Capital Gearing Share Discussion Threads

[lomcovaks] 08/8/2013 11:44

Gengulphus,

Thank you very much for taking the time and trouble to answer so comprehensively.

I also realised just after writing yesterday that my friend, by dint of having worked abroad for so long, is also non-resident and not ordinarily resident so shouldn't be liable for cgt on her assets held here:



However, I do concur that she very probably does require specialist advice. She had approached one outfit with a view to doing this but the price quoted was enough to make you cough cornflakes all over the table.

[gengulphus] 07/8/2013 19:52

Lomcovaks,

I've had a quick look at the part of HMRC's CGT manual about private residence relief ( ) and found the final sentence of :

"It does not matter how the residence is used during a qualifying period of absence. For example, it may be let without any loss of relief."

So as long as your friend's period of absence abroad is a "qualifying period of absence", it looks as though it will get private residence relief.

However, she does have to make certain that it is a "qualifying period of absence". There are a number of conditions for this, described in and . I don't really understand them fully, so if you find you have further questions about them, I'm afraid I probably won't be able to help. I.e. all I can really do in this area is give some pointers in (roughly) the right direction, not fully answer questions!

One other pointer I would give is that with the conversion to a single dwelling and back again, the possible interactions with foreign tax and the likely-to-be-large amounts of money involved, your friend's position is one I would regard as complex! In such a position, I would definitely pay for specialist tax advice - not doing so is likely to be a false economy, potentially costing far more in unnecessarily-paid tax than the advice would have cost... Bulletin board advice is not a substitute for specialist tax advice: a useful supplement to it, yes, to get some of the basics worked out and work out what questions to ask, but not a substitute unless you are lucky enough to encounter a real expert who feels like giving away some free advice and you can tell the diference between that real expert and everyone else who answers!

And just in case you're wondering, I am most definitely not a real expert - I'm an interested layman with some experience finding my way around tax rules, but it is entirely possible that there are relevant rules that a proper expert would know about and I don't even suspect exist!

Gengulphus

[lomcovaks] 07/8/2013 16:06

Dear Board,

I wonder if anyone can assist me with a query I have regarding principal private residence relief that I'm trying to help a friend with?

In short: Bought two London properties in late '90s and converted them into one large apartment and lived there as main residence but still had two council tax bills.

Early 2001 took work in USA and they still reside and work there.

In the intervening years, the properties were divided into individual units once more and let out by managing agents.

My friend is now undertaking some estate planning and would like her sole son and heir to benefit from the properties in the most tax efficient method possible, either through sale and release of cash or potentially exempt gift for IHT purposes.

The tax office help sheets suggest that private residence relief is available for the full period of her absence abroad but what it doesn't make clear if this is also the case if the properties have also been let out during the period of absence?

Failing the inability to claim full private residence relief, I'm guessing that it would only be lettings relief, the final 3 years of ownership and any period of her occupation that would be allowed to be offset against the capital gain?

If anyone has any suggestions for a tax efficient method of realising her gain from these properties or passing them to her son, I would much appreciate your advice.

Many thanks in advance.

[papy02] 29/7/2013 10:38

I short via spreadbet using the furthest out future (normally 6mo out, sometimes 9mo out is available). Costs are in the spread and in the uplift of the futures prices vs the spot. The latter works in your favour for a short.

The spread becomes more onerous once your chosen future expires and you have to roll. Default is they put you into the next quarterly future so you have roll-costs every 3 months. If you get to them on the right day you can override that and roll into the (usually) 6-mo out future.

With IG you pay half the spread to roll, which for liquid stocks having low market spread, is tolerable.

Some companies (eg Spreadex) can charge a daily stock-lending fee in addition, which makes them unattractive for stocks you can short elsewhere.

(Note to self: must look at Interactive Brokers - hadn't considered that)

[dsla] 29/7/2013 09:08

Spreadbets seem an expensive way to hold longer term (weeks/months) short positions to me vs Interactive Brokers, unless I have missed something? Spreadbet overnight financing rates are a killer, aren't they?

[someuwin] 27/7/2013 20:14

Most traders short using spread bets. Which are of course exempt from CGT.

[dsla] 27/7/2013 20:11

Thanks David, that's really helpful. I shall take it away and recode with short awareness. It feels like an exercise in wheel re-invention though - surely I'm not the only person in the UK who trades long and short like this...

[david77] 27/7/2013 17:55

The program is written in java script - you can view the source with Opera or Explorer - and I guess most other browsers.

My prog follows the HMRC guidelines from

which is
"Finding out which shares you're selling
.....
Shares bought and sold on the same day
......
Shares acquired within 30 days after selling
......
Shares bought at any other time
....."

Also see hxxp://homepage.ntlworld.com/stonebanks/cgtnotes.htm

change xx to tt - blame/thank ADVFN

My prog calcs profit or loss at the time of the sale - you can't do that if you sell but don't know what you will have to pay later.

[dsla] 27/7/2013 14:44

Sorry David, I thought I had attributed stonebanks.co.uk to Gengulphus in my first post but I didn't in fact. Shows what this CGT stuff is doing to my brain function!

