Capital Gearing Share Discussion Threads

[largeronald] 14/8/2014 13:56

Your answer also mentions the "Section 104 pool" which I was previously unaware of.

A couple of years ago, when I was still gainfully employed (I am now retired), a company both I and my wife still have shares in announced a return of capital to its shareholders (which never actually happened as a straightforward dividend) and I was concerned that I (as a 40% taxpayer) would have to pay tax on any dividend received. As my wife was unemployed, I transferred all of my shareholding in said company to her.

Would I be right in assuming that under the Section 104 pool rules, in effect, ALL of the shares now held by my wife would be considered as having the same average value e.g. 100p and if she transferred some back to me, that is the value that would be used for CGT when I sold them in the future?

Sorry - just to clarify the example :

My wife has 10,000 shares in company at an average cost of 50p per share - total £5000
I transfer to her 10,000 shares in company at an average cost of 150p per share - total £15000
My wife now has 20,000 shares at a total cost of £20,000 and therefore the average cost of each share is 100p.

If she now transfers back to me 10,000 shares, then the cost of my holding would be regarded as £10000 for CGT purposes?

[largeronald] 14/8/2014 13:34

Gengulphus - thanks for your comprehensive reply. It's much appreciated. My reason for bed-and-ISAing is that the share price of the company is the lowest it has been for some years and I'm now in a small average loss situation. The total value of the shares is now round about the current ISA annual limit i.e. £15k. Added to this, I'm expecting the company to get taken over at any time within the next year or so which should substantially move the share price and I'm trying to avoid any CGT when (if) that happens.

[gengulphus] 14/8/2014 12:52

largeronald,

The question I have is whether by transferring the ones I have (which would currently show a profit) to my wife before selling, that profit would, in effect, be wiped out by my wife's ones, which would currently show a loss.

Basically yes - but there are some technicalities to watch out for.

The technical details are that when you transfer shares to your wife, the transfer is treated for CGT purposes as though she had paid you exactly the total of all your allowable costs for the shares (regardless of whether she actually paid you anything and if so, how much). So you are treated as disposing of the shares for exactly the amount you spent on them, resulting in you realising neither a gain nor a loss on them, and she is treated as having acquired your number of shares for your allowable costs, which effectively transfers your unrealised gain to her.

In the normal course of events, the "Section 104 pool" rules then end up saying that the shares she has just acquired are pooled with the shares she already had, which results in her being treated as having a single holding of the combined number of shares acquired for the combined costs. That effectively nets off your gain against her loss.

The technicalities to watch out for are the 'same-day' and '30-day' rules about acquisitions on the same day as or the next 30 days after a disposal (note the 30-day rule only applies that way around - there's no special rules for disposals in the next 30 days after an acquisition). So the situations to watch out for are:

* If you acquire more shares of the same type on the day you transfer them to your wife or any of the next 30 days.

* If your wife disposes of shares of the same type on the day you transfer them to your wife or any of the 30 preceding days.

In those two cases, the results are liable to be a bit unexpected - in the first case, the allowable costs that get transferred to your wife will come partly or completely from your re-acquisitions rather than your original purchases; in the second, your wife's calculations of the realised gain or loss will be based on the shares sold coming first from the transferred shares and then (if necessary) from the shares she already had, rather than from the 'pool' of all of those combined.

Royaloak - I haven't used my capital allowance for this year yet, but I'm trying to preserve it if I can for some other shares I'm planning on selling later this year.

In that case, wouldn't you be better off preserving your wife's loss for possible use later in the year, in case the gains on those other shares turnout to be larger than expected?

And preserving your own gain for possible use later in the year, in case the gains on those other shares turn out to be smaller than expected?

As a general rule, I would try to do "CGT manoeuvre" transactions - i.e. ones done to optimise your CGT position rather than for underlying investment reasons - in the last month or two of the tax year (*) to minimise the risk that your carefully-designed outcome is derailed by (for instance) an unexpected takeover. E.g. if you realise a gain of £15k early in the tax year and decide to realise losses of £4k then and there in a loss-making share you own, you'll feel a bit silly if a later takeover then realises more losses for you, causing you to then need to realise more gains if you want to use your CGT allowance fully...

Only a bit silly, I should emphasise, not grossly so: it costs you a bit more in trading costs, and by reducing both your unrealised gains and your unrealised losses by more than you needed to, it reduces your flexibility in dealing with future CGT issues. If there's a decent investment reason behind a trade, the usual rule is not to let the tax tail wag the investment dog - i.e. do the trade regardless of when the situation comes up in the tax year. But if it's just a CGT manoeuvre, leave it to near the end of the tax year.

By the way, that doesn't really answer your question, as I don't know your precise reasons for wanting to bed-and-ISA the company concerned now rather than later. If for example you expect the shares to rise a fair amount in the rest of the tax year, getting them in now will shelter those expected future gains from CGT, and that's probably more important than preserving the flexibility of you having an unrealised gain and her a unrealised loss. But if you've no particular reason to do it now, it might well be better to leave the bed-and-ISAing (and quite possibly the choice of which share to bed-and-ISA) until later in the tax year when you have abetter idea what gains and losses you want to realise.

