Tax advice please

jem16

It would be added to his gross income but will not affect his rebate,

Steve_xx

Thanks Jem, all solved now I guess.

The dividend was from some shares he had in Bradford & Bingley, but there'll be no more income from them as they were lost when B&B were carved up

Mikeyorks

Steve_xx wrote: »

Thanks Mike & Jem

Mikeyorks - Bradford? A nightingale sang in Forster Square?

If he sang there ... he'd be drowned out by the traffic noise and be hoarse from the fumes!
Fortunately the little fella + this daft one who feeds him .... all live in the greener areas, on the edge of the Dales, overlooking the Leeds Liverpool canal + the Settle Carlisle line. But at least he only woke the OH up this morning ..... so that's OK.

Pleased the tax is fully resolved.

Steve_xx

Mikeyorks wrote: »

If he sang there ... he'd be drowned out by the traffic noise and be hoarse from the fumes!
Fortunately the little fella + this daft one who feeds him .... all live in the greener areas, on the edge of the Dales, overlooking the Leeds Liverpool canal + the Settle Carlisle line. But at least he only woke the OH up this morning ..... so that's OK.

Pleased the tax is fully resolved.

Ah yes Settle & Giggleswick. I was up there a couple of weeks ago, having a rather lengthy (several hours!) stroll through the woodland and waterfalls at Ingleton. Had planned to visit the White Scar Caves, but the woodland trail took much longer than I had remembered and the caves were closed when I got there!

Thanks for your help with the tax scenario Mike.

Steve_xx

I mentioned earlier that my uncle had some Bradford & Bingley shares which as we all know were taken into public ownership. I understand that the loss of their value can be set Capital Gains Tax. He doesn't earn enough to pay CGT. However, I looked on the HMRC website and I have noted that there is mention of setting the loss of the share value against income tax?

Example 1
You subscribed £10,000 in 1995 for ordinary shares in a company making
furniture. The business failed in August 2008, the shares becoming worthless.You made a negligible value claim in respect of the shares in September 2008 and claimed an allowable capital loss of £10,000 for 2008–09 from the deemed disposal of shares. If all of the conditions for relief are met, you may claim to set the allowable capital loss on the shares either against chargeable gains in the normal way, or against your income for 2008–09 or against your income for 2007–08.

Here's a link to that particular page, which deals with Negligible Value Claims:

http://www.hmrc.gov.uk/helpsheets/hs286.pdf

Could he now reduce the tax paid on his savings interest by the value of the total price that he bought the shares for? He doesn't earn enough on his pension to pay tax on it, so he couldn't reclaim something he dioesn't pay in the first place I guess.

Mikeyorks

Steve_xx wrote: »

He doesn't earn enough on his pension to pay tax on it, so he couldn't reclaim something he dioesn't pay in the first place I guess.

No but - tentatively - he could wholly / partly (depends on the value) displace his pension with the amount of the 'negligible value'. And thereby drop the equivalent value of his taxable interest, from 20%, and down into the 0% offered by the slack now created in his PA?

But I add 'tentatively' .... because there are some exclusions in the legislation which probably make a claim inadmissible? Look at :-

the company must not be a building society or a registered industrial and
provident society (bottom of Page 2)

and then - probably more fundamentally - :-

Where the shares were issued before 6 April 2006 the company's gross assets (or the group's
where you hold shares in the parent company of a group) must not exceed £15
million immediately before, and £16 million immediately after, the issue (one third down Page 3)

..... would suggest contact with the Capital Gains experts at his HMRC office? Preferably in writing .... as they suggest in the .pdf link?

Steve_xx

Mikeyorks wrote: »

No but - tentatively - he could wholly / partly (depends on the value) displace his pension with the amount of the 'negligible value'. And thereby drop the equivalent value of his taxable interest, from 20%, and down into the 0% offered by the slack now created in his PA?

But I add 'tentatively' .... because there are some exclusions in the legislation which probably make a claim inadmissible? Look at :-



and then - probably more fundamentally - :-



..... would suggest contact with the Capital Gains experts at his HMRC office? Preferably in writing .... as they suggest in the .pdf link?

