIATA

Your reply regarding the 90 days over 4 years per year is a re-assurance to me.
I thought time could be spent in the UK but was not sure how long.

Regards Knil