Income tax / CGT

kaom

Hi All

Since my divorce was finalised and I was able to take some money from the sale of the house I've been using the profit from shares (that I purchased using this money) as my only source of income – currently and for the past 18 months I haven't worked (“worked” in the traditional sense, neither employed or self-employed) therefore haven't paid any income tax (or NI).

I pretty much understand about CGT, but I'm not clear how income tax works in my case (i've searched online to no avail). From what I've read I think I'm only liable for CGT, but I was getting concerned that I have to declare myself as self-employed and/or because this is the only form of income I have the standard CGT rules change.

Maybe I should add that I don't claim any benefits

Any thoughts would be great.
Thanks

fengirl_2

You can only be liable to either CGT or income tax on the same gains. If you are laible to CGT you complete a self assessment for the CGT only.

kaom

thanks for clearing that up. I guess my main concern is the fact that I'll be paying CGT but not income tax or NI and wanted to make sure I wouldn't be opening a huge can of worms

fengirl_2

Many, many people live off investment income!

Pennywise

Just be careful about the scale of your share-dealing. There is a fine line between holding shares as investments (taxable as CGT) and actually "trading" (taxable as self employed income tax/NIC).

There are no hard and fast rules - each case would be decided on its own facts, but a few guidelines are:-

1. If you are buying & selling shares occasionally it is probably CGT but if you are spending a lot of time doing it, HMRC may try to argue it is a trade.

2. If you hold shares for the long term, i..e. weeks, months & years, it is probably CGT but if you are buying and selling them within days, HMRC may try to argue it is a trade.

3. If you are buying & selling normal shares through normal "public" broker services (such as bank share dealing or High Street brokers), it is probably CGT, but if you are buying & selling special types of assets, such as derivatives/hedges, etc., and are buying & selling through specialist channels (i.e. specialist City brokers), then HMRC may try to argue it is a trade.

Sadly, nothing is certain in this crazy tax world of ours, and it is very easy to be misled by general statements, when in fact, it is your own particular circumstances that determine the tax status. Most people who spend their spare time buying & selling normal basic shares through High Street brokers will be fine and will be left alone to pay CGT on profits (and income tax on income), but the more time you spend, the more transactions you undertake and the more non-mainstream your dealings become, you are heading towards HMRC challenging you as "trading".

Pennywise

jimmo wrote: »

Pennywise,
Your advice seems to me to be the direct opposite of the official HMRC instructions as far as individuals are concerned
http://www.hmrc.gov.uk/manuals/bimmanual/BIM65701.htm

Sorry, Jimmo, I don't agree. I stand by my posting as it was written with the link you provide in mind, which I know very well after having several run-ins with tax inspectors over this very point (all but one of which I won after threatening to take to them to commissioners). It may be interesting to note that the case we didn't win was where a guy had been trading for years, originally telephoned the tax office for advice about how share dealing was taxed only to be brusquely told it was CGT - sadly the tax office didn't ask the right question - in fact, the guy was spending 10 hours per day share dealing as his full time job, dealing with very complicated transactions through specialist brokers and making it his living - commissioners held against him!

I clearly said that "Most people who spend their spare time buying & selling normal basic shares through High Street brokers will be fine"

and in each point, I said "HMRC may try to argue it is a trade",

both of which are true in my experience.

The purpose of my post was that

"There are no hard and fast rules" and "each case would be decided on its own facts"

which is exactly the case as per the link you quoted.

I think it is far more useful to enlighten people as to the doubt that exists in our crazy tax system and the lack of consistency with which the tax inspectors apply the laws. A simple answer of "yes, share dealing is CGT" is not particularly helpful as it gives a sense of comfort that perhaps is not justified.

kaom

thanks for the replies...all very very useful. really, much obliged to you