Capital Gearing Share Discussion Threads

[gengulphus] 11/4/2018 13:18

attrader,

... is there a way to roll over capitals gains to next year or pay them down few years down the line?

The only methods I know about are:

* The Enterprise Investment Scheme (EIS). If you reinvest capital gains in new shares of a company that qualifies for EIS on that issue of new shares, you get to defer CGT on the capital gains concerned. The CGT becomes due again if and when you sell the shares and in a number of other circumstances.

* The Seed Enterprise Investment Scheme (SEIS). I don't know much about this, but I've read that investments under it qualify for "reinvestment relief", which is actual relief from CGT, not just deferral.

Note there are various conditions on these schemes that I haven't described. I don't know them in detail, and so won't attempt to answer questions about them. Don't let that stop you asking such questions here, but please ask people in general, not me in particular - if you address such a question to me, you're likely to find that I don't answer because I don't know, and other people are less likely to answer than they might otherwise be because they weren't asked!

And to be clear, I'm not saying there are no other schemes besides EIS and SEIS. There might or might not be: EIS and SEIS are the two I know about, but I'm not very knowledgeable about such schemes and could easily have totally missed the existence of others!

There are incubator fund structures in BVI allowing CGT free gains. You only pay when bringing money onshore. I wonder if you have come across them and how to work with HMRC to avoid potential issues?

Sorry, I have only basic knowledge about the taxation of foreign income and capital gains - enough to know of the existence of rules that depend of the differences between unremittable, unremitted and remitted money, but not much more. And that knowledge translates into a simple rule of thumb that I use in practice, which is just "Don't go there!"... Not saying that it cannot be financially worthwhile to go there - it probably can - just that it's an excellent way to add headaches to one's tax affairs, and I'm personally quite happy to (and can afford to) pay the possible price of missing out on some extra returns to avoid those headaches!

The same applies to schemes involving tax havens such as the BVI, Channel Islands, Isle of Man and Bermuda - I know of their existence, but little more, and I avoid them and the tax headaches they can produce. I have looked at some in the past, and the conclusion I came to was that at best, the "duty-free shop principle" applies (a lot of the tax savings become profits for the product providers rather than for me). At worst, one locks oneself into some sort of structure to avoid tax, the government/HMRC introduces some 'anti-avoidance rules' that mean one doesn't actually get the tax benefits one was hoping for - but one is still locked in!

None of that is meant as advice - as far as I'm concerned, I can't make decisions for others about such things as offshore investments and tax havens, and what I consider a tax headache may be no real problem for others. Just as an explanation of where I'm coming from, so that people have some idea what sort of questions I will and won't be able to answer. In this case, I'm afraid I won't...

Gengulphus

[attrader] 11/4/2018 08:24

Gengulphus, is there a way to roll over capitals gains to next year or pay them down few years down the line? There are incubator fund structures in BVI allowing CGT free gains. You only pay when bringing money onshore. I wonder if you have come across them and how to work with HMRC to avoid potential issues?

[gengulphus] 09/4/2018 11:32

Recently introduced dividend tax...

There's no such thing!

Yes, I know that it's easy to think that way, and lots of people do, but the so-called "dividend tax" is just plain old Income Tax as it applies to dividend income - there have been special rates and other rules that apply to it for a very long time now. The "recent introduction" of it was a change to those rates and other rules for the 2016/2017 tax year, one of whose consequences is that it became possible for basic-rate taxpayers to end up having to pay some tax on their dividend income. That's something new for the basic-rate taxpayers concerned, but having to pay Income Tax on dividend income is not a novelty - higher-rate taxpayers and above have been doing it for many years now!

I don't mean any of that as a defence of those changes to Income Tax as it applies to dividends - in particular, I thought the old rules were unnecessarily complex, and I think the same about the new rules... But a major purpose of this board is to help people understand taxation (and CGT in particular) correctly, and that purpose is not assisted by the use of incorrect descriptions!

Gengulphus

[m_k_hubbert] 07/4/2018 18:35

HL's charges can vary and lower tiers apply if >10 / >20 trades in prior month. In order to reduce the burden of CGT calculations in future I've been making full use of our 2 ISA allowances each year and am approaching a point where frequent trades can be conducted within ISA's and stocks still outside ISA's traded infrequently thus minimising task of CGT reporting. Recently introduced dividend tax...and substantial cut in dividend allowance which came into force this week all point to holding stocks which pay sizeable dividends within ISA's. Another factor in my case is Scottish residence given that many of us holding investments will now be subject to higher income tax rates than in rest of UK. Fortunately, at present, dividend tax and CGT are reserved to Westminster thus we receive 'rest of UK' allowance for investments but there's always the concern that they could subsequently be devolved and it's not hard to predict that, should that happen, investment income and gains would be hit harder than elsewhere in the UK. All adds to case for ISA's....provided, of course,they too are not devolved at same point!

