Capital Gearing Share Discussion Threads

[apsoo] 26/2/2014 18:17

Gengulphus - Thanks for that detailed reply, really appreciate it, very helpful, learnt a lot from that.

[riggerbeautz] 26/2/2014 17:18

Gengulphus/Miata you have probably been asked this question before, but I hold a few shares in EEL, no stranger to these boards as a delisted company, but still in limbo existence several years on.

My shares are held in a nominee account that I also have significant profits to bank. So just pondering is it possible to write these off firstly against a tax gain? Either this year or next tax year as I'm fortunate enough to have good profits to bank. Secondly, if the company was to relist, what would happen to my holding? Could I be responsible in any way, say how would it work if the parent company suddenly made an offer to shareholders and I'd already written them off.

Never really looked into it before as always the patient type, but if I could write off the purchase costs, it might help me bank a few more profits this year or next.

[red nutter] 25/2/2014 12:05

Gengulphus thanks for your reply on 666

[gengulphus] 25/2/2014 09:49

APSOO,

Say I purchase shares up to the value of the allowance of £11,520.00. The shares have moved up in a short space of time and I wish to take profits. I sell the lot and bank the profit. I then wish to make another investment...could I therefore reload my ISA with shares up to the allowance of £11,520.00 even though I am still in the same tax year and could I keep repeating this and still have no tax to pay ?

Yes - but you can do more than that. You can use all the proceeds of the sale to buy further shares in the ISA, not just £11,520 of them (though the flip side of that is that if you were instead to sell at a loss, you could only use the proceeds of the loss - you couldn't make them back up to £11,520 with extra cash).

The one thing you don't want to do in that situation is withdraw the cash from the ISA, because once withdrawn, it can only be replaced by subscribing it back to the ISA, and that can only be done up to your ISA allowance each tax year. I say this because of the phrase "bank the profit" that you used - I think you mean it figuratively, but if by any chance you literally mean withdraw the cash into your bank account, don't do that with any cash you would like to invest in further shares. As a general rule, only withdraw cash from ISAs if you need it for non-investment purposes or if you want to invest it in an asset that cannot be held in an ISA - and if it's the latter, ask yourself first whether that asset is really so much better than ISA-eligible shares that it's worth giving up the tax protection in order to invest in it.

More generally, think of an equities ISA as a 'box' that can hold both cash and shares, and that hides them from most taxation (*). You can move cash into the box, but only up to the ISA allowance each tax year. You cannot move shares into the box, except in some special circumstances to do with a couple of types of employee share scheme. You can freely move cash and shares out of the box, but doing so does not give you the right to put them back in, so you don't want to do it without good reason.

And all buys and sells happen entirely within the box - they're just changing cash inside the box into shares inside the box and vice versa. Obviously that means your broker is putting the shares you bought and the cash proceeds of your sales into the box. That's allowed - the restrictions in the last paragraph are about what you can do, not about what your broker can do as part of putting your share trades into effect.

Similarly, all dividend payments, takeovers, demergers, rights issues and other corporate actions happen entirely within the box - in particular, dividend payments are not a case of you putting cash into the box and so don't count against your ISA allowance. Some types of corporate action do however have a consequence on things moving in and out of the box - it's not particularly common, but it can happen that a corporate action such as a demerger puts shares into the ISA that are not allowed in ISAs. If that happens, your broker should tell you that you need to sell them within 30 days, and that if you don't, they will be transferred out of the ISA into your personal ownership as though you had asked to withdraw them from the ISA.

(*) Exceptions are stamp duty on share purchases and a straight 20% tax on interest earnt on the cash.

Furthermore, could I continue trading in my usual non ISA account and keep the yearly CGT allowance and therefore only declare these trades ?

Yes. By the way, it's not just that you could only declare those trades: you must only declare those trades. You're not allowed to declare trades inside an ISA for CGT even if you want to - in particular, if you sell at a loss inside an ISA, you cannot claim and use that loss to reduce gains outside.

And in case you're wondering, you can withdraw the shares from the ISA and sell them outside to make the sale visible to CGT, but that doesn't make their loss of value while they were inside the ISA usable for CGT. That's because CGT treats shares withdrawn from an ISA as having been bought for their market value on the day they were withdrawn, not for the price that was actually paid when they were bought inside the ISA.