[dsla] 27/7/2013 14:42

Hi David

Thanks, and apologies for the mis-attribution.

Yes, I like the lateral thinking and can see where you are coming from for a trivial sell-then-buy scenario. But consider the following typical example:

abc
01/01/13, b, 1000, 10, 100, real
02/01/13, s, 2000, 15, 300, real
01/03/13, b, 1500, 5, 75, real
02/03/13, s, 500, 8, 40, real

I suppose the dummy trades to add are:
02/01/13, b, 1000, 15, 150, dummy
01/03/13, s, 1000, 15, 150, dummy

This would give rise to the correct gains on the correct dates:
02/01/13 £50
01/03/13 £100
02/03/13 £15
(Of course, the dates don't matter so much in this example, but they would if the end of the tax year were crossed).

Again this was relatively trivial as the 1/3/13 purchase of 1500 soaked up all of the dummy trade of 1000 - but it could just as easily have been a purchase of 200 say.

So I guess what I'm saying is that I don't think your solution generalises without almost as much work in computing the dummy trades as it is to compute the gain...

If you would be prepared to share your code, David, I'd be happy to look at implementing incorporation of shorts in it. Is it written in R or something similar? (Hope so). If you're not prepared to share, I guess I'll be implementing it from scratch...

Regards
Dan

[dsla] 27/7/2013 12:50

Hi Gengulphus

Thanks for your recent very comprehensive post on matching rules which I came across whilst researching what to do when there is a conflict between the "same day" and "within 30 days following" directives.

I wonder if you can shed any light on another issue - short sales. I have a number of trades to account for where I have sold first and bought later. Another strategy I am employing may go long or short a particular share at different times, and trying to compute the CGT is giving me a headache!

The CGT manual would appear to be silent on CGT treatment of short sales of shares, although the principle is discussed implictly in the CGT treatment of futures. Actually the issue is implicitly addressed in TCGA92/S106A where the order of disposals is described (see ). Note the last rule:

4. Finally against acquisitions following the disposal (and not already identified under stage 2 [the 30 day rule] above), taking the earliest acquisition first, TCGA92/S105(2).

And para S105(2) of TCGA92 says this explicitly:

(2)Subject to section 106, where the quantity of the securities so disposed of exceeds the quantity of the securities so acquired, then so far as the excess is not required by any provision of section 104 or 107 or Schedule 2 to be identified with securities acquired before the day of the disposal, it shall be treated as diminishing a quantity subsequently acquired, and a quantity so acquired at an earlier date, rather than one so acquired at a later date. (see )

Unfortunately the online calculator at cgtcalculator.com stops with an error if it detects an interim short position; that at stonebanks.co.uk gets in a muddle with negative pool allocations and NaN errors...

Suggestions welcome!

Regards
Dan

[peawacks] 30/6/2013 17:17

sandbag, thanks

[sandbag] 30/6/2013 11:59

Sorry,
Double posting.

[sandbag] 30/6/2013 11:59

Peawacks,

It's purely down to the computer programme. The computer "reads" that you owe a figure so it sends out a bill for that figure. Civil Servants don't have the authority to change the progamme.

[peawacks] 30/6/2013 11:37

Why would HMRC send me a mid-year tax bill for £1 ? It must have cost them much more than that to process it. Is there an ulterior motive ?
Grateful for any opinions.

[wcr] 24/5/2013 10:00

Thanks for your reply Gengulphus.

I'll carry on filling my returns on line.

Regards

wcr

[gengulphus] 23/5/2013 16:02

I've been doing my tax returns on line for a few years & think I may have to use paper form this time !
I was left a few hundred pounds from a distant cousin in his will & I think I read somewhere this would prevent me from doing my returns on line & would have to use paper form!
Could anyone confirm this?

Unless there is something highly unusual about the inheritance or your tax circumstances, not as far as I know. Indeed, it's not even something you have to mention in your tax return - it's neither income nor a capital gain in tax terms. And while that doesn't mean the taxman wouldn't like to get his hands on it, the stage at which he gets the chance (if at all) is when the deceased's estate pays Inheritance Tax - i.e. the tax is a matter for the executors while they are still dealing with the estate, not one for you after they've handed the inheritance on to you.

And if you think about it, receiving inheritances is a fairly common event - so if there were any tax return consequences, they would have been a priority for getting on to the online system and off paper long before now... But as indicated above, so far as I know, there simply aren't such consequences.

Gengulphus

[wcr] 23/5/2013 09:11

I've been doing my tax returns on line for a few years & think I may have to use paper form this time !
I was left a few hundred pounds from a distant cousin in his will & I think I read somewhere this would prevent me from doing my returns on line & would have to use paper form!
Could anyone confirm this?

Regards
wcr

[fk2] 18/5/2013 12:46

Gengulphus,
Thank you for your time taken to give me such a comprehensive reply.
Kind regards FK2

[gengulphus] 18/5/2013 10:52

Basically, a claimed loss lasts until used. (Except that on the taxpayer's death, all losses not usable on gains realised before death are wiped out, along with all unrealised gains, and CGT starts afresh for the executors and heirs at the value of the assets on the day of death.)