[handykart] 07/4/2018 18:06

If you leave a space blank for stamp duty,the calculator works it out for each purchase. If it was an AIM company just put a zero in for stamp duty, otherwise the programme works it out for you.The broker I use charges same price for each trade, so easy to put in.

[m_k_hubbert] 07/4/2018 17:52

axotyl, having switched brokers to HL a few years ago downloadable data is a great improvement vs previous brokers (Stocktrade, now taken over by Alliance Trust). Having said that HL's data does not supply all the fields needed to complete CGT returns. The solution which works for me was to write formulae for Excel Spreadsheets which effectively 'back calculate' the missing fields, namely allowable costs of acquisition and disposals. Fortunately HL's downloadable date includes the contract note reference which starts with 'B' for purchases and 'S' for sales which enables conditional formulae to handle stamp duty; in absence of these references more manual effort would have been needed on my part. As things now stand, and using CGTCalculator or Stonebanks I'm able to compile an entire years's CGT return in approximately 1 hour.

[axotyl] 07/4/2018 08:52

Gengulphus

I really appreciate your comprehensive reply. I need to digest slowly, over the next week.

What interests me is the way that brokers (well, at least two of them) record our transactions. In theory, they can present all the information required (including charges, tax etc.) in one downloadable spreadsheet. Instead, as I mentioned above, the net sale/purchase details/dates/EPIC are the default record, and one has drill down through each transaction to extract the additional information. As I said, it would take hours to present in the required format. My time is valuable, my accountant's is expensive.

So, I'll digest your reply, and out of interest, ask my accountant how they intend to present my tax records to HMRC.

[gengulphus] 03/4/2018 11:26

axotyl,

If it's the only solution, I'll go ahead, but I'm really curious to know why tax/charges are needed at all - surely only the net figures are relevant?

They are actually at least technically wanted to make your tax return complete and correct. The reason is that you're expected to report your total "disposal proceeds" and your total "allowable costs" for each of the four classes of asset (listed shares, unlisted shares, residential property and other property/assets). "Disposal proceeds" are not the same thing as "Net disposal proceeds", and "allowable costs" are not the same thing as "allowable acquisition costs" - in particular, the incidental costs (charges/tax for a share transaction) of the sale should be taken into account in the allowable costs, not the disposal proceeds. (See page CGN 2 of - it's not all completely clear there, but the "Allowable costs" section does say explicitly that they include (with my bold) "incidental costs of acquiring or disposing of the asset, such as Stamp Duty or Stamp Duty Land Tax".)

In other words, for a simple buy and sell of some shares, what is asked for is:

disposal proceeds = (number of shares) * (sale price)

allowable costs = (number of shares) * (buy price) + (buy charges/taxes) + (sale charges/taxes)

What you're saying is that instead using:

net disposal proceeds = (number of shares) * (sale price) - (sale charges/taxes)

allowable acquisition costs = (number of shares) * (buy price) + (buy charges/taxes)

will result in the same gain/loss being calculated, which it will (up to some small rounding effects - they might differ by £1 or 1p, depending on whether one rounds intermediate results to the nearest pound or penny, which is selectable in CGTcalculator according to

So with a similar proviso about rounding, using the net figures will result in the disposal proceeds and allowable costs each being too small by the total incidental costs of the sales, and so the gains/losses being correct. That should have no effect on the tax calculated, but it does affect the correctness of some of the figures one is required to give in the capital gains/losses section of the tax return, and can in rare cases affect whether one has to complete the capital gains/losses section at all (one of the reasons why one might have to is that one's disposal proceeds are over 4 times the CGT allowance, and in borderline cases use of the net disposal proceeds rather than the disposal proceeds might mislead one into thinking one didn't have to).

It would be pretty hard for HMRC to make a good case against someone for getting that technicality wrong, especially if they did so unknowingly (so I'm afraid you might regret asking the question and getting this answer!). In particular, I doubt that HMRC would make much of an issue of it, with no tax at stake and (if done unknowingly) a true declaration at the end of the tax return that it is "correct and complete to the best of my knowledge and belief". At the very most, I can't see their reaction if they investigated your return and discovered the issue being more than a slap on the wrist and maybe a somewhat harder look for other bits of carelessness in the information you'd supplied than normal, and I'd be rather surprised if it was even that.

