Capital Gearing Share Discussion Threads

[eeza] 29/3/2013 16:14

Lol !!!
Blame the beer !!!
But correct on the 30 day rule. Lol !!

[fanramptastic mate] 29/3/2013 16:08

david77

thanks

(eeza - dont give up the day job)!

[eeza] 29/3/2013 15:51

1 : £75k Cap Gains (minus allowance)taxed @ either 18% or 28% depending on circumstances.
2 : Tax Year 2012-2013.
3 : 30 day rule not broken.

[fanramptastic mate] 29/3/2013 13:48

posted on another board

ammons 29 Mar'13 - 13:40 - 18913 of 18913


Gengulphus is your CGT man.


++++++++


I understand the simple examples but have a question for the CGT boffins

example : Mr X has 50k share in co ABC which were purchased in this tax year (2012-13) @ 50p (£25k)

If Mr X sells all 50k ABC shares @ £2.00 say 3 April 2013 (£75k profit),
but then buys them all back @ £1.75 say 18 April 2013 (breaking the must wait 30 day rule) :-

1. What is Mr X's CGT liability (before allowances)?
2. What year will be the CGT liable for declaring (2012-13 or 2013-14)?

TIA

[miata] 26/3/2013 13:04

£42,475 for 2012-13.

The basic rate bands:
Income tax allowances and rates
................................. 2010-11..2011-12..2012-13..2013-14..2014-15
Basic personal allowance...........£6,475...£7,475...£8,105...£9,440..£10,000
Basic rate limit..................£37,400..£35,000..£34,370..£32,010..£31,865
Higher rate threshold.............£43,875..£42,475..£42,475..£41,450..£41,865


Interestingly several other tax jurisdictions do use FIFO for CGT, notably the US and Ireland.

Off the top of my head, the only other area of UK tax law that uses the FIFO basis is the relief for losses incurred in the first four tax years of trade against other income (ITA 2007,s72).

[tommy51] 26/3/2013 13:03

Gengulphus, great input thanks , but I've now managed to confuse myself on what I thought was a simple point re " personal allowance is £8,105 and the basic-rate band is £34,370, so the higher-rate threshold is normally their sum £42,475. and "...... that you can have taxed at 18% rather than 28% is £34,370 .

Is the threshold switch on your income for paying 28 % tax £42, 475 or £34370.
i.e. if you earn more £34370 then any CGT is taxed at 28% not 18% ? ta

[gengulphus] 26/3/2013 12:23

Gengulphus, thanks for mentioning FIFO, ...

Er, it's m1tu who mentioned FIFO - I merely responded to that mention...

... I was aware of LIFO and that had been replaced...but had never heard of FIFO, must have been before my time, gawd time flies :-)

I've never heard of FIFO in connection with UK CGT either - but I've only been interested in UK CGT rules since about late 1997 and have never investigated what they were before that in enough detail to know for certain whether they included a FIFO rule before then. The rather skimpy investigations I have done haven't produced even a hint of such a rule, though, so my best guess is that FIFO has never been part of UK CGT rules.

I think I have come across FIFO rules in other tax contexts, though. For example, there is business property relief on Inheritance Tax, which applies to unlisted shares in trading companies that have been held for two years or more at the time of death. If the deceased bought 10k shares more than two years before death, then another 5k shares less than two years before death, then sold 5k shares, then died, there's the question of whether the shares they sold are the 5k shares bought less than two years before death (i.e. basically LIFO), so that all 10k remaining shares get the relief, or are 5k of the 10k shares bought more than two years before death (i.e. basically FIFO), so that only 5k of the 10k remaining shares get the relief, or something else...

If I understood what I read some years back correctly, the answer was that it was basically FIFO. I think it was a page in HMRC's IHT manual, but on trying to check up on it just now, I have failed to find anything in the current version of that manual that addresses the question at all. :-( Whether that's because it isn't there or because I haven't thought of the right place to look, I don't know...