Gengulphus

[handykart] 24/2/2014 14:21

Ok, thanks MIATA

[miata] 24/2/2014 08:42

No, claim it on your return.

[handykart] 24/2/2014 01:56

Hello, I have some shares in a company called Orchid developments (OCH). It delisted from AIM on 15/1/2013.Value is now Zero in my share account.
Do I have to wait for some sort of confirmation, to say the shares have no value, before I put it on my tax return as a loss?
Thanks in advance.

[apsoo] 23/2/2014 22:51

MIATA - Thanks.

[apsoo] 23/2/2014 15:57

Gengulphus - Many thanks for your earlier answer, I have one more question re: Stock ISA's.
Say I purchase shares up to the value of the allowance of £11,520.00. The shares have moved up in a short space of time and I wish to take profits. I sell the lot and bank the profit. I then wish to make another investment...could I therefore reload my ISA with shares up to the allowance of £11,520.00 even though I am still in the same tax year and could I keep repeating this and still have no tax to pay ?
Furthermore, could I continue trading in my usual non ISA account and keep the yearly CGT allowance and therefore only declare these trades ?

[david77] 21/2/2014 07:52

Use one of the calculators on www.stonebanks.co.uk - option 1 for notes, option 2 for calculator,
or www.CGTcalculator.com

[norman lamont] 21/2/2014 01:36

Hello.

Firstly, I am not the real Norman Lamont.

Secondly, how do I work out CGT on a share where I have bought some in several different trades, and sold some in various different trades?

Is it fifo, lifo or something else?

Thanks in advance.

[miata] 20/2/2014 10:47

Re 8.

www.moneyadviceservice.org.uk/en/articles/splitting-pensions-during-divorce

[gengulphus] 20/2/2014 09:45

I own 2 houses both in Mr and Mrs name, selling main home (#56) for £100k profit, have a 2nd property (#10) where I lived before for 7.58 years and letted for 4 yrs. The 2nd property will be mine outright in the divorce. Not sure on CGT issues and thus do not know what to do with my 2nd home. (I do not want to move there)

house #10:-

bought July 2002 for £165k (deposit and mortgage - current value £265k?
letted out Feb 2010 (Stayed = 7.58 yrs (7.7/12)
end of letting 15/2/2014 (Letted = 4.00 yrs)
Total = 11.58 yrs
empty at the moment – to decide to sell or let out again and sell in future

house #56 – current marital home – lived there Feb 2010 to current – being sold

Questions:-

1. Is there any CGT/liability on #56? I assume no CGT as main home and divorce

Depends on whether #56 has been your 'only or main residence' for your entire period of ownership (i.e. your 'main home' reason - whether you're divorcing or not doesn't come into it as far as I am aware). As you say when you lived there but not when you bought it, I cannot tell for certain - but if you moved in very soon after buying, it will be completely covered by private residence relief. The same will also apply in some other circumstances - e.g. if there was a period of up to a year between buying and moving in, but that period was needed to refurbish it.

There might also be an issue if there was a period during which both #56 and #10 were your residences - i.e. properties you owned and lived in. It sounds as though any such period would have been short (quite possibly too short to bother about - but I don't actually know what HMRC's take is on periods being too short to bother about!), but if it does exist, which one counted as your main residence at which time depends on whether you nominated one of them as your main residence within the 2-year time limit, and if not, on what the facts say about which property you were mainly living in.

2. Does HMRC helpsheet 283 apply to #10? Do I get any reliefs, If so please help with calcs

Yes, HMRC helpsheet 283 definitely applies to both properties - if it weren't for private residence relief, you would be fully liable to CGT on both properties. It probably applies quite simply to #56, which could well just be a straightforward 100%-private-residence-relief case. It's not quite that simple for #10.

3. If sell #10 – what are CGT implications for Mr And Mrs? (half share)

Almost certainly no CGT to pay, but you may well have to account for CGT on it in your tax return if you have to fill one in.

The reason for that is that private residence relief covers the period it was actually your residence (which ended 4 years ago) and the last 36 months of your ownership if sold in this tax year, which is reducing to the last 18 months if sold next tax year. That leaves at least a year uncovered, increasing to at least 2.5 years if not sold this tax year. On your 11.58 year ownership period, that means somewhere between a bit under 10% and a bit under 25% of the gain will not be covered by private residence relief.

