Capital Gearing Share Discussion Threads

[knil] 10/5/2012 13:15

Understanding Section 104.
If I made several share purchases in the same company over a period of time
buys on say 01/05/10 2000 @ 50p inc costs = £1014.50
01/06/10 2000 @ 60p inc costs = £1215.50
01/09/10 3000 @ 55p inc costs = £1667.75
01/07/11 3000 @ 75p inc costs = £2270.75
giving me a Section 104 holding of 10,000 shares @ a total cost of £6168.50 with an average price of 61.685p per share.
If I sold 5,000 on 01/02/12 @ 95p each giving me proceeds of £4740.50 I would have made a profit of £4740.50 less my 5k cost of £3084.25 which is £1656.25.
I presume my 5,000 left is still at an average of 61.685p per share for calculating my profit or loss at a later sale date if I did not buy more.
My question is that if I did purchase more at a later date in the same company (30 day rule excluded), say another 5,000 on 01/05/12 @ 70p totalling £3527.00.
Is this then pooled with my existing 5,000 @ 61.685p which cost £3084.25 giving me now 10,000 for £6611.25 and a new average of 66.1125p each per share.
I presume this is how it works but would like a bit of re-assurance for the future if I do have a capital gain over the set annual allowance.
I would appreciate any feedback Thanks

[papy02] 08/5/2012 09:28

Gengulphus, very many thanks again for your reply.

I'll check with her, but seem to remember that the only "break clause" is if the buyer fails to obtain finance (but I may be confusing France and Belgium here).

I see your point re completion-date being the operative one for PPR relief. As we've commented, 3yrs from any date associated with the sale shouldn't be a problem in practice for her. The statement in re PPR relief is "It ends on the date that you sell or dispose of it", which doesn't help. But hopefully for her this is of academic interest only.

In practice, if PPR relief applies, she just won't declare the sale to HMRC. I'm still a little uncomfortable that, if this is ever challenged, there seems to be no authoritative link to support the belief that PPR relief applies in the case of a foreign property. Do either of you have first hand experience that this is indeed the case?

Many thanks again.

[gengulphus] 08/5/2012 07:57

HMRC don't seem to refer to foreign property in this context at all (unless I missed it) so they don't specifically exclude it, but can we count on "non-UK included by omission"?

You can count on the standard rules about whether an asset is taxable by CGT applying - but the standard rules have some awkward special cases that HMRC cannot sensibly repeat at every point in the documentation where they might apply. A brief introduction to them is in under the "Overseas assets" subheading a few screenfuls further down. My guess is that your daughter is (or will be by the time concerned) resident and domiciled in the UK, in which case the answer is that the foreign property is taxable by CGT.

I should say though that as long as she gets full private residence relief, which sounds likely, it hardly matters whether the property is subject to CGT or not!

Belgian contracts for house purchase include a compulsory loss of 10% deposit if the buyer fails to complete - which sounds a stronger commitment than in UK, but I guess it may depend on the wording - in that if the contract specifies the penalty for non-completion it could be argued that it is providing for that as a possible outcome?

Basically, it's only conditions in the contract that say that the contract won't take effect at all unless those conditions are satisfied that can prevent the parties becoming unconditionally contractually committed at the time the contract is signed. A clause stating a penalty for non-completion doesn't do that, nor does a failure to complete even without a prescribed penalty in the contract: in both cases, the contract is in full effect - it's just that the outcome wasn't the main or only one anticipated in the contract. That change of outcome will affect the amount of the capital gain or loss associated with the contract, but the date of that gain or loss remains the date that the contract is signed.

The standard example where a conditional contract is involved is a takeover of a company done by a contractual offer (there is an alternative type done by a "scheme of arrangement" which I am not talking about here). The bidder offers to buy all the other shareholders' shares off them, subject to a number of conditions, which always include an 'acceptance condition' saying that the bidder isn't committed unless enough shareholders accept the offer, and usually include a number of other conditions, e.g. about regulatory clearance, conduct of the company being bought, etc. If a shareholder accepts the offer before those conditions have been satisfied (and clearly the acceptance condition won't ever become satisfied unless some shareholders do that!), then both the shareholder and the bidder become contractually committed to the deal at that point - but they only beome unconditionally contractually committed to it if and when the offer "goes unconditional", i.e. when all of its conditions have been satisfied. So in that case, the date for CGT purposes is when the offer goes unconditional - and if it never goes unconditional, then both parties walk away from the deal without consequences, there's no gain or loss and so no need for a CGT date at all.

On the other hand, if a shareholder waits until the offer goes unconditional and then accepts, the shareholder and bidder both become unconditionally contractually committed when the shareholder accepts, and so in that case, the date for CGT purposes is the date of acceptance.