As to why CGTcalculator asks for the detailed breakdowns, I suspect it's one or more of (a) using the working sheet on page CGN 9 of as guidance as to what sort of level of detail HMRC want in CGT computations; (b) wanting to get the "disposal proceeds" and "allowable costs" figures for the capital gains/losses section of the tax return itself fully correct; (c) the likelihood that HMRC will treat encouraging lots of taxpayers to submit technically-incorrect figures somewhat more seriously than an individual taxpayer doing so.

Gengulphus

[axotyl] 29/3/2018 16:00

I'm about to use CGTCalculator.com for the first time; it looks useful. I had a basic query before I start, with apologies if this has already been asked before (I did try and make contact with CGTCalculator, but haven't received a reply).

The majority of my trades are with one broker, and the transactions are listed simply in the format:

Date / Code / Name / B/S / Quantity / Net Value / Reference

I realise CGTCalculator has to receive data in its required format, though the Conversion advice doesn't cover my broker's format.

Question: Surely for both Buys/Sells the net value is all a system needs to calculate the final figures? Why should it need tax / charges details analysed as well?

I can dig out the tax / charges for each of my trades, by drilling through my records manually, but for several hundred trades, the prospect is daunting. I double-checked with my broker who confirmed that if I need the tax/charges for each transaction then they do need to be extracted manually by drilling through each of the records. They did ask why, for CGT purposes, I needed that information.

If it's the only solution, I'll go ahead, but I'm really curious to know why tax/charges are needed at all - surely only the net figures are relevant?

[gengulphus] 28/3/2018 11:21

bev.shields,

However, should it show the losses brought /carried forward, i have a list of results as follows, even with the box ticked to carry forward losses. Am I missing something?:-

Yes, I think you probably are missing something. The heading of the "UsePrevLosses" column indicates that it tells you about the brought-forward previous losses used in the year, not the ones that remain unused and being carried forward another year, nor about new losses that get added to the losses being carried forward because there are insufficient same-year gains to offset them. So that column can only indicate a nonzero amount of losses being used for years in which the net capital gains exceed the CGT allowance - and your example doesn't include any such years...

If you want to check that out, try adding a fake buy and sell that produce a big gain of say 100,000 in one of the years from 01-02 onwards. You should find that it results in the "CapitalGain" column indicating what it currently does plus 100000, and the "UsePrevLosses" column indicating that the sum of all previous years' losses is used. (That's because the fake gain of £100,000 I'm suggesting is big enough to absorb every loss you've got and any one year's CGT allowance. If you try out smaller fake gains, you should find that only enough previous losses are used to bring the "CapitalGain" figure down to the CGT allowance - assuming there is that amount of previous losses.)

What's going on would probably be clearer if the output had a "PrevLosses" column for the amount of previous losses available as well as the "UsePrevLosses" column it does have - but that's basically an enhancement request to be made to the calculator's author.

I should probably add that if you do experiment with fake gains, make certain you either do it with a copy of your real data that you throw away afterwards! (Or that you remove the data about the fake trades that produce the fake gains afterwards - but that's a bit more error-prone, specifically to failures to remove data about all of those fake trades...)

Gengulphus

[bev.shields] 27/3/2018 03:18

Hi All,
What a great program CGTCalculator. I wish i had found it years ago.
However, should it show the losses brought /carried forward, i have a list of results as follows, even with the box ticked to carry forward losses. Am I missing something?:-
Results generated from www.cgtcalculator.com

SUMMARY INFORMATION

Year CapitalGain Exemption UsePrevLosses TaperRelief ChargeableGain Tax*
-------------------------------------------------------------------------------------------
99-00 6253 7100 0 0 0 0
00-01 -8364 7200 0 0 0 0
01-02 -12219 7500 0 0 0 0
02-03 -1545 7700 0 0 0 0
03-04 -2425 7900 0 0 0 0
04-05 -5889 8200 0 0 0 0
05-06 -11108 8500 0 0 0 0
06-07 1793 8800 0 0 0 0

[fbrj] 14/3/2018 09:50

Gengulphus - thank you so much for taking the time to provide such a comprehensive post to my original question. Really helpful.

I now see that the "trick" (if that is the correct terminology!)is to have my wife's 30 day clock ticking away while I hold the transferred shares and thus reducing the market risk (in terms of being out of the market) to a few days until my sale proceeds are transferred back into her account, ready for a replacement purchase by her.

I understand your comments about the fine tuning/timing of utilising my current year and b/fwd losses. Thanks again.

[gengulphus] 12/3/2018 18:44

fbrj,

Some years ago I transferred some shares to my wife. These now have quite a considerable unrealised CGT charge attached to them. She has no prior unused losses to offset and in previous tax years has utilised her annual exemption and will do again this tax year (2017-18)on other share transactions.