However, letting relief will also apply, and on the figures you give, the amount of the gain that you still need to relieve is less than the amount of private residence relief you have, less than £40k, and less than the fraction of the gain attributed to the letting (on a fraction-of-the-ownership-period basis). So letting relief will completely cover the remaining gain, leaving no gain on which to pay CGT.

That applies regardless of whether the fraction not covered by private residence relief is around 10% or around 25%, so when exactly you sell it in the near future doesn't make a difference to the zero outcome, just to the exact figures along the way. For people with a larger gain or larger fraction of the gain uncovered by private residence relief, though, whether they get the final 36 months or the final 18 months might matter - in which case an important detail is that it's whether the date of exchange of contracts (not completion) is in the current tax year that matters. (Normally, that is: if the contracts have conditions in them that say the sale might not go ahead at all, it's the later date when it becomes definite that the sale is going ahead.)

Joint ownership is also relevant: each person does their own calculation on their share of the gain, determined by their beneficial ownership. Normally that's 50:50 and each person's calculation is the same as the other's, at least up to the point of adding their other capital gains, offsetting their capital losses and seeing whether what remains is covered by their CGT allowance. If by any chance beneficial ownership isn't split 50:50, their calculations might differ, and might not even be in proportion to each other - for instance, one might run into the £40k limit on letting relief while the other doesn't.

The reason I think you may have to account for it in your tax return even though no CGT is due is that I've only ever seen statements that house sales completely covered by private residence relief don't have to be reported. That suggests that house sales that are partly covered by private residence relief, with the remainder covered by other reliefs such as letting relief, do have to be reported.

4. Can I offset the original costs of purchase of #10 – legal fees, stamp duty etc?

Yes - they are "incidental costs of acquisition" in CGT-speak.

5. I also have share losses from past years of £20k – can I offset these against the gain of £100k from sale and thus reduce the CGT liability?

Maybe - it depends on when they were made, whether you have 'claimed' them (which basically means telling the taxman about them within a time limit), and whether you have been forced to use them against gains since. If they do get successfully carried forward to the tax year in which you realise the gain on the house, you can use them against that gain other than in a few unusual circumstances.

Of course, there doesn't actually seem to be a CGT liability to use such losses against at present, so that answer mainly applies to the situation in your next question...

Note by the way that ownership of the shares at the time they were sold matters, in order to determine exactly whose losses they were.

6. If I transfer #10 to my name and carry on letting out then sell in future? CGT implications?

The longer you do it, the higher the proportion of the gain that is not covered by CGT, and probably the higher the gain. At some point, that will probably take the remaining gain above the level that can be covered by letting relief - most likely by taking it over £40k - and so some of the gain will become chargeable to CGT. Somewhat after that, the amount of the gain chargeable to CGT will probably exceed what you can cover with your CGT allowance and losses (you will of course only have your own allowance and losses to use once the house is in your sole ownership, not your spouse's as well) and CGT will start to be payable.

7. If I sell in now (as Mr & Mrs) or in future (as Mr) and reinvest into another property – can I avoid CGT?

Well, I think selling now will avoid having CGT to pay (though probably not having to account for it to the taxman) anyway, so the strict answer to your question is "Yes"... But I assume what you mean is "Can reinvesting in another property help me avoid more CGT than I could otherwise?", and I think the answer to that is "No", at least as far as individual taxation is concerned. (There might be ways for use of a limited company that owns the properties to avoid CGT - or to be precise, avoid the Corporation Tax equivalent of CGT - but that goes well outside my knowledge.)

8. Anything else need to worry about?

Doubtless! ;-)

But nothing I can think of at the moment.

Gengulphus

[sloopjohn] 20/2/2014 06:09

Gengulphus, MIATA

Thanks for you comments. In retrospect I can see where I have caused confusion and take the points you both highlight.

Having looked at the suggested publications, quite heavy going, the ESCD2 document regarding split year treatment "...does not apply for 2013/14 or beyond." SRT will be used instead. So SRT to determine if a split year should apply to me, which, AIUI determines both income tax & CGT.

I am going through the examples/rules to see how my circumstances would be evaluated.

Thanks for you help, pointers.