It is possible for a house sale/purchase contract to be structured like that, but at least in the UK, not particularly common. I'd be rather surprised if it was common anywhere - the amounts involved are large enough that most people would not like to be in a "committed but the whole deal might be off" position on a house sale/purchase - but I certainly cannot guarantee it.

But as you say, 3 years gives plenty of breathing space, even if counted from exchange.

Having thought about it a bit more, I think I got confused between two issues: the date the gain or loss is counted as being realised on (which is normally the date of exchange, and affects which year's tax return it would be reported in, assuming it needs to be reported at all), and the dates that count for working out private residence relief. The criteria for private residence relief are based on ownership and actual use as a residence, and the date that ownership and the right to use as a residence change hands is the date of completion.

So on second thoughts, I think I got that one wrong and you should use the date of completion for "last 3 years count for private residence relief, provided it was at some point your main or only residence" rule. Sorry for any confusion caused!

Gengulphus

[papy02] 07/5/2012 21:56

MIATA, very many thanks for the links. I couldn't find any ref to "PPR can be a non-UK property", which is what was causing me discomfort. HMRC don't seem to refer to foreign property in this context at all (unless I missed it) so they don't specifically exclude it, but can we count on "non-UK included by omission"?

Re the residence-related links, I suspect as a Crown Servant working abroad she has never lost her UK tax residence status. Certainly for income tax she has been paying UK tax on her UK salary. So I'm assuming that she has to rely on the PPR exemption, rather than non-residence.

Gengulphus, yes I'd mentioned the "date that both sides become unconditionally contractually committed" point to her. Belgian contracts for house purchase include a compulsory loss of 10% deposit if the buyer fails to complete - which sounds a stronger commitment than in UK, but I guess it may depend on the wording - in that if the contract specifies the penalty for non-completion it could be argued that it is providing for that as a possible outcome? But as you say, 3 years gives plenty of breathing space, even if counted from exchange.

Very many thanks again for both your replies.

[gengulphus] 07/5/2012 20:58

Papy02,

Edit: I now think I got this post wrong, and using the completion date is right for the 3-year period for private residence relief. The mistake was to think that the same date matters for all CGT purposes. See the end of post 352 below for more details.

One point to mention is that although you talk about completion, the date that matters for CGT is the date of exchange of contracts. Or to be precise, since there's no guarantee that the Belgians do things precisely the same way as the British, the date that both sides become unconditionally contractually committed to going through with the deal - that might be later than the date of exchange of contracts if there was some condition in the contract that said "if X happens, the deal is completely off".

Shouldn't make any difference, given that you're only expecting the sale to take a few months - but if things drag on for some reason, it might be useful to know that it's the date of exchange of contracts that you want to be within three years after moving out, rather than the completion date.

Gengulphus

[miata] 07/5/2012 18:50

Correct.

Some links:



(ESC D2)





(UK-Belgium DTA)

[papy02] 07/5/2012 17:53

Our daughter is moving back to the UK after 10 years living and working in Brussels. She is in the process selling the house she bought there, but is wondering if there is any risk UK CGT might be due on any gain, if that sale doesn't complete before she has to move back to UK. She is a Crown Servant so her UK income has been taxed here while in Belgium, she can have a UK ISA etc.

My view after surfing the net is UK CGT will not apply to any gain on the Belgian house sale as:
a) The Brussels house is currently her PPR for UK CGT purposes
b) The last 36 mo of her ownership will be treated as a period of owner occupation (hence PPR relief applies??) regardless of whether or not actually occupied. So providing the Brussels house sale completes within a reasonable period after she leaves(expect a few months worst case), any gain will be fully covered by PPR relief.

But I haven't found any definitive (eg HMRC) links confirming that a foreign property can be your PPR.

Can anyone here confirm that the above is correct (or please put me right if not). Also any precautions she needs to take, if any.

Additional Info:

- She and her partner moved from UK to Belgium 10 years ago. They rented there initially, then bought the Brussels house in 2004 (in her name only), and have lived there since with their children.

- Prior to leaving the UK they lived in rented accommodation here, and have never owned or rented UK property while they have been away (other than a couple of holiday-rentals of holiday cottages for a week or so at a time)

- She hopes to exchange contracts on sale of the Brussels house prior to leaving for UK but is not certain whether that sale will complete before they have to return to UK

- When they move back to the UK they will live with family here initially, not buy or rent.


Many thanks

[karateboy] 05/5/2012 15:22

Gengulphus


Thanks for replying. I will do it.

Regards

[azalea] 03/5/2012 15:07

MIATA
Thank you.