I, on the other hand, have some cgt losses b/fwd and it seems sensible to utilise those by transferring the above shares from my wife to me and for me then to realise the gain (partly using what will be left of my annual exemption and also the balance of b/fwd losses).

As I understand it, the transfer from my wife will be done at her S104 "cost" - thereby not triggering a taxable gain for her, as there is none. That "cost" would be used in determining my cgt gain on disposal (to be offset as described above).

Basically correct, but not quite right in one important respect. That is that it's not necessarily done at her S104 cost; instead, the transfer is treated as her disposing of the shares and you acquiring them. That disposal by her is treated like any other disposal for CGT purposes, except in one very specific respect: she is treated as disposing of the shares for the total of her allowable costs, whatever that total is. So in particular, her disposal by transferring the shares to you is matched to her acquisitions by the normal rules for CGT - basically, same-day rules, then the 30-day rule, then to the S104 pool - and her allowable costs are determined by what acquisitions that matches it to, and then the disposal is treated as having occurred at the total of those allowable costs. So it will only be her S104 allowable costs if she doesn't acquire the same type of share on the day of the transfer or any of the 30 following days.

Whatever it turns out to be, the result is of course that her disposal proceeds are treated as being precisely the same as the total of her allowable costs, and so the disposal is calculated as producing neither a gain nor a loss. So nothing wrong with your conclusion that no taxable gain arises for her - only potentially something wrong with what you say about the transfer being done at her S104 allowable costs.

And similarly, your acquisition by the transfer is treated entirely normally by CGT in all respects, except that your allowable costs on the acquisition are treated as the same total of your wife's allowable costs for her disposal by the transfer. In particular, the way you match your disposals to that acquisition is determined by the date you acquired them by transfer, not by the date(s) of your wife's acquisitions.

From the taxation of future dividends point of view it makes sense for her to hold these shares again (rather than me).

My main question is: if I were to transfer the cash proceeds back to her (ie a couple of days after I have sold them) - would she fall foul of the 30 day rule? In other words, if she were to repurchase within 30 days would her new cost be deemed to be the original transfer value to me or the market price at time of purchase?

The timings of you selling, of you transferring cash back to her, and of her repurchasing relative to each other don't matter for the purpose of the 30-day rule, since it is about acquisitions and disposals by the same taxpayer of the same type of non-exempt-from-CGT asset. Sterling cash is an asset that is exempt from CGT, so of those three transactions, only her repurchase is an acquisition of a non-exempt-from-CGT asset, only your sale is a disposal of such an asset, and those two are by different taxpayers.

But bring in the transfer from your wife to you as well, and that changes: there is now your acquisition by transfer and disposal by sale to take into account, but the 30-day rule is not a problem for that because the acquisition is before the disposal). And there is also your wife's disposal by transfer and acquisition by repurchase to take into account, and there the 30-day rule is relevant because the acquisition is after the disposal. So you want to ensure that your wife's repurchase happens no earlier than the 31st day after her transfer of the shares to you.

There is no longer time this tax year to transfer her shares to you, wait 31 days, then quickly sell, transfer the cash to her and her to repurchase. So if you want to use your remaining CGT allowance for this tax year, the best you can do is transfer the shares asap, sell on April 5th, transfer the money to her and she can then repurchase about a week later. For using your brought-forward losses, you can just as well do that with a sale next tax year as this, so the best solution may well be to transfer the shares asap, do a partial sale on April 5th, sell the rest about a week into the new tax year, then transfer the cash and she repurchases.

Gengulphus

[fbrj] 08/3/2018 10:30

Some years ago I transferred some shares to my wife. These now have quite a considerable unrealised CGT charge attached to them. She has no prior unused losses to offset and in previous tax years has utilised her annual exemption and will do again this tax year (2017-18)on other share transactions.

I, on the other hand, have some cgt losses b/fwd and it seems sensible to utilise those by transferring the above shares from my wife to me and for me then to realise the gain (partly using what will be left of my annual exemption and also the balance of b/fwd losses).

As I understand it, the transfer from my wife will be done at her S104 "cost" - thereby not triggering a taxable gain for her, as there is none. That "cost" would be used in determining my cgt gain on disposal (to be offset as described above).

From the taxation of future dividends point of view it makes sense for her to hold these shares again (rather than me).

My main question is: if I were to transfer the cash proceeds back to her (ie a couple of days after I have sold them) - would she fall foul of the 30 day rule? In other words, if she were to repurchase within 30 days would her new cost be deemed to be the original transfer value to me or the market price at time of purchase?

