CTG on shares - new investor

BMcN

I started investing this year and was starting to make a spreadsheet to track my trades, however I have a few questions about CTG should I make it to that level.

Let use nice round number for my example and ignore trading fees. If I invested £15,000 and over the year I made £12,000 profit. Let me try some different senarios:

A) I withdraw all my money, I need to pay CGT on £1,900?

I withdraw the £15,000 and leave my profit invested, I am not eligible to pay CGT?

C) I withdraw my initial £15,000 and and £10,100 of my profit, I pay no CGT. Then next year I withdraw the remainder of my profit, do I pay CGT on it?

Mods, feel free to move this I have it in the wrong place.

Thanks

Linton

BMcN wrote: »

I started investing this year and was starting to make a spreadsheet to track my trades, however I have a few questions about CTG should I make it to that level.

Let use nice round number for my example and ignore trading fees. If I invested £15,000 and over the year I made £12,000 profit. Let me try some different senarios:

A) I withdraw all my money, I need to pay CGT on £1,900?

I withdraw the £15,000 and leave my profit invested, I am not eligible to pay CGT?

C) I withdraw my initial £15,000 and and £10,100 of my profit, I pay no CGT. Then next year I withdraw the remainder of my profit, do I pay CGT on it?

Mods, feel free to move this I have it in the wrong place.

Thanks

You cant meaningfully chose to optionally withdraw initial investment or profit. CGT is based on what happened to specific shares.

So if you buy 1000 shares at £10 and sell those shares at £30 you make £20K profit with £9900 subject to CGT.

To avoid CGT you could sell 500 shares in one year making £10K profit and the rest the next year making another £10K profit.

This is oversimplified as it ignores dealing costs.

In practice you are most unlikely to make that level of profit, and you can avoid capital gains tax entirely by working within an S&S ISA.

Aegis

BMcN wrote: »

I started investing this year and was starting to make a spreadsheet to track my trades, however I have a few questions about CTG should I make it to that level.

Let use nice round number for my example and ignore trading fees. If I invested £15,000 and over the year I made £12,000 profit. Let me try some different senarios:

A) I withdraw all my money, I need to pay CGT on £1,900?

Yep.

I withdraw the £15,000 and leave my profit invested, I am not eligible to pay CGT?

C) I withdraw my initial £15,000 and and £10,100 of my profit, I pay no CGT. Then next year I withdraw the remainder of my profit, do I pay CGT on it?

Nope. You aren't able to decide to withdraw the original investment or the profit. Instead you are deemed to sell off a proportion of the shares you purchased at the earliest date. In this case, if you bought 15,000 shares to begin with, then on disposal of exactly £15,000 (leaving £12,000) worth, you would sell off 56% of your holding at a profit of £6,667. In this example you will not pay any capital gains tax, but the principle remains the same: you can't withdraw your original investment without assessing the total holding for tax on the crystallised gains.

CGT is a tricky one sometimes, just remember that it's the number of shares you sell and the profit you made on those specific shares that matters, not how much overall profit you have in your portfolio.

BMcN

Thanks guys, would this also work:

Buy £10,000 worth of shares, make 100% profit. Sell all the shares so a total gain of £10,000. Buy the shares again for £20,000. So no CGT due for that tax year, any further gains (up to CGT limit) would not be taxed if sold in the next tax year?

I know figures are highly speculative and simplified.

xrjtg

A special rule was introduced to stop such "bed and breakfasting" of shares for the avoidance of CGT. Roughly, if shares are sold then re-purchased within (I think) 30 days, the order of the sale and purchase are reversed for the purpose of calculating CGT. So if you sold your shares for £20000 then re-purchased for £20000 no profit would have been taken; if you re-purchased for £19000 then you would have taken £1000 profit, but still have a holding that "cost" £10000; and if you repurchased at £21000 then you would have made a £1000 loss (although whether this is a loss that can be carried forward I wouldn't like to say).

I've just seen an intriguing link discussing bed and breakfasting with the help of CFDs to even out difference in sale and purchase prices over the month you need to wait, so I'm sure variants of what you have in mind work: you just need to be careful.