[miata] 03/5/2012 12:52

Four times the annual exempt amount. Data on TAX thread.

[azalea] 03/5/2012 12:48

Help. Can anyone tell me what the limit is on disposal of shares in 2011/2012 before having to complete a HMRC SA108?

[gengulphus] 02/5/2012 23:06

theuniversal,

as for 332 i am still shamefully ignorant of the maths and logic invloved with this. and cant get my head around it. but thanks for the helpful advice your posts are appreciated.

oh ps: post 332 was in regards to the cgt allowance (which you answered previously) but mentioned the £42000 bracket, which i didnt get at all.

It's a tax rule - so don't expect logic! ;-} You just need to follow it, not understand why it's there... Good thing too, because I cannot explain why it's there, beyond a vague 'taxman wants to keep an eye on people who do big deals or lots of deals' idea.

Each sale you make of anything will have a raw amount you're paid for whatever it is you're selling, for example the agreed price if you sell a house, or the price per share times the number of shares if you sell shares. The taxman calls this "disposal proceeds". It will also often have some extra costs such as estate agent commission and solicitor's fees for a house sale, or broker commission for a share sale (and for share sales worth over £10,000, PTM levy as well). The taxman calls those "incidental costs of disposal". The amount you actually end up with (i.e. the final figure of the contract note in the case of a share sale) is the disposal proceeds minus the incidental costs of disposal.

The tax rule is that if you fill in a tax return for a tax year and your total disposal proceeds for all sales in the tax year are more than four times the CGT allowance, you have to include details of your gains and losses in the tax return. It doesn't matter whether you actually have to pay any CGT - the disposal proceeds being over four times the CGT allowance is enough to make you have to include the details of your capital gains and losses in the tax return. (But it does matter whether you are filling in a tax return: the rule is part of the instructions for filling in a tax return, so if you're not filling one in, it doesn't apply.)

The CGT allowance is currently £10,600, so four times the CGT allowance is currently £42,400.

Gengulphus

[gengulphus] 02/5/2012 19:10

karateboy,

If you don't mind I would like to make a contribution to charity that you support.

No, I don't mind at all... :-) The main charities I support are LEPRA and Sightsavers International - the common theme being their work against crippling third world diseases that can be cured and/or prevented at low cost (to us, that is - it's often unaffordable to the sufferers.

Sorry I've been rather slow answering.

Gengulphus

[royaloak] 29/4/2012 23:49

LW425....but of course you now have your CGT allowance for 2012/13 so it may not be tax deferred unless of course you have big gains elsewhere to offset against your allowance.

[traveler21] 27/4/2012 18:57

Thankyou very much for your advice and information MIATA

[miata] 27/4/2012 08:31

You should first open a sharedealing ISA with £11,280, put safer shares in it.

You should probably also open a nominee account, remembering as you are very new to investing in the stockmarket you are likely to make losses, which are not tax allowable in an ISA.

You can't withdraw capital from a SIPP.

[traveler21] 26/4/2012 23:31

Didnt know which thread to post this on but maybe someone can help or point me in the right direction. Question - Nominee account or SIPP? If i am aiming for profit in the short term 6mths - 2 years as a rough time scale per stock, and during this time I may wish to draw funds out of my account, also I am actively trading my holdings. Is it best to keep them in my nominee account and take the hit of CGT, if i make sufficient gains, or is there a way of using a SIPP should i open a SIPP???. Apologies as Iam very new to investing on the stock market, probably a lot more points I could put here but hopefully you get my general confusion.

Thanks in advance.

P.s If there is a previous post, article, or link that anyone is aware of I would be very grateful.

[lw425] 25/4/2012 17:27

Regarding data for 2011/2012 you do need to input certain trades made in the new tax year 2012/2013, *if* it relates to the same share within 30 days in the previous tax year.

For example, using the CGT calc, I had sold my GKP around the 20th March with the CGT owed at the end of year being 'X'........ but within 30 days but in the NEW tax year I bought those GKP back.

Well although it's a new tax year, the 30 day rule still applies, therefore I must include a trade made in the new tax year in last tax years data.

The difference it made for me was that it reduced my CGT liability from what it was on 04/04/2012, as I'm judged to be still owning those shares and never sold them. Therefore, it deferred some tax liability but of course it balances out when you do dispose, as the taxable gain is based on the price paid in the previous tax year, 140p, not the price paid in the new tax year, well over 200p.

But if the shares now dive below 140p and I sell at a loss OR I sell now but run up big losses elsewhere........ then that means that the tax man has lost some tax because of the stupid 30 day rule. As without it I would owe tax on GKP for 2011/2012...... but now I don't have to pay it as I bought the share back within 30 days in the new tax year. Circumstances *could now happen* where the tax man don't get one bean!

