Capital gains tax

OPENSPACES

After years of living within the CGT allowance I seem to have struck gold with a multi bagger share and being in my 70s want to sell up while the price is good. Currently my shares are held in a joint nominee account with my wife. Now someone has suggested that if I sell my shares and retain the cash in my trading account then no gain has actually been realised i.e. it is only when I draw the money out that it becomes taxable. Would it therefore be possible to do this and draw the limit in cash each year and treat it as essentially a pension pot?

Keep_pedalling

No, the gain is made at the time of the sale regardless of what you do with it. Why not cash in the max to take advantage of your annual allowances, then sell more after 5th April?

Might be a good time to get rid of any lemons you are holding to offset the gains.

eskbanker

OPENSPACES wrote: »

Now someone has suggested that if I sell my shares and retain the cash in my trading account then no gain has actually been realised i.e. it is only when I draw the money out that it becomes taxable. Would it therefore be possible to do this and draw the limit in cash each year and treat it as essentially a pension pot?

That's not my understanding of how it works and the very first statement at https://www.gov.uk/capital-gains-tax/overview is "Capital Gains Tax is a tax on the profit when you sell (or ‘dispose of’) something (an ‘asset’) that’s increased in value", i.e. you do indeed realise the gain when you sell, as you no longer own the capital asset any more. On what basis did your adviser suggest otherwise?

Keep_pedalling

eskbanker wrote: »

That's not my understanding of how it works and the very first statement at https://www.gov.uk/capital-gains-tax/overview is "Capital Gains Tax is a tax on the profit when you sell (or ‘dispose of’) something (an ‘asset’) that’s increased in value", i.e. you do indeed realise the gain when you sell, as you no longer own the capital asset any more. On what basis did your adviser suggest otherwise?

Adviser in this case is probably some bloke at work or up the pub :beer:

kidmugsy

You could always sell up and then you could invest in those high risk stunts that roll over the gains. EISs? Rather you than me.

"Capital Gains Tax Deferral Relief

CGT can be deferred if capital proceeds are invested in EIS shares - even if the investor is connected (see above). The gain can be realised from any asset but the share investment must take place in the period of one year before or three years after the disposal of the asset. The minimum or maximum EIS investments do not apply to deferral relief.
Gains realised on or after 3 December 2014 which qualified for Entrepreneurs' Relief may be reinvested in EIS (or Social Investment Tax relief) and will still remain eligible for ER when the deferred gain is realised.
It is important to claim ER the first time that any part of the deferred gain comes back into charge, even if there is no tax to pay due to losses or the annual exemption. If relief is not claimed on the first part of the gain to be realised then it cannot be claimed later in respect of any of the remaining gain."

http://www.rossmartin.co.uk/companies/seis-eis/560-enterprise-investment-scheme-eis

Glen_Clark

OPENSPACES wrote: »

someone has suggested that if I sell my shares and retain the cash in my trading account then no gain has actually been realised

Sounds like one of Baldrick's cunning plans :rotfl:

Biggles

OPENSPACES wrote: »

Now someone has suggested that if I sell my shares and retain the cash in my trading account then no gain has actually been realised i.e. it is only when I draw the money out that it becomes taxable.

Untrue, as stated above, it's when you sell that it become potentially taxable.

I take it you understand that it's only the gain that counts for CGT, not the sale price and, in your case, only half the gain (as it's a joint account)? So you could take a profit of £22,600 on the sale this year without exceeding your allowance, and the same next year if need be. Plus it could be the time to sell some losers to keep the year's gains down to £22,600.

OPENSPACES

I understand the basics and know that I only have to report gains over the allowance, however things a little complicated as I have multiple purchases in the same company (which is currently going through the roof) and I want to try and maximise the tax burden (s104 et al) . Having said that one must surely be grateful in this case to pay the tax ? Happy days

bowlhead99

OPENSPACES wrote: »

however things a little complicated as I have multiple purchases in the same company (which is currently going through the roof) and I want to try and maximise the tax burden (s104 et al) .

Presumably you mean minimise the tax burden in total? Or are you just meaning selling enough to maximise the taxable gain within the limit of your joint £22.6k allowance (e.g. 22.59999) so you don't have too much unrealised gain embedded in the remaining shares that you haven't sold (which would just be storing up potential tax charges to be paid on future sales).

The fact you have multiple purchases in the company doesn't really make it very complicated, as all you do is add up all the costs of all the shares you bought and that gives you your grand total cost which you can divide by the grand total number of shares you bought to get the average purchase cost. Which you compare to the sale price now to see what profit you would make per share sold.

It's only complicated if you have bought shares at various times *and then sold some and then bought more*, in which case you would need to go back to those points and figure out the cost of those shares sold along the way to know how the running average cost gets blended with the new purchases coming in.

Having said that one must surely be grateful in this case to pay the tax ? Happy days

Being taxed on a 'win' is certainly better than not having to pay any tax because you lost.

Once you've sold enough shares at £x profit per share to use up your £22.6k exemption for this year, you just have to decide whether you want to keep selling more shares to take a tax hit or whether you will stop for now and then sell more next tax year to use up that year's exemption too. The risk of only 'cashing in' a portion each year and leaving the rest of the shares in your account, is that by the time you get into future tax years and sell up, the shares might have dropped in value causing you to be left with less money than you would have had if you had just sold up now, paid the tax on all of it, and spread the money across a more diversified portfolio of investment funds rather than keeping it in the single company's shares.

Biggles

OPENSPACES wrote: »

I understand the basics and know that I only have to report gains over the allowance

Well, you do have to report in any year where the total disposals exceed four times the CGT allowance, irrespective of whether gains or losses have been made, so this year that would be £45,200 for each of you.

But I don't know whether it's something HMRC get too excited about.

Keep_pedalling

bowlhead99 wrote: »

Presumably you mean minimise the tax burden in total? Or are you just meaning selling enough to maximise the taxable gain within the limit of your joint £22.6k allowance (e.g. 22.59999) so you don't have too much unrealised gain embedded in the remaining shares that you haven't sold (which would just be storing up potential tax charges to be paid on future sales).

The fact you have multiple purchases in the company doesn't really make it very complicated, as all you do is add up all the costs of all the shares you bought and that gives you your grand total cost which you can divide by the grand total number of shares you bought to get the average purchase cost. Which you compare to the sale price now to see what profit you would make per share sold.

It's only complicated if you have bought shares at various times *and then sold some and then bought more*, in which case you would need to go back to those points and figure out the cost of those shares sold along the way to know how the running average cost gets blended with the new purchases coming in.

Being taxed on a 'win' is certainly better than not having to pay any tax because you lost.

Once you've sold enough shares at £x profit per share to use up your £22.6k exemption for this year, you just have to decide whether you want to keep selling more shares to take a tax hit or whether you will stop for now and then sell more next tax year to use up that year's exemption too. The risk of only 'cashing in' a portion each year and leaving the rest of the shares in your account, is that by the time you get into future tax years and sell up, the shares might have dropped in value causing you to be left with less money than you would have had if you had just sold up now, paid the tax on all of it, and spread the money across a more diversified portfolio of investment funds rather than keeping it in the single company's shares.

Or you take the tax hit, and the share price rises again, leaving you with a double hit. Over the last 6 years we have been stripping out gains from our general investment accounts on an annual basis. This has been ties up with rebalancing and getting topping up our ISAs to the max.

So far I would estimate we have cashed in on around £80k of gains in that period without paying a penny in CGT. You will only lose out in delaying the sale of some shares into the next financial year is if their value falls by a greater amount than the tax you would payed in selling earlier. Yes it is a gamble but the better odds lies with a split sale.