Kind regards,

SloopJohn

[red nutter] 19/2/2014 15:22

Hi,

Re: DIVORCE & CGT SELLING 2ND HOME

Hope someone can help me in my predicament where I am getting divorced.

I own 2 houses both in Mr and Mrs name, selling main home (#56) for £100k profit, have a 2nd property (#10) where I lived before for 7.58 years and letted for 4 yrs. The 2nd property will be mine outright in the divorce. Not sure on CGT issues and thus do not know what to do with my 2nd home. (I do not want to move there)

house #10:-

bought July 2002 for £165k (deposit and mortgage - current value £265k?
letted out Feb 2010 (Stayed = 7.58 yrs (7.7/12)
end of letting 15/2/2014 (Letted = 4.00 yrs)
Total = 11.58 yrs
empty at the moment – to decide to sell or let out again and sell in future

house #56 – current marital home – lived there Feb 2010 to current – being sold

Questions:-

1. Is there any CGT/liability on #56? I assume no CGT as main home and divorce
2. Does HMRC helpsheet 283 apply to #10? Do I get any reliefs, If so please help with calcs
3. If sell #10 – what are CGT implications for Mr And Mrs? (half share)
4. Can I offset the original costs of purchase of #10 – legal fees, stamp duty etc?
5. I also have share losses from past years of £20k – can I offset these against the gain of £100k from sale and thus reduce the CGT liability?
6. If I transfer #10 to my name and carry on letting out then sell in future? CGT implications?
7. If I sell in now (as Mr & Mrs) or in future (as Mr) and reinvest into another property – can I avoid CGT?
8. Anything else need to worry about?

[apsoo] 15/2/2014 18:26

Gengulphus - Many thanks for the detailed response, I understand it much better now, appreciated.

[gengulphus] 15/2/2014 18:20

Am I right in thinking I can open an ISA and transfer eligible stock from my ordinary trading account up to the value of £11,000+ (purchase value) and when I sell which could be anytime without any minimum holding time, there is no CGT payable ?

No.

In most cases, you cannot transfer eligible stock into an ISA at all. You can achieve something similar by selling the stock outside the ISA, transferring the proceeds into the ISA as a cash subscription, and using it to repurchase the stock inside the ISA - a process sometimes known as "bed and ISAing". It's subject to just about all the usual costs and restrictions of the separate steps: the sale will have trading costs and will realise capital gains or losses for CGT purposes, the cash subscription is restricted as normal by the ISA allowance, and the repurchase will have trading costs, including stamp duty (but like any other purchase inside an ISA, has no later CGT implications if and when the shares are subsequently sold).

If you want to start with the shares in a non-ISA broker account and end up with them in an ISA account with the same broker, talk to the broker first about doing a "bed and ISA". That's because many brokers will offer a special deal on the trading costs - a typical deal being only having to pay one commission for the two trades involved - and also because they can put the sale, subscription and repurchase through very quickly, minimising the chances of the share price moving against you in the middle.

The exception that made me start with "In most cases" above is that shares released from a couple of types of employee share scheme can for a limited period (up to 90 days after release IIRC) be transferred into an ISA. This avoids the trading costs and realising capital gains or losses on the sale. The value of the shares transferred in still counts against your ISA allowance, though - and that is worked out using market value on the day of the transfer, not your purchase cost.

One of the types of employee share scheme is the type variously known as a Save As You Earn, SAYE or ShareSave scheme; I can never remember what the other one is called! I would normally expect the employer or their scheme provider to tell the employees about the possibility of transfer into an ISA when the shares are released.

Gengulphus

[apsoo] 15/2/2014 17:05

Trying to reduce future CGT liability and hoping if any of you knowledgeable guys can assist.
Am I right in thinking I can open an ISA and transfer eligible stock from my ordinary trading account up to the value of £11,000+ (purchase value) and when I sell which could be anytime without any minimum holding time, there is no CGT payable ?
Would appreciate any help ?

[gengulphus] 11/2/2014 13:23

MIATA: Understood, thanks.