If it is the "transfer value" - apart from the risk of being out of the market for 30 days - is there any other way round this?

[investoree] 15/2/2018 08:45

For any other unfortunate holders of Carillion (CLLN) shares HMRC have confirmed to me by phone that they accept these shares have negligible value and will at some time in the future be adding them onto their Negligible Value Shares List. In the meantime they can included on self assessment tax returns so as to offset any CGT gains made above the CGT allowance, or for carrying forward into future tax years. Thanks once again to Gengulphus (and others) for devoting so much of his (their) valuable time in helping others understand the complexities of CGT. IE

[gengulphus] 02/2/2018 17:39

singh is king,

Would appreciate a little help with CGT losses:
Had shares in an AIM company called Beacon Hill Resources who went in to administration on 23/01/15.
The company is now in the process of being wound up and the shares are deemed worthless.
Does this mean that it is no longer possible to claim the loss on my tax return?

No, it doesn't mean that. It does mean that you haven't actually realised the loss yet: you still own the shares even though they're worthless. Nor will HMRC treat you as though you had realised the loss until and unless you make a negligible value claim about them.

If you already have made a negligible value claim about them (probably unlikely, but I'm trying to cover all cases, and much of what follows also applies if you haven't yet done so) and HMRC accepts it as valid, then they will treat you as though you had actually realised the loss on the date you stated the claim was for in the claim. If you fail to mention such a date in the claim, they assume that it's the date on which you made the claim - which is actually pretty unlikely to be the date you intend if the claim accompanies a tax return, so make certain you do specify a date on which you want to be treated as realising the loss! All that really matters in any normal tax circumstances is the tax year within which you want to be treated as having realised the loss - any date within that tax year will have the same effect on your CGT, as long as the claim is accepted as valid.

For a claim to be valid, the following conditions must all be true (at least, there may be others that I haven't remembered offhand):

* You must have owned the asset continuously from a time that it was not of negligible value up to the time you want to be treated as having realised the loss, or if later, the time you make the claim. That should be easy: the fact that you bought them (or otherwise acquired them) while they still had a market value should be enough evidence of that, barring the unlikely possibility that you have somehow managed to dispose of them since then (e.g. by a private sale or a gift to someone else) - if you have, you actually realised a capital loss at that point and neither need nor can validly make a negligible value claim.

* The asset must have been of negligible value at the time that you want to be treated as having realised the loss (and also at the date that you make the claim if different). That should be easy as long as it is on or after the time that the administrator said there was no prospect of any return to shareholders and the administrator has not subsequently retracted that with any sort of statement that they've discovered previously-unsuspected assets or that liabilities have been discovered to be false for previously-unsuspected, in a way that means there now is a possibility of returns to shareholders (that's very rare, and I've never seen such a case, but I believe not totally unknown). Also note that I really do mean the time that the administrator said that there was no prospect of returns to shareholders, not the time the company went into administration - the taxman will want a professional opinion that the shares are completely worthless to shareholders, not just that the company is in severe enough trouble to require administration.

* The date on which you want to be treated as having realised the loss must be in the same tax year as the date you make the negligible value claim, or one of the two preceding tax years. So for example, a claim made in a tax return for the 2016/2017 tax year, within the normal period for submitting such a tax return (i.e. 6 April 2017 to 31 January 2018), will have been made in the 2017/2018 tax year and therefore the date it says you want to be treated as having realised the capital loss must be in the 2017/2018, 2016/2017 or 2015/2016 tax years. And I wouldn't recommend anything other than a date in the 2016/2017 tax year - in particular, dates in the 2015/2016 or 2017/2018 tax years just create unnecessary confusion because they're not directly relevant to the tax return they accompany. And a date should be specified because it will otherwise be assumed to be the date you submit the tax return, i.e. within the 2017/2018 tax year and almost certainly not what you intended!

Assuming that a negligible value claim is accepted, you are then treated as having realised your loss on the date you specified. As far as I know, that applies for all purposes, including potentially requiring amendment or correction of tax returns from that date onwards, and claiming that loss within the standard period, i.e. the tax year of the date on which you are treated as having realised it or one of the following four tax years. Note that a negligible value claim basically only claims that the asset has become of negligible value within your ownership period, which implies that you have made a loss - but not what the amount of that loss is. Claiming a realised or treated-as-realised loss for CGT purposes goes beyond that by telling HMRC the amount of the loss, so an accepted negligible value claim does not in itself constitute an accepted loss claim for CGT purposes. So both claims are needed in your circumstances, and the time limits on when each type of claim can be made are different, with those on the loss claim being more generous.

