Capital gains tax

IanManc

OPENSPACES wrote: »

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

Not only do you have to report all disposals when you've disposed of assets worth four times the allowance; you also have to report all your disposals if you have made gains over the allowance of £11300, even if you've got losses which take your net gains below £11300 so you don't owe any tax.

I spoke to a tax inspector about this and he said that they use non-reporting of disposals, even when no tax is owed, as evidence of someone who wasn't telling them what the law says they need to be told about, and so indicating that the person might be of further interest to them and worth an investigation.

OPENSPACES

The point I was making was that if I gain less that the allowance I have no need to report anything

IanManc

OPENSPACES wrote: »

The point I was making was that if I gain less that the allowance I have no need to report anything

And your point is still wrong, because as both Biggles and I have both pointed out to you, you have to report all your disposals when you have made disposals of more than £45200 in a tax year even if you have made no gains at all.

OPENSPACES

Well when I rang up HMRC they did not tell me about the £45200 per head threshold. What is the rationale behind it and how is it calculated?

IanManc

OPENSPACES wrote: »

Well when I rang up HMRC they did not tell me about the £45200 per head threshold. What is the rationale behind it and how is it calculated?

I've no idea what is "the rationale behind it". As to how it is calculated: you add up your disposals, and if you've sold assets totalling more than four times the annual allowance - currently £11300 - then you have to report every transaction, irrespective of whether you've made gains or losses.

The HMRC notes for the self assessment tax form for last year explain as follows:

"7 Capital gains summary

Fill in the ‘Capital gains summary’ pages and attach your computations if:
• you sold or disposed of chargeable assets which were worth more than £44,400
• your chargeable gains before taking off any losses were more than £11,100
• you want to claim an allowable capital loss or make a capital gains claim or election for the year
• you weren’t domiciled in the UK and are claiming to pay tax on your foreign gains on the remittance basis
• you are chargeable on the remittance basis and have remitted foreign chargeable gains of an earlier year
• you sold or disposed of an interest in a UK residential property and were not resident in the UK or you were a UK resident and overseas during the disposal
• you submitted a Real Time Transaction Tax return on the disposal of an asset and haven’t paid the full amount of Capital Gains Tax You should fill in the ‘Additional information’ pages if you have any chargeable event gains."

The first and second bullet points are the ones which are relevant to this thread, and the figures for the current tax year are disposals of more than £45200 and gains before taking off any losses of £11300.

It wouldn't be so bad if all you had to do was fill in the summary pages, but attaching the computations is a real pain, as the form requires the date of acquisition as well as the date of sale, and if you've bought each share or fund in lots of tranches then the form filling is inordinate, so I always ensure that I don't breach the limits. I know that this might mean letting the tax tail wag the personal dog but I can't be doing with that amount of admin when I never owe any CGT anyway.

OPENSPACES

Fortunately, I don't have to provide a self assessment nowadays after the HMRC told me I did not need to. They are therefore reliant on me providing information voluntarily and I sought to ascertain the rules of the game as like you I seldom went over the limit and always aligned selling to come under the allowance. They told me if you don't go over the allowance we don't want to know. Clearly they forgot about the 4 times limit. I suppose if I sell shares and then buy back in I have to calculate the average price paid as at the time of each sell ?Am I correct in saying that CGT tax is calculated as if it is extra earnings ?

bowlhead99

OPENSPACES wrote: »

Fortunately, I don't have to provide a self assessment nowadays after the HMRC told me I did not need to.

Then in that case they didn't 'forget' about the "four times" limit. The four times limit is relevant if you have to fill out a tax return, because then you have to follow the rules for properly completing a tax