SloopJohn: As a word of warning, it would be a good idea for you to try to get into the habit of being precise, using the standard terminology. You just talked about gains and losses when you said "As gains and losses don't count until next tax year" without saying whether you meant realised ones (i.e. where you have sold or otherwise disposed of the shares, and so the size of the gain or loss has become fixed) or unrealised ones (i.e. where you still own the shares and the size of the gain or loss is still fluctuating with the share price). Because of that, MIATA and I got different impressions what you were saying and gave you different answers... That's harmless enough - our subsequent exchange has hopefully sorted out the differences. But there is a danger if you don't actually say precisely what you're talking about that you'll mean one thing, someone replies thinking you meant something else and the misunderstanding won't come to light the way it has this time...

Gengulphus

[miata] 11/2/2014 09:47

I was referring to unrealised gains.

The statement
"How should I calculate the holding "price" of each shares at the point at which I become UK taxable? Is it as 'simple' as a "section 104 holding"?
was what triggered my concern.

It's complex area. I recommend researching the extra statutory concessions (see ESCD2) and the SRT introduced with effect from 2013-14 (see RDR3).

[gengulphus] 11/2/2014 09:11

"As gains and losses don't count until next tax year" - hope you don't mean what I think you might mean. The gains you make on cost will be taxable in the UK when you realise them.

SloopJohn has said he has been out of the UK for over 5 years (so he left at the latest in the 2008/2009 tax year) and isn't returning until after the start of the 2014/2015 tax year. So he will have been out of the country for five full tax years, and so any gains or losses he realises in those tax years won't be taxed by UK CGT. That includes gains and losses realised in the remainder of the current 2013/2014 tax year. I think that's what he means by saying they "don't count", and as far as I am aware (corrections welcome, it's not an area I'm very familiar with), it's true.

Gengulphus

[miata] 10/2/2014 16:41

"As gains and losses don't count until next tax year" - hope you don't mean what I think you might mean. The gains you make on cost will be taxable in the UK when you realise them.

The most important advice for some expats is if you have an ISA and are in a country which imposes tax on capital gains, use your losses before you return. For others with complex holdings (corporate actions, etc) in a non-CGT country it is cash in before you return and re-purchase in the UK to keep the paperwork simple.

[sloopjohn] 10/2/2014 15:13

647 What is the best way to present share holdings as a UK Tax returnee considering future CGT?

Gengulphus,

Many thanks for you considered and, as always, detailed reply 648. Apologies for my tardy response, very busy weekend.

I will study the publications you highlight for any gems that may help.

I have been outside the UK for significantly in excess of the 5-year CGT qualification period. I appreciate the warning of returning to the UK within this tax year, which could have effects on both CGT and income tax. I will avoid this without any doubt. Fact is, I have never submitted a CGT/Loss return, so I need understand that first to ensure my statement is compatible.


I take your point regarding simplification of current holdings and will be mindful with any trades. I have one or two shares complicated by corporate action. SIA is one where I took capital return last time to reduce UK tax, luckily a very generous chap :-) explained the implications of both options in great detail so I have a handle on this.

Share traded to zero quantity more that 30 days ago don't count, gains or losses.
LTBH shares qualify for aggregate treatment, ie held over 30+ days.
Regarding trading shares; as you point out I have the benefit of time to ensure the holdings are optimized. Mindful that corporate action could change, seeing I have no control in that area I'll cross that bridge should it appear.

I know 'losses cannot be carried forward' from a non-CGT period, which was the reason HMG did not want post redundant gain/loss data in the past. I think you hit the nail on the head. Work out the gains under the UK tax rules, ie same day, 30 days rule etc. Ensure a 31 day 'no action' period to set the 104 holding price.

As gains and losses don't count until next tax year my plan is to use the CGT Calculator with no loss carry forward, for each holding to give an aggregate holding ending tax 2013/14. Input a false trade into the calculator for zero return on a nominal date, say, 1st June 2015, the calculator should indicate a loss which is equal to the holding price in each case. I will prepare the trades history working back from my entry date to support this. If there is a need to see the calculation/trades in the future I will have the calculations and data.

Now, what does a CGT form look like.

Thanks again for you comments, very helpful to get another view,

Kind regards

SloopJohn

[sailing john] 07/2/2014 15:01

Many thanks for the quick replies. I suppose it makes sense at it effectively stops "gaming" by taking the last sale and letting the earlier sales go over 30 days (effectively sooner)

I will make a note on my spreadsheet so that I don't have to ask again!

Great thread and much appreciated by many I'm sure

SJ