Crazy.

[miata] 25/4/2012 09:21

You can put in a claim when liquidators are appointed, confirm it when they say there will be no surplus and it will then get approved. There is usually plenty of time before its dissolved, sometimes many years.

[bowlhead] 24/4/2012 23:53

Miata (or any others) - the helpsheet 286 notes on the second page of the linked pdf, that "You cannot make a negligible value claim after the company has been dissolved."

Also, it stands to reason that as you said, one can't make a claim with a slam-dunk chance of success until the liquidators have stated the shareholders will get a negligible amount back.

So does this mean there's only a slim window within which to make the claim, because the liquidators will confirm there are no assets and then pretty soon afterwards will clear what creditors they can, wind it up, and dissolve it?

Considering the company (taking Meldex as an example) was delisted over 3 years ago and many small investors would have mentally written it off then, it seems harsh that you wait 3 years and then have to suddenly really watch it carefully to be on the ball and quickly get your claim in once the company officially has no assets but before it stops existing?

Or is this just a technicality in relation to 'deeming it negligible value' and if the company has literally stopped existing, you obviously can claim the total loss with a nice long (indefinite) window of opportunity?

I've never bothered to claim losses in this way before, with only tiny amounts invested in companies that did so poorly as to go completely bust. The MDX one would only be

[karateboy] 24/4/2012 21:08

Gengulphus

This is just to say thank you for your valuable advice in my case. I resubmitted my amended SA on Sunday per your advice with a note explaing the reason, and it was accepted by HMRC. They refunded my over payment. What an efficient organisation HMRC is. Thanks again for your very valuable advice. If you don't mind I would like to make a contribution to charity that you support. I do a lot of work for charities in my spare time. Running Marathon and cycling,...Last June I cycled across Britain for my charity from John O Groat to Lands End and collected 5000 pounds for them...

Regards....

[theuniversal] 24/4/2012 19:58

Gengulphus - 21 Apr'12 - 20:15 - 332 of 340 and 338

glad we share the same sentiment on post 338. as for 332 i am still shamefully ignorant of the maths and logic invloved with this. and cant get my head around it. but thanks for the helpful advice your posts are appreciated.

oh ps: post 332 was in regards to the cgt allowance (which you answered previously) but mentioned the £42000 bracket, which i didnt get at all.

[david77] 22/4/2012 10:29

G - Thanks

[gengulphus] 21/4/2012 22:43

david77,

I am saying that if I stick to deals in a tax year, then if I over/underpay in one year then it probably gets corrected in the following tax year if calculated on the same basis. I'm aware that if, in one year my gains are over the allowable limit but in the following gains are under the allowable limit, then I might pay tax that I need not have done.

Or the reverse could happen: you could end up not paying tax that you should have done. E.g. it's possible for either of "£10k net gains in each of two tax years" (resulting in no CGT due) and "£5k net gains in one tax year, £15k in the other" (resulting in £1,232 CGT due if a higher-rate taxpayer) to be the result of the correct share matchings and the other the result of the incorrect share matchings. One way around, you've paid £1,232 tax you needn't have; the other way around, you've not paid £1,232 tax you should have...

It can also fail to balance out for other reasons, such as emigration or death.

I guess that there are equal probabilities of it being in my favour or the tax man's, the difference being that he won't argue if it's in his favour while he could prosecute me if it's in mine!

I doubt that prosecution is likely, unless you were to extremely foolishly say things that implied it was deliberate criminal tax evasion or try to conceal what you'd done during the investigation. But interest, surcharges and penalties for periods that your tax was underpaid and a lack of anything to compensate for periods that it was overpaid are very likely... (Edit: all on the assumption that it is detected, of course. The most likely outcome is that it never gets investigated at all.)

Gengulphus

[gengulphus] 21/4/2012 22:23

theuniversal,

personally it sounds daft having this 30 day rule, ...

That's putting it very mildly... It's a totally bonkers rule as far as I'm concerned! It creates all sorts of messiness in the CGT calculations, and it has been very ineffective from the word go at really preventing the 'bed-and-breakfasting' form of tax avoidance it was supposedly aimed at. Literally within 24 hours of it being introduced in the 1998 Budget, tax advisers were contacting clients they'd told about bed-and-breakfasting to say "don't worry, you can still achieve the same outcome by any of this list of reasonably simple alternative techniques". (One of those techniques was the bed-and-spouse transactions discussed about 30 posts back, for example. They generally involve getting the timing and a few other details right, as indeed did the original bed-and-breakfasting technique, but nothing more complicated than that.)

Gengulphus