The net result is that you are still within the time limits for claiming the loss, even if you made the negligible value claim to be treated as having realised the loss on the earliest conceivable date that HMRC might regard it as having been of negligible value, i.e. 23/1/15, and HMRC accepted that claim as valid.

There is one other effect of an accepted negligible value claim besides treating you as having realised the loss on the date it specified, which is very likely (but not quite certainly) of no consequence whatsoever. You are also treated as having immediately re-acquired the asset at a base cost of the negligible value (probably £0.00) for all CGT purposes relating to future disposals (but not the deemed same-day disposal that treating you as having realised the loss on that day implies). This is simply because you do in fact still own the asset and will probably eventually dispose of it, as explained below, and had better have a base cost for the asset for your CGT computations when that happens. Most likely (by far), you won't have any proceeds from that disposal nor any other allowable costs for it, so the CGT computation will work out as (proceeds)-(base cost)-(further allowable costs) = £0.00-£0.00-£0.00 = £0.00, which you can ignore even if you realise that it's happened - it's neither a loss nor a gain that you must report, nor even a CGT computation that HMRC will be at all interested in! But it is just conceivable that something totally unexpected will subsequently be discovered that means there were returns to shareholders after all, and if that were to happen, you would need to do the CGT computation and report the resulting gain(s) to HMRC.

So what about the more likely case that you haven't already made a negligible value claim? The good news is that for as long as you're still the owner of the shares, you still can and everything I've said about negligible value claims in general applies. So you can currently make a negligible value claim to be treated as realising the loss in any of the tax years 2015/2016, 2016/2017 and 2017/2018. If you choose a date in the tax year 2015/2016, you'll need to ask HMRC to correct your tax return for that year, as the deadline to amend it yourself expired on Wednesday, and if that produces a different figure for losses carried forward into 2016/2017, you'll need to amend your tax return for 2016/2017 accordingly. If you choose a date in the tax year 2016/2017, you'll need to amend your tax return for 2016/2017 accordingly. And in all cases, you'll have to fill in your tax return for 2017/2018 appropriately when the time comes - it will definitely be affected by the deemed capital loss if you choose a date in the 2017/2018 tax year, and might be via changes of losses brought forward from 2016/2017 if you choose a date in the 2015/2016 or 2016/2017 tax years.

If you delay making the negligible value claim until April 6th or later, the tax years in which you can claim to be treated as having realised the loss will shift to 2016/2017, 2017/2018 and 2018/2019, and a similar shift will happen on April 6th of each subsequent year until you cease to be able to make a negligible value claim - which will eventually happen. Most likely, it will happen because the winding-up of the company is finished, with the final step being that the company is dissolved. At that point, shares in the company cease to exist and so you no longer own them and can no longer make a negligible value claim about them. But you're not out of luck yet, because you have just shifted from owning the shares to not owning them, and that makes it count as an actual disposal of the shares, causing an actual realised loss on the date of dissolution. So you haven't actually lost the opportunity to offset the loss even then - though you have lost the opportunity to choose the tax year in which it is effectively realised, and the time limit for claiming the actual loss starts to tick away: if you delay past the end of the 4th following tax year, you will lose the opportunity to offset the loss at that point.

There are three other ways that I can think of that you might cease to be able to make a negligible value claim. One is the possibility I've mentioned twice above that something unexpected happens that makes returns to shareholders reasonably plausible again, in which case the shares cease to be of negligible value and you have to wait until the winding-up is completed and the company dissolved or it becomes possible to sell the shares again - but as also mentioned above, that's a very faint possibility.

The second is that you do manage to dispose of them by private sale or gift. But don't expect that to be any easier than a negligible value claim: neither is a normal "at arm's length" commercial bargain, so they are subject to the "market value" rule - which means that the buyer/recipient is deemed to have paid you their market value regardless of whether they actually paid you anything or if so, how much they paid - so you have to convince HMRC that they're of essentially no market value just as much as you would for a negligible value claim. On top of that, you have to find a willing buyer/recipient who is not one of your "connected persons" (close family, business partners, etc), as otherwise you realise the loss, but it becomes a "clogged loss" which you are severely limited about using. Also, for any buyer/recipient, I'm not certain what the situation is about registering the transfer to the new owner during administration / winding-up of the company: if it isn't possible, you get stuck with the legal ownership even though the new owner is the beneficial owner - so you solve the CGT issue (CGT responsibility is determined by beneficial ownership) but at the expense of effectively becoming a trustee holding the shares on their behalf... All in all, I don't see that it's any better than making a negligible value claim, and it may be worse.