Note that whether or not to use a loss is never a choice you can make directly. The rules require you to do the following for each tax year, before dealing with that tax year's CGT allowance:

1) Use losses realised in the tax year against gains realised in the tax year as far as possible - i.e. unless there is a rule preventing a loss being used or there are no gains left to use it against. So normally, if you have realised more gains than losses in a tax year, the losses are used up entirely against the gains and none of the losses are carried forward. And if you have realised more losses than gains in a tax year, the losses wipe out the gains entirely and the excess of the losses over the gains is carried forward.

2) If after step 1, the remaining gains are above the tax year's CGT allowance, use brought-forward losses if possible (i.e. if no rule prevents them being used) against the gains until either the brought-forward losses run out or the gains are reduced to the CGT allowance.

You don't have the option of saying "no, I don't want to use this loss now - I want to keep it around because I think I can make better use of it later". I.e. claimed losses do "stay until used", but that needs to be understood correctly as "stay until the rules say they're used", not as "stay until I choose to use them".

There is a time limit on claiming a loss: it must be claimed in the tax year in which it was realised or one of the following four tax years. If the loss isn't claimed within that time period, it is completely unusable in any tax year. If it is claimed within that time period, it is usable in every tax year, starting with the one in which it was realised.

Note that is not "starting with the one in which the loss is claimed". E.g. the normal procedure for claiming losses is to put them in your tax return for the tax year concerned. You do that in the tax year following the one in which the loss was realised - e.g. in tax returns that people might be submitting now, they'll be claiming losses they realised in the 2012/2013 tax year, but "now" is in the 2013/2014 tax year and so they're making a claim in the 2013/2014 tax year for a loss realised in the 2012/2013 tax year. The result of making that claim is that the loss is usable in tax years from 2012/2013 onwards (and very commonly will be used against gains realised in 2012/2013 itself), i.e. from the tax year the loss was realised, not the tax year it was claimed.

The point of all this is that a choice of when to claim losses does not change when they have to be used. E.g. suppose you're a higher-rate taxpayer and you realised gains of £12k and losses of £10k in 2012/2013, and have already realised gains of £30k in 2013/2014. Without the 2012/2013 losses, you would owe 28% * (£12k - £10.6k) = £392 CGT for 2012/2013. With them, the 2012/2013 gains are reduced to £2k and you owe no CGT. So the losses save you £392 of CGT: specifically, the first £1.4k of losses saves you 28% of their value by reducing the gains to the CGT allowance, then the remaining £8.6k is wasted reducing the gains further without any effect on the tax paid.

You would of course prefer at least that £8.6k to be used against the 2013/2014 gains, which would result in the £10k of losses saving you a total of £2.8k CGT at 28%, but you cannot do so: as I indicate above, the rules dictate when the losses have to be used, rather than you choosing. Nor can you bypass that by delaying claiming the losses until you submit your 2013/2014 tax return in 2014/2015: the claim is still for a loss realised in 2012/2013 and usable from then, so it just causes you to have to revisit your 2012/2013 tax return and/or get into trouble for having submitted an incorrect 2012/2013 tax return...

In short, if you want to claim losses at all (*), there is never any point in delaying the claim beyond the normal time, i.e. the tax return for the tax year concerned. The fact that the rules allow people 3-4 years beyond that to make the claim is there to allow them to correct the mistake of not realising they wanted to claim the losses, not to allow them to manipulate the tax owing!

Apologies for the length of the above, especially if a lot of it is already known to you - but I think there will probably be readers who would understand something short like "a claimed loss stays around until used" as indicating they have a choice about whether to use it starting from when they claimed it, and neither of those things is true!

(*) You don't always want to - in particular, if (losses for the tax year) <= (gains for the tax year) <= (CGT allowance for the tax year), there is usually absolutely no point, because whether or not the losses are claimed makes absolutely no difference either to the CGT owed (zero either way) or to the CGT position in any other tax year. ("Usually" because there are unusual situations, e.g. involving 'clogged losses', where it does make a difference.)

Gengulphus

[fk2] 17/5/2013 11:14

Hi guys,
When losses are notified to HMRC have they to be used in the following 5 years,
or do they stay until used ? Thanks.

[gengulphus] 14/5/2013 23:27

igoe104,

As a general rule, you have to declare dividends on your tax return - as income subject to Income Tax, not capital gains and losses subject to CGT. This thread is about CGT...

There are some exceptions to that general rule, but the dividend being paid by a foreign company is not one of them, nor is it being paid by an AIM company.

Gengulphus

[igoe104] 12/5/2013 13:28

Hi guys can anyone comfirm for me that i do have to declare a dividend from a foreign ( overseas) aim company on my tax return ?

[igoe104] 12/5/2013 13:24

Hi guys can anyone comfirm for me that i do have to declare a dividend from a foreign ( overseas) aim company on my tax return ?