Tax on shares

mike1976_2

Hi all,

I have read up about tax due on shares and understand that it comes under Capital Gains Tax.

Once over the £8k threshold, you start paying tax on the income band you come under.

Well I am self employed and pay myself £420 a month as a wage and all other is profit subject to Corporation Tax.

What would happen now that I have made over £8000 in shares?

Thanks
Mike

malcindebt

Are you saying that (a) you have cashed in shares to the value of £8000 or over, or (b) have you paid yourself a salary under PAYE and then the remainder in dividends?

(a) then you need to complete a self assessment for the year in question and declare the capital gain.

(b) this is not covered by Capital gains, it just means that for the last tax year, all income received in dividends, upto a total income (salary+ interest+divs) of £38355 will be taxed at 10% only. Then income from dividends over this amount wil be taxed at 32.5%.

mike1976_2

Hi Malc,

Thanks for the reply. I think I have confused you.

I have a business which deals in domestic cleaning. From that we have a profit of c.£30k a year. I take £5k a year as 'salary' (£420 a month).

My salary is not sbject to tax since it is under the £5k a year limit so I am in the zero income tax band.

The rest is declared as profit and is subject to corporation tax.

As an individual, I have also traded in shares. Since January I have managed to make c.£7,000 profit through buying selling. If I make over the £8,000 threshold, how much tax will I pay on those shares.


Thanks again
Mike

Bean_Counter

I think malc might have been a little surprised that you draw so little from your company. No matter.

The CGT threshold for 2006 / 07 is £8,800. If you are over that, then you are right that it is taxed at your marginal rate of tax. For last year, then you are into the 10% band.

However if you have only made £7K since January (assuming up to the end of the tax year), then you have nothing to worry about. Just put it on your tax return.

mike1976_2

Thanks Bean

Think I have confused all sorry.

Where could I find the marginal rates and the bands they apply to?

The reason being is the £7k on shares is from Jan-Mar. What if I was to make similar returns throught the year. I would in effect make c.£28k from shares. What if I snowball the amounts I make ...

I have started to think about the possibility of it being a full time income.

Bean_Counter

Check out

http://www.hmrc.gov.uk/rates/index.htm

The only nagging doubt I have is that you may be considered to be trading in shares and be liable to income tax rather than CGT, but I am not sure.

I started to look at the following but ran out of time. Might be worth looking into this and some related matters. Hope this is of some help.

http://www.hmrc.gov.uk/manuals/bimmanual/BIM65701.htm

Cute_'n'_Quirky

Mike 1976.

The replies you have received are incorrect.

The proper details are as follows -

You only pay CGT on the profit on the SALE OF SHARES, not on the income from shares - CGT on profit above £8800

Income Tax applies to INCOME from shares, depending on your normal tax band.

Share dividends are paid net of 10% income tax.

Extra tax is payable only if you are in the Higher Rate Tax band ie 40% , then you need to declare your shares income on your tax return and pay the additional 22.5% of the GROSS income from shares, bringing the total to 32.5%

Hope this clarifies.

mike1976_2

Thanks Cute

This is the problem ... my income tax.

At the moment I do not pay income tax. From my company, I pay myself £5000 a year as a wage. This means I do not pay income tax.

The rest of the money is a dividend which is subject to corp tax.

Therefore if i make over £8800 on the profit of sale of shares, what income tax % gets applied to work out how much tax i pay.

a) no imcome tax as my current rate is 0%. so id just pay the 10%
b) 32,5%, as the £5000 wage from the business and the £10,000 (hypothetical figure) profit on shares take me in to the lower band?
c) or something else

Cute_'n'_Quirky

For SALE of shares to calculate CGT you would work out the profit, so we are assuming it is over £8800 which is the threshold. The taxable gain (ie the amount over £8800) is added to your other income and is taxes at these band rates -


starting rate - 10%
basic rate- 20%
higher rate -40%

Therefore if you have no other taxable income and you are below the taxable threshold, then you will still not pay any income tax, even though that profit is from shares.

cash99

mike1976 wrote: »

Thanks Cute

This is the problem ... my income tax.

At the moment I do not pay income tax. From my company, I pay myself £5000 a year as a wage. This means I do not pay income tax.

The rest of the money is a dividend which is subject to corp tax.

Therefore if i make over £8800 on the profit of sale of shares, what income tax % gets applied to work out how much tax i pay.

a) no imcome tax as my current rate is 0%. so id just pay the 10%
b) 32,5%, as the £5000 wage from the business and the £10,000 (hypothetical figure) profit on shares take me in to the lower band?
c) or something else

The dividend you take from your company is also your income and subject to income tax, in the same way as all other income. The only diffrence is that the corporation tax paid by you company gives you credit for basic rate tax on the dividend.

You need to add your salary, dividend plus 10% tax credit, then deduct you personal allowance. The end result determines which tax band you are in. If you are in the higher rate band then additional tax is due on the excess.

With regards to the share, as an earlier poster has stated this could be classified as trading and consequently taxed as income and not capital gains.

Sounds like you need an accountant to explain this to you.

Cute_'n'_Quirky

Complicated!

I am doing my CeMap/CiFa 1 this week!

Unfortunately it does not include corporation tax!