The third way to cease to be able to make a negligible value claim is the one that makes me certain that it will eventually happen: it's that you die before any of the other ways to cease to be able to make one happens! At the point of your death, you obviously cease to be able to make any claims at all, and everything to do with your CGT affairs gets forgotten except for gains and losses realised before your death whose CGT you had not yet dealt with - at least the ones realised in the last partial tax year that you were alive cannot yet have been dealt with, as CGT is based on the total net gains for the entire tax year, and before one's death, one cannot be certain that total won't be added to until after that tax year is complete. Realised gains and losses in the previous tax year might also need to be dealt with by your executors (or whoever else administers your estate) - it depends on whether you'd yet submitted the tax return for that tax year by the time of your death. And whether your executors can submit valid negligible value claims after your death about losses to be treated as realised before your death strikes me as distinctly dubious - on the face of it, they've only owned the assets in any sense at all from the time of your death to the date they make the claim, during which the assets have been of negligible value throughout and so haven't become of negligible value. There might well be an obscure special rule somewhere to override the normal rules about what makes a negligible value claim valid, but if so, I don't remember ever having come across it... The net result is that I think a loss that you still could make a negligible value claim about, but hadn't yet actually made one, might still be claimable by your executors, but I also think there is a high chance that it is not.

So to try to sum the above up reasonably briefly, you're not out of time to be able to offset the loss. The easiest and safest way to do that is in my view a negligible value claim, which also has the advantage of some (but not total) flexibility to choose the tax year in which the loss is treated as being realised to be one that has a good combination (in your circumstances and as you view it) of reducing your CGT as much as possible and involving as little work amending/correcting past tax returns as possible. You can delay it, and probably should if none of the currently-available tax years for a negligible value claim offers a good combination. And there's no fixed deadline beyond which making a negligible claim ceases to be possible, but you can find yourself suddenly unable to make one at zero notice, most likely because winding up the company has finished and the company has been dissolved. In that case, you'll still be able to claim the loss for CGT purposes, but not to make a negligible value claim about it, and you will completely lose the flexibility: the date on which the loss is realised becomes fixed as the date of dissolution and no longer subject to any choice by you. So delaying making the negligible value claim does have risks, and I wouldn't delay it unless I was fairly certain it also had benefits that clearly outweighed those risks.

Gengulphus

[gengulphus] 02/2/2018 09:18

amalanchier3,

Final para - do you not use the losses to reduce the gains to the tax free level and then carry the remaining losses forward? I.e, you do not lose the tax free benefit in the relevant tax year.

That's the rule that applies to brought-forward losses - i.e. losses that have already been carried forward from one tax year to the next at least once. But quoting the final paragraph you refer to (it's quite a long way up now!), with the important words emboldened it says:

"Not "can offset", by the way - once you realise losses or are treated as realising them, you must offset them against gains you've realised in the same tax year as far as possible, and if there are further losses after all the gains have been offset, you then must carry those losses forward into the next tax year. I.e. essentially, the decision you make about whether to make the negligible value claim is the last one you make that affects the result of the CGT calculations: everything after that is a matter of doing the CGT calculations correctly, not of changing what their result should be."

I.e. it's about same-year losses rather than brought-forward losses, and the rule about them is as it states: they must be used against the gains realised in that tax as far as possible. In normal circumstances (*), that means that you only stop using them when there are no gains left, and so losses only start being carried forward when the losses you've realised in a tax year are in excess of the gains you've realised in the tax year, and only the excess losses start being carried forward, not all of them.

And the CGT allowance is most certainly a "use it or lose it" allowance - it's basically the CGT equivalent of the Personal allowance for Income Tax. If you don't have enough income in a tax year to use your entire Personal allowance, the rest is wasted rather than saved up for use in future tax years; likewise if you don't have enough net capital gains in a tax year to use your entire CGT allowance, the rest is wasted rather than saved up for use in future tax years. But in that, "net capital gains in a tax year" means capital gains realised in the tax year minus capital losses realised in the same tax year. I think brought-forward capital losses are instead the equivalent of income losses from earlier years, but am very uncertain about that because I've never had such losses and I generally only delve into complex areas of taxation when I personally encounter them, or someone from close family or otherwise particularly close to me encounters them and asks for my help. So basically all I know about income losses is that a question on this year's tax return's additional information pages asks for "Earlier years’ losses – which can be set against certain other income in 2016–17" under the heading "Other income losses" and similar questions in earlier tax returns, plus a few quick mentions in newspaper articles I've read. The wording "certain other income" in that question is enough to make me pretty certain that it will be a complex area!