Gengulphus

[optomistic] 25/3/2013 16:17

Gengulphus, thanks for mentioning FIFO, I was aware of LIFO and that had been replaced...but had never heard of FIFO, must have been before my time, gawd time flies :-)

[gengulphus] 25/3/2013 11:35

m1tu,

You can use sharescope. Co. Uk programme for cgt calculations, it uses the 30 day rules, fifo, you can sign up for one month then unsubscribe.

If it really uses FIFO (First In, First Out), I'm afraid it is not suitable for UK CGT calculations and, so far as I am aware (*), has never been.

If FIFO is a typo for LIFO (Last In, First Out), it's still not suitable: it would have been from 1998 to 2008, but the LIFO rule disappeared in the CGT simplifications that came in for the 2008/2009 tax year.

(*) I know the rules back to and including the pooling rules that were replaced by the 30-day and LIFO rules in 1998 - so I cannot guarantee that FIFO wasn't used in a yet-earlier set of rules.

Gengulphus

[fireplace22] 25/3/2013 11:27

Gengulphus thank you for that detailed clarification.

[gengulphus] 25/3/2013 11:22

A big thanks to the tax oracles here for making the mind-bending tax issues a little more clear. Could you help me clarify something please?

I buy 100000 shares at £1 and sell them when they hit £2. A week later the share price drops to £1.50 and I repurchase 100000 shares.

Does the 30-day rule apply or am I naively over-estimating the generosity of the HMRC?

The 30-day rule applies, but actually works out as producing less of an immediate tax liability in that scenario (though the future tax liability if and when you eventually sell the 100k shares will be correspondingly greater).

The important thing to understand about the 30-day rule is that (contrary to far too many descriptions in newspapers and the like) it does not exempt the sale and repurchase from CGT. It just changes the tax calculation's determination of which shares you sold.

Basically, the 30-day rule says that if you repurchase within the next 30 days after a sale, you are treated as having sold the repurchased shares and not the original shares. Never mind the fact that (unless you played games with settlement periods) you would have had to travel backwards in time to have sold the repurchased shares: the CGT share-matching rules don't care about whether the matchings of sells to buys they produce are actually possible in the real world...

So, you bought 100k shares for £100k, then on a later date (*) sold 100k shares for £200k, then a week later bought 100k shares for £150k. The 30-day rule says the 100k shares you sold were the repurchased ones, so you realised a gain on them of £200k-£150k = £50k. And the 100k shares you now have are the ones from the original purchase, so cost you £100k. If in the future you were to sell them for £250k, you will realise a gain of £250k-£100k = £150k at that point.

If the repurchase had instead been 31 or more days after the sale, the 30-day rule would not apply. The normal 'Section 104 pool' rule would say that the 100k shares you sold were from the original purchase, so you realised a gain on them of £200k-£100k = 100k. And the 100k shares you now have are the ones from the repurchase, so cost you £150k. If in the future you were to sell them for £250k, you will realise a gain of £250k-£150k = £100k at that point.

So the 30-day rule works in your favour in that scenario, by leaving you with a £50k gain to deal with rather than a £100k gain. But the £50k difference has only really been deferred - the gain when you eventually sell will be £50k more than it would have been without the 30-day rule.

(*) If the original buy and the sell were on the same day, the same-day rules would take priority over the 30-day rule.

Gengulphus

[gengulphus] 25/3/2013 10:47

fireplace22,

So I wont get 0% rate GGT on my remaining £2000 of personal income tax allowance.
I only pay 18% CGT on what is the 20% income tax band not 28%?

Yes - but just to clarify a detail that I don't think has been made completely clear: the Income Tax personal allowance is not usable for CGT at all, just as the CGT allowance is not usable for Income Tax at all. In particular, unused personal allowance does not count as part of the unused basic-rate band that you get an 18% CGT rate on.