(*) But not the last few days - give yourself some time to deal with unexpected snags!

Gengulphus

[royaloak] 13/8/2014 16:45

I am always on the look out for special dividends, only if I like the company of course, so I am building up losses if I need them. Of course it is only of use if you are well within your income allowances before you pay extra tax on your dividend.

An example is AVS which paid a special dividend of 110p per share last tax year. I still hold and if I need the loss I will bed and ISA it.

[largeronald] 13/8/2014 15:01

Royaloak - I haven't used my capital allowance for this year yet, but I'm trying to preserve it if I can for some other shares I'm planning on selling later this year.

David77 - good point about only 1 transaction charge. My broker (Selftrade) doesn't charge for an husband to wife transfer.

Thanks for your input guys.

[david77] 13/8/2014 14:44

Yes, I agree. But it seems to me that there is only an advantage if the gain is large enough to be taxable.

Some brokers (Charles Stanley Direct and others) will sell in your dealing account and immediately buy back into your ISA, effectively lending you the cash to buy the ISA shares until the sell clears. If you want all of the shares in your wife's ISA then what you are proposing should be ok - in my opinion.

I suspect it depends on numbers. I don't think that I paid to transfer shares between mine and my wife's a/cs. If that applies to your broker, then there may be less commission to pay by doing just one sell-and-ISA deal.

I am not qualified to give advice - maybe someone else will chip in later.

[royaloak] 13/8/2014 14:42

Have you used your capital gains allowance yet? If not sell shares up to that value, and then transfer the others to your wife.

[largeronald] 13/8/2014 14:24

As I understand it, as soon as the shares are sold (in the current dealing account) they become liable for CGT. Whether or not they are then bought back within an ISA is largely irrelevant.

The question I have is whether by transferring the ones I have (which would currently show a profit) to my wife before selling, that profit would, in effect, be wiped out by my wife's ones, which would currently show a loss.

[david77] 13/8/2014 13:52

I am not qualified to give advice but
- would the gain be subject to tax? If not then not worth moving them in my opinion.
- where do you want the shares to go? into both ISAs with current quantities?

A broker will let you sell outside of the ISA and then buy back in the ISA - but both accounts must be for the same person.

[largeronald] 13/8/2014 11:02

If anyone could help...

Both my wife and I have shares in the same company that we bought at different times in standard dealing accounts that we would like to bed and ISA. I understand that the usual CGT rules apply to the shares on the date they're sold in the dealing accounts prior to them being ISA'd.

However - my wife's shares are currently in a cgt loss situation, whereas mine are in a gain situation. Would it be best to transfer (gift) my shares to my wife before selling them - the overall average would result in a cgt loss situation?

[david77] 09/7/2014 09:20

How many trades do you have over the past year? My contract notes are about an inch thick - but I always add a deal to my data file before putting the contract note away.

If you don't have that many deals, then it wouldn't take long to create a data list - mycg1314.txt for example.

The data format for the stonebanks calculator is as simple as it could be (I think, but then I wrote it). You don't have to enter the data in date order, the prog will sort them.

Good luck.

[jimmymcs1] 09/7/2014 08:41

Anyone out there who uses the CGT calculater who trades with TD Waaterhouse?
TIA Jimmymcs

[jimmymcs1] 07/7/2014 22:21

Gengulphus,
thanks very much that, afraid its abit above my capabilites, but my son is more computer literate than me , will get him to have ago when he next comes up from london,
thanks again Jimmymcs

[gengulphus] 07/7/2014 11:18

Sorry, I'm not familiar with TDW's download format, so cannot give any detailed instructions.

But in general, the method I would use to change the format of data in a spreadsheet would be to put the original data on one worksheet and construct the transformed data using suitable formulae on another. For example, suppose the original data is from a Dutch broker and you've put it on Sheet1, with the first column indicating in Dutch whether it is a purchase ("Aankoop") or a sale ("Verkoop"), and you want to transform it into a format which wants "B" or "S" as the second item. Then in cell B1 of Sheet2, you enter the formula:

=IF(Sheet1!A1="Aankoop","B",IF(Sheet1!A1="Verkoop","S","?"))

Similarly put suitable formulae for the first, third, fourth, etc, items in the required format in cells A1, C1, D1, etc, of Sheet2, until you've got everything needed in the format you're aiming for. (This does of course assume that everything needed in that format can be worked out from the original format's data - if it cannot, I'm afraid you'll have to find somewhere it can be worked out from, such as contract notes, and get it into the spreadsheet from there.)

Then copy-and-paste row 1 of Sheet2 on to enough further rows to translate all the remaining original data similarly, and you've got the data in your required format on Sheet2.

