C.G.T - case study

Stavros_3

Can someone answer this case study, so I can get my head round the changes
Basic rate tax-payer in receipt of an 18k p.a pension before tax, holds investment portfolio for 5 years 2009 - 2014 then decides to sell. The net gain of the portfolio (excluding the s&s investments) when surrendered/cashed in is £80,000, what is that individuals CGT liability, ta

Mikeyorks

As 2014 is 4 years away :-

• how much of the gain will you have mitigated by then via your ISA allowance? (£40800 + indexation achievable)
• and how much of the gain will you have mitigated by using your CGT allowance (£40,400 achievable @ current rate)

Outside of that the calculation is readily achieved using a Treasury example posted today on a thread you've contributed to?

http://forums.moneysavingexpert.com/showpost.html?p=34032083&postcount=9

Stavros_3

Thanks for replying Mike. I am transferring each April into s & s isa's the maximum limit. What I don't understand is the CGT allowance. Are we saying that for each taxable year using the £10,100 figure that when it comes the time to sell up after 5 years that for tax purposes £50,500 is automatically exempted through accumalative allowances over the investment period if you get my drift, i.e 5 x £10,100

Mikeyorks

Stavros wrote: »

Are we saying that for each taxable year using the £10,100 figure that when it comes the time to sell up after 5 years that for tax purposes £50,500 is automatically exempted through accumalative allowances

You're doing the right thing by translating into the tax shelter of ISAs annually.

But the £10,100 annual CGT allowance - is just that. It's an annual allowance which you either use or lose.

So, for assets outside of ISAs, simplistically you have to sell enough to generate a gain sufficient to utilise as much of the allowance as possible. Generally the easiest time to do that (assuming Shares or funds) is just prior 5th April in order to translate £10,200 from freestanding Funds into your ISA (called 'bed and ISA')

The downside is that (assuming 25% profit across all your Funds - for simplicity) you have to sell £40,400 of Funds (x 25% = £10,100 profit) to fully utilise your CGT allowance. You then put £10,200 into your ISA ...... but it leaves you with £30,200 freestanding cash. And, HMRC rules, you can't put that back into the same funds (as you've just sold) for 30 days.

So you either stay out of the market for 30 days (a good idea during May!) or you re-invest in different Funds to those just disposed of.

Slightly messy - but as the £10,100 allowance is worth between £1818pa and £2828pa then it's usually a worthwhile chore - so long as your 'assets' are such you can fragment them into saleable format.

jamesd

Stavros, you don't get to accumulate the £10,100 a year allowance. What you'd try to do is sell just enough each year to make a gain of £10,100 and pay no CGT. Then buy something else with the proceeds. Something similar is usually easy to arrange if you're using unit trusts or ETFs. It's what I did myself this year in March. The amount you're gaining on the part you're selling to move into the ISA will use a bit of the £10,100 allowance, you just need to sell a bit more to fully use it.

If the investments are in a range of different shares it's most convenient to sell all of your holdings in each share because that simplifies the CGT calculation you may need to do if you sell more than four times the CGT allowance in one year. You need to report all sales and prices if you sell more than four times the CGT allowance even if you didn't become liable for CGT.

If you were to buy back the same share after waiting a month you'd have to work out the average purchase price if you still held some. More convenient to sell all and not have to do that, just use the latest buying price. But don't sell all if that means you'd have CGT to pay.

JamesU

Stavros wrote: »

Can someone answer this case study

Tried the calculation in post here:

http://forums.moneysavingexpert.com/showpost.html?p=34049299&postcount=32

JamesU