E.g. in the current tax year, the personal allowance is £8,105 and the basic-rate band is £34,370, so the higher-rate threshold is normally their sum £42,475. If your income is £6,105, leaving £2,000 of the personal allowance unused, the amount of capital gains in excess of the CGT allowance that you can have taxed at 18% rather than 28% is £34,370 (the unused basic-rate band), not £34,370+£2,000 = £36,370 (the unused basic-rate band and personal allowance).

Gengulphus

[m1tu] 23/3/2013 17:24

You can use sharescope. Co. Uk programme for cgt calculations, it uses the 30 day rules, fifo, you can sign up for one month then unsubscribe.

[optomistic] 23/3/2013 16:37

Thanks David, I do use your CGT calc and find it very good.
This year has been poor for me and I am below both requirements for submitting CGT returns but needed to know what would be the closing pool figure to carry forward.
I think the easiest way for me is to sell the holding before the year end and repurchase after 30 days (and ex divi) if good to do so. Still got a position on this holding (Costain) in my ISA so all will not be lost in the event of a large up move...would be my luck after holding for years.

[optomistic] 23/3/2013 14:11

I was looking forward to a reply to 6718 but with more of an explanation please.

edit I sold a holding last week and re bought back for less(now showing a further gain), not sure where I stand with this.

[sleveen] 23/3/2013 14:09

yes it does. 100k re bought shares are matched with 100k of the sold shares. The othe 100k would be assesssed for CGT assuming a profit is made simplistically speaking.

[vodkabunny] 23/3/2013 14:02

A big thanks to the tax oracles here for making the mind-bending tax issues a little more clear. Could you help me clarify something please?

I buy 100000 shares at £1 and sell them when they hit £2. A week later the share price drops to £1.50 and I repurchase 100000 shares.

Does the 30-day rule apply or am I naively over-estimating the generosity of the HMRC?

[miata] 23/3/2013 13:41

In most cases:
You add together all of your gains for that tax year.
You add together all of the allowable losses you've made for that tax year.
You deduct the losses from the gains to work out the overall net gains or losses.
If the overall net gains are below the annual tax-free allowance (known as the 'Annual Exempt Amount'), there's no Capital Gains Tax to pay.
If the overall net gains are above the Annual Exempt Amount, you deduct unused allowable losses from a previous tax year. Deduct enough to reduce your gains to the Annual Exempt Amount. You can carry the rest forward to future tax years.
If you have overall gains work out which Capital Gains Tax rates apply and how to use your tax free allowance. For gains made in 2012-13 Capital Gains Tax is charged at 18 per cent, or 28 per cent for higher rate tax payers.
If you have gains chargeable at different rates, deduct the Annual Exempt Amount in the way which minimises your tax due.

As your gains and losses were realised in the same tax year, they net off and you are below the limit. You have nothing to carry forward.

[thesloth2] 23/3/2013 12:39

Hi Miata

Quick question.And apologies if it has been asked before.
I have CGT Gains 2012/13 of £11280
I have CGT Losses 2012/2013 of £ 5000

Does this mean that I am showing a tax free gain of £6280 or
Does this mean that I can carry forward a loss of £5000 into 2013/14 having used
my full allowance for 2012/13.

Many Thanks

[fireplace22] 23/3/2013 12:20

Thanks MiATA, clear now.

[miata] 23/3/2013 12:01

You won't get 0% CGT rate in relation to your separate income tax personal allowance.
You will get 18% CGT rate.

The basic rate bands:
Income tax allowances and rates
................................. 2010-11..2011-12..2012-13..2013-14..2014-15
Basic personal allowance...........£6,475...£7,475...£8,105...£9,440..£10,000
Basic rate limit..................£37,400..£35,000..£34,370..£32,010..£31,865
Higher rate threshold.............£43,875..£42,475..£42,475..£41,450..£41,865

[fireplace22] 23/3/2013 11:43

Thanks MIATA, but just to clarify;
So I wont get 0% rate GGT on my remaining £2000 of personal income tax allowance.
I only pay 18% CGT on what is the 20% income tax band not 28%?