Thanks Mike. A bit of a thorny one this is.

He's lost in the region of £20k on the shares he bought in Bradford & Bingley, he says. He purchased the shares in 2007.

On the first point you mentioned, I think Bradford & Bingley became a bank, so that hurdle might be overcome.

On the second point, I'm sure their total asset value would be in excess of £16m, so that might not be helpful in this case.

There is a HMRC publication specific to B&B and CGT here:

http://www.hmrc.gov.uk/news/bb-plc-cgt-qas.pdf

This may have to be read in conjunction with the other rules.

Mikeyorks

Hmmmm ..... that is a sizeable loss. But the data from the link in your last post ... when applied back to your earlier link (hs286.pdf) might be interesting?

This bit (hs286.pdf) :

The gross assets rule applies to shares issued to you after 5 April 1998. Where the shares were issued before 6 April 2006 the company's gross assets (or the group's where you hold shares in the parent company of a group) must not exceed £15 million immediately before, and £16 million immediately after, the issue. For share issues from 6 April 2006 the limits are £7 million and £8 million respectively

.......... appears (to my reading) to apply to both capital loss relief and income relief? If you then look at the specific data produced for B&B ... it doesn't simply say 'nothing admitted ... because capitalisation exceeded £15M etc' ... it allows capital loss. But studiously appears to ignore income relief.

So either my interpretation is wrong ... and the chunk I've quoted only applies to income relief (but why would that be?). Or you do stand a reasonable chance of success with a claim. Certainly worth a try .... as you can spread the £20k across 2 x years.

But be careful if your claim is admitted ... and you do spread over 2 years. That you maximise the benefit in the year where he has suffered the largest 20% deduction on Interest (see the examples relating to how you can't preserve the PA artificially).

(The wider note from HMRC relating to B&B [and which is referenced in your link] is here. But, again, ignores income relief :-
http://www.hmrc.gov.uk/briefs/cgt/brief1609.htm )

Steve_xx

Thanks Mike. I've gotten a tad out of my depth now I think.

But understanding what I can I can see that he may possibly claim for the B&B losses against his savings interest tax over the years 2007-8 and 2008-9? It seems that during those two years the interest earned on his savings was about the same in both years. His pension in 2007-8 was less than in 2008-9 due to the fact that he started claiming his pension part way through 2007.

I think that this needs a visit to a tax officer to sort this out, as you said earlier.

HMRC have sent him the reclaim forms for what we determined was the overpaid tax on his savings interest for the past two years. Do you feel that he should complete and return those to HMRC and then revisit the B&B issue once that is sorted out. Or are these issues inextricably linked and therefore are needing to be dealt with simultaneously?

Mikeyorks

Steve_xx wrote: »

Thanks Mike. I've gotten a tad out of my depth now I think.

Likewise. I normally avoid CGT like the plague ... it's a specialist area, and I'm not one.

But this (initially at least) simply revolves around the admissibility, or otherwise, of the loss being offsettable against income? HMRC say this is a negligible value situation and it can be set against gains. So it's worth pursuing being able to set it against income (I'm assuming he hasn't any CGT gains tucked up his sleeve?).

Or are these issues inextricably linked and therefore are needing to be dealt with simultaneously?

Definitely linked ... if admissible. Although you can off set against the year of loss + earlier year ...... you can't preserve his PA for the year you determine is the priority and where the loss exceeds total income (read Example 2 on the helpsheet link you posted) ...... which it appears to? (loss £20k .... income circa £5k pension + £12.5k gross Interest = £17.5k in 08-09. Therefore income wholly neutralised and therefore no tax due ... but you lose his PA + the 10% rate band in the process. However ... leaves £2.5k loss to carry to 07-08 where it will displace tax at 20% on interest and leave the (old) 10% band utiliseable? Makes the loss worth the best part of £3k [ 12.5k + 2.5k interest negated at mainly 20%]?).

But this all pivots on HMRC admitting the loss can be set against income. Personally I would write initially ..... simply pointing to the article on B&B and asking for ratification of your (uncle's) understanding that the loss is settable against income?