Tips about the above:

* Be defensive about possible errors. One instance of that is in the above example formula: I've made it produce a question mark if the original data contains anything other than "Aankoop" or "Verkoop", which means I can do a simple search of Sheet2 for question marks to see whether there were any transaction types my translation didn't understand. For the same reason, if the original data contained "Buy" and "Sell", I would still use a formula like =IF(Sheet1!A1="Buy","B",IF(Sheet1!A1="Sell","S","?")) rather than the shorter =LEFT(Sheet1!A1,1), as the latter could do things like treating a "Brought forward" entry as a buy, or producing an unexpected "T" for a "Transfer" entry you hadn't realised was there (which if you're lucky will provoke an error from the calculator you feed the transformed data into - and if you're unlucky happens to be the way to use a feature of the calculator you didn't know about, resulting in apparently-correct-but-not-what-is-wanted results from the calculator...).

* It's also a good idea to put some summary information calculations on both the original sheet of data and the transformed sheet - things like total spent on all buys, total raised by all sales, etc - and check the two sheets agree.

* If you find an error in the way the data is transformed, work out what the appropriate cell's formula should be to correct the error, apply the correction to row 1 of Sheet2, and recopy that row to all the remaining rows of Sheet2. Don't apply it to some rows of Sheet2 and not others - not even if the error only affects a rare case that only happens on one row of the data. The reason is that spreadsheets containing tables with inconsistent formulae in them rapidly become incomprehensible...

* If you want to further modify the transformed data, e.g. by sorting it or adding comment lines to it, make a copy of it using the "values and formatting only" option and then modify that. That does mean the further modifications have to be redone if anything about the original data or the way it is transformed changes, but that's easy compared with tracking down subtle problems caused e.g. by references in formulae no longer referring to the numbers they were originally supposed to (spreadsheets are quite good at keeping references correct, but not perfect).

Gengulphus

[jimmymcs1] 07/7/2014 09:07

I trade with T D Waterhouse ,
Ihave downloaded the history for last tax year and transfered it to aspread sheet.
but the format is different from examples in the CGT calculater ,
anybody using TD Waterhouse who can help ?

TIA Jimmymcs

[red nutter] 18/6/2014 05:32

Thanks just as I suspected.

[gengulphus] 17/6/2014 16:59

1) Bought shares at 1p
2) Sold at 2p and reinvested by a bed and ISA
3) now all holdings in the ISA

When I sell I assume I pay CGT on the 1p gain? ...

If you mean "When I sell as the first part of step 2, ...", then basically yes - "basically" because the CGT payment is not required right then, but between about 10 and 22 months later depending when you sold in the tax year.

If you mean "When I eventually sell the shares in the ISA, after step 3, ...", then no.

... or is there special rules for a bed and ISA?

No special rules other than the main special rule for ISAs: everything you do inside an ISA is invisible to CGT. I.e. as far as CGT is concerned, all that happened was:

1) Bought shares at 1p
2a) Sold at 2p...
2b) ... transferred proceeds into ISA ...
2c) ... nothing else visible

Steps 1 and 2a match up with each other as an acquisition and disposal; step 2b is visible to CGT but is a sterling cash transfer, which never generates a capital gain or loss.

Gengulphus

[red nutter] 17/6/2014 13:28

Hopefully someone can help.

Just need verification on something:-

1) Bought shares at 1p
2) Sold at 2p and reinvested by a bed and ISA
3) now all holdings in the ISA

When I sell I assume I pay CGT on the 1p gain? or is there special rules for a bed and ISA?

thanks

red

[karateboy] 11/6/2014 10:40

Thanks Gen...

I have contacted Standard life and they were very helpful gave me the original number of shares in 2006 with price allocated to them and subsequent number of additional shares I have been given as a result of dividend investment from 2006 to 2013 and what the allocated price were each time. Based on this information I have calculated average price of my standard life share. I have manually entered my standard life share as Buy on the day of transfer with average price I have calculated for them with zero commission and no stamp duty paid. Subsequently in October I sold these shares through TDW. CGT calculator runs ok and produces a capital gain for these share. I hope this is ok now.

[sleepy] 10/6/2014 21:06

Topvest - you are busy tonight!

[topvest] 10/6/2014 21:02

Annual report arrived today. A very good write-up after a difficult year. First negative return in 30 years and Mr Spiller is taking it to heart as if someone had died..."It is with great sadness...." This is definitely a safe place for your money, but it's not cheap.

I'm surprised (as Lowland a couple of years back) that they have forfeited their 28 year dividend increase record and just held the dividend this year. They had a large revenue reserve so could have nudged it up and maintained their record. Bit short term in my view, particularly given the very low yield anyway.

[david77] 09/6/2014 08:38

EDITED: Cost nil for those issued free to policyholders, date issued is the date of acquisition. A google search will find the date of Std Life's float and price paid for more.

"Standard Life Flotation - Bestinvest
www.bestinvest.co.uk/article/4790/Standard-Life-Flotation

10 Jul 2006 - Standard Life was admitted to the London Stock Exchange at 8am Monday 10 July. The share offer price was 230p and the Preferential offer ..."

[karateboy] 08/6/2014 22:04

I have standard life share from privatisation . I had it transferred into my TDW account. Last year I sold it. CGT calculator failing due to me selling a share that I have no record of buying it. It was transferred into my TDW account...any body has similar experience ? Thanks in advance.