Capital Gains Tax on Shares and CFDs

mrobsessed

Hi All,

I've invested in some shares within a share ISA but was wondering how the tax system generally works in relation to gains on share value and CFDs, so would appreciate some advice. I've never filled a tax return in my life as this has always been done by my employers.

If, for example, I buy 20K of shares (not protected an ISA) and they increase in value to 35K this means I've made a capital gain of 15K and will be liable to pay tax on the gain of 18% or £2,700.

Is this 18% automatically deducted when I sell the shares, do I have to declare it to the taxman myself, or do I get a bill from the revenue later, such as at the end of the financial year?

Likewise with CFDs, ignoring the costs of the broker, if I make similar gains what happens with the tax on the capital gain? If the leverage on the CFD is 10 times the amount I've put up, is all of the gain taxable or just the 10% stake?

I know I get a yearly allowance of about 11K that is not taxable, so I'm ignoring that here for the sake of clarity and assuming that the 11K allowance has already been used.

Would appreciate your help, many thanks.

Mr O

jimmyss1

Nothing is automatically deducted. If you go over the cgt threshold you have to declare it to the tax man, and pay the relevant tax.

CFD profits incur cgt just like normal share trades.

jimjames

You only are liable for tax when you sell. You have over £10k per year (google exact amount) so in your example you could sell enough to make £10k profit one year and the remaining £5k the next and not pay any CGT. Totally legal tax planning.

mrobsessed

Thanks for your advice, though I'm rather surprised that the Inland Revenue seemingly leaves it up to people to voluntarily declare any capital gains they have made - I thought the profits made would have to be reported by the broker by law.

Considering that the taxman is not *ahem* exactly popular, doesn't this mean that undeclared capital gains in share dealing profits is absolutely rife? I know the Revenue have a lot of powers and the ability to impose harsh punishments, but the temptation to evade paying large percentages of profit in tax must be very strong.

For those that have experience of large share dealings - may I ask how much of this goes on and how often does the Revenue find out? I expect the Revenue would have a record of who has bought shares because of Stamp Duty that is paid when they are bought, but do they follow this up and ask questions later?

Obviously any suggestion of evading tax is illegal so I can't find a clear answer on these issues but am now really curious about how a potential MASSIVE hole in the tax laws could be allowed to exist (if it does). Anyone know?

Many thanks.
Mr O

chris_m

I suspect there will be a degree of cost-effectiveness in any HMRC investigations - at least I hope so since their costs come out of all our taxes.
If it were to cost, say, £2K to investigate and recover £1K of unpaid tax the that's hardly cost-effective. If, however it were to cost £10K to recoup £100K then they are more likely to, and should, do it.

noh

mrobsessed wrote: »

Thanks for your advice, though I'm rather surprised that the Inland Revenue seemingly leaves it up to people to voluntarily declare any capital gains they have made - I thought the profits made would have to be reported by the broker by law...............


Many thanks.
Mr O

It's not voluntary.
If the gain or value of the sale is above the threshold then the individual is legally obliged to declare.

IronWolf

mrobsessed wrote: »

Thanks for your advice, though I'm rather surprised that the Inland Revenue seemingly leaves it up to people to voluntarily declare any capital gains they have made - I thought the profits made would have to be reported by the broker by law.

Considering that the taxman is not *ahem* exactly popular, doesn't this mean that undeclared capital gains in share dealing profits is absolutely rife? I know the Revenue have a lot of powers and the ability to impose harsh punishments, but the temptation to evade paying large percentages of profit in tax must be very strong.

For those that have experience of large share dealings - may I ask how much of this goes on and how often does the Revenue find out? I expect the Revenue would have a record of who has bought shares because of Stamp Duty that is paid when they are bought, but do they follow this up and ask questions later?

Obviously any suggestion of evading tax is illegal so I can't find a clear answer on these issues but am now really curious about how a potential MASSIVE hole in the tax laws could be allowed to exist (if it does). Anyone know?

Many thanks.
Mr O

I don't doubt some people dont declare capital gains, but it is very easy for HMRC to find out about it if it is done through shares as all they need to do is look at the brokers records.

If they find out you'll be found guilty of tax evasion and could go to prison.