The process is equivalent (or at least very nearly so - there might be an obscure case where it isn't that I've missed!) to first using same-year losses, then using the CGT allowance, then using brought-forward losses, with each step able to go down to zero gains left, and obliged to if it can, even if subsequent steps would get there anyway. (That applies in principle even to the third step, though obviously not in practice because there are no subsequent steps under the current CGT rules.) Any losses left over after the first and third steps are carried forward to the next tax year; any CGT allowance left over after the second step is wasted, which means that any same-year losses used in the first step for reductions of gains in the range from the CGT allowance down to zero are obligatorily used, but effectively wasted.

It's actually expressed with the second and third steps swapped around, and using brought-forward losses only obligatory down to the CGT allowance, not all the way down to zero. I suspect the reason why it's expressed that way is historical. Specifically, the effective CGT rate that applies to any particular gain has at times in the past been specific to each particular gain, most notably for gains realised between 6 April 1998 to 5 April 2008, which got a taper relief that was determined by how long that specific asset had been owned for. The order was then to apply same-year losses to the individual gains (until there were no same-year losses or no gains left), then apply brought-forward losses to the individual gains (until there were no brought-forward losses left or the remaining gains were down to the CGT allowance), then apply the appropriate amount of taper relief to each individual gain (which was why losses had to be applied to individual gains - they had to be separately accounted for up to this point), then total the remaining gains and apply the CGT allowance to them. One consequence of that was that one could be forced to waste brought-forward losses offsetting gains that were outside the CGT allowance before taper relief, but reduced to within it by taper relief - which is why I say that in principle, offsetting brought-forward losses is obligatory even if subsequent steps would do the job anyway.

Anyway, getting rid of the taper relief was done in the 6 April 2008 CGT rule changes, and led to a tremendous simplification in CGT reporting because individual gains could be totalled much earlier in the process rather than being separately accounted for up to and including applying taper relief, and another because it was no longer necessary to get an exact acquisition date for each realised gain. But the result of taking taper relief out of the previous computation order and reducing to computations on totals rather than on individual gains where possible is the current same-year losses / brought-forward losses / CGT allowance order, and that seems to have been as far as the simplification process went...

(*) There is at least one case where a loss is only usable against certain types of gain, namely when you've realised a loss in a disposal to a 'connected person'. In that case, you can claim the loss, but it's only usable against gains realised by other disposals to the same 'connected person'. So such 'clogged losses' may end up being carried forward many times before (if ever) one realises a gain they can be used against, and are a reason why "as far as possible" is the strictly correct wording of the rule about using same-year losses, rather than "until there are no gains left".

I don't know of any other CGT rules that say a loss can only be used against some types of gain - but only means I'm pretty certain that if there are such rules, they apply only in very unusual circumstances, not that there are no such rules...

Gengulphus

[singh is king] 29/1/2018 20:47

Would appreciate a little help with CGT losses:
Had shares in an AIM company called Beacon Hill Resources who went in to administration on 23/01/15.
The company is now in the process of being wound up and the shares are deemed worthless.
Does this mean that it is no longer possible to claim the loss on my tax return?
Thanks in advance for any advice.

[amalanchier3] 26/1/2018 06:01

Gengulphus

Final para - do you not use the losses to reduce the gains to the tax free level and then carry the remaining losses forward? I.e, you do not lose the tax free benefit in the relevant tax year.

A

[finkwot] 25/1/2018 21:21

I'm trying to assess CGT liability on a possible sale of shares in United Utilities (UU.).
2000 shares were bought in 2005. There were no subsequent purchases or sales. In 2008 UU. undertook a consolidation of 17 for 22 and paid out 170p per old share, resulting in a holding of 1545 shares and a repayment of £3400. Shareholders were given a choice of three ways to receive the money; briefly the choice seems to have been capital repayment, dividend or delayed capital repayment. I suspect the holder took the first option, though I don't know for sure and I don't know if it makes any difference.

My instinct would be to take the total purchase price, subtract the £3400 and take the result as the cost of the new shares. However the broker's statement shows a "reduction of book cost" of £3165.43 (158.2715p per share). If this is correct the effective purchase price of the new shares is higher and the resulting CGT bill if they're sold will be lower.

So I hope it is correct, but I'd like to understand why it might be so.

[investoree] 18/1/2018 10:45

Gengulphus. Thank you for spending what must have taken you a considerable time to provide such a comprehensive and helpful response to my question on CLLN's 'Liquidation' on being able to determine, if, when and how it qualifies for having 'Negligible Value' status. I am sure that the links and information will be very helpful for anyone else who is unfortunate enough to end up in a similar position. Thanks once again IE