Can I use my capital gain allowance if I use social trading like eToro?

Ricardo1980

Hello!

I was thinking about using £2000 or £3000 in social trading, for example eToro. Just for fun or as experiment.
It is not possible to use that inside a S&S ISA, so I guess if there are profits, that's capital gains and taxes should be paid.
I know there is a Capital Gains Tax allowance, which is by far more than the amount I could earn:
https://www.gov.uk/government/publications/rates-and-allowances-capital-gains-tax/capital-gains-tax-rates-and-annual-tax-free-allowances
Tax-free allowances for Capital Gains Tax £11,300

My first question is, when using eToro, can I use that allowance?

My second question is about the self-assessment tax return. If there is something I really hate is bureaucracy, so if I can avoid it, even better.

Here I read:
https://www.gov.uk/self-assessment-tax-returns/who-must-send-a-tax-return
"you made profits from selling things like shares, a second home or other chargeable assets and need to pay Capital Gains Tax"

Does that mean I don't have to fill in the tax return if I don't surpass my capital gains allowance?
(Currently I don't do fill it because I am PAYE)

Thanks a lot for your suggestions.

masonic

eToro and similar sites use spread betting. As this is a form of gambling, proceeds are tax free unless you are classed as a professional (which you wouldn't be if you have a regular income elsewhere).

Edit: Actually, it looks like eToro is using CFDs, so capital gains are taxable. You will need to track your gains and losses. If your net gain is less than the CGT allowance, you would not need to declare the income.

However, you might wish to declare your losses so that you can carry them forward and use them against gains made if you decide to pursue a sensible investment strategy in the future.

JustinP

A "packed" investment means that your money is invested in the initiative, usually an individual savings account (ISA) or SIPP (Self invested personal pension), which allows duty-free savings. Often people invest in them through the bank, but it is perfectly acceptable to make investments for themselves. What's more, there are many platforms that are willing to help you do it.

PeacefulWaters

JustinP wrote: »

A "packed" investment means that your money is invested in the initiative, usually an individual savings account (ISA) or SIPP (Self invested personal pension), which allows duty-free savings. Often people invest in them through the bank, but it is perfectly acceptable to make investments for themselves. What's more, there are many platforms that are willing to help you do it.

Welcome to the man from The Marshall Islands!

Ricardo1980

JustinP wrote: »

A "packed" investment means that your money is invested in the initiative, usually an individual savings account (ISA) or SIPP (Self invested personal pension), which allows duty-free savings. Often people invest in them through the bank, but it is perfectly acceptable to make investments for themselves. What's more, there are many platforms that are willing to help you do it.

Thanks for replies.

I sent an email to eToro asking if they offer or will offer ISAs and this is the response:

"At present we offer CFD trading, which is liable to Capital Gains tax in the UK. However this is of course down to your individual circumstance and tax threshold. Please seek independent financial advice for full information about how this would work for you.

While we do not currently offer an ISA product with tax exemptions, if we do offer one in the near future, then we will be happy to update you."

So, no ISA.

BTW, let's say I copy a trader that executes 2 or 3 operations per day. Does that mean I should declare hundreds of operations per year?

And most important question, if I am inside the capital gains allowance, can I avoid filling in the self assessment tax return? (I'm going to ask this question to HMRC)

Thanks a lot.

Pincher

If you have losses, it is possible to carry that into future years, and offset against taxable gains. You can only carry forward by declaring it in your tax return.

I think the rule is, if the gain is below the threshold, £11,300 , so there is no tax due, you don't have to file. BUT, if you had to file taxes for other reasons, you should declare the gains as well.

bowlhead99

Ricardo1980 wrote: »

So, no ISA.

BTW, let's say I copy a trader that executes 2 or 3 operations per day. Does that mean I should declare hundreds of operations per year?

And most important question, if I am inside the capital gains allowance, can I avoid filling in the self assessment tax return? (I'm going to ask this question to HMRC)

If your gains are within the capital gains allowance and don't have any other reason for doing a self assessment tax return - (reasons include e.g. because you have income from self employed business or buy-to-let or foreign earnings etc, or HMRC have asked you to do one for their various internal guidelines e.g. earnings over £100k losing personal allowance) - then you don't have to do a tax return just to report the fact that all your gains were within the exemption.

However, if you are already doing a self assessment tax return for one of various other reasons, and your total proceeds from share sales is over 4 times the annual exemption (e.g. you have £46k of disposals even though the gains were only £5k), you have to fill out the capital gains section.

If you are turning over your £2-3k of capital 20-30 times over the year you could quite easily bust through the £45,200 level which is four times the £11,300 annual exemption. So if you were already required to do a tax return you would likely need to declare it. If you are not already required to do a self assessment, you wouldn't.

If (when) you lose the £2-3k you might like to carry the losses forwards to offset gains in some future tax year later in your life. But you can only do that by writing to HMRC to claim them with a summary of all the gains and losses that caused you to lose the £2-3k. So some people wouldn't bother to do that because of the hassle of laying it all out and telling HMRC about it.

However, if you have bought and sold any shares at all (whether 'real' shares or derivatives such as CFDs on an eToro platform), you still need to keep records of it all - so that for example if HMRC are randomly reviewing your tax status in a couple of years time, and they know you have been sharetrading and enquire whether you made over £11,300 of capital gains this year, you can prove that you didn't.

Ricardo1980

Thanks bowlhead99!
That's what I was looking for.
I didn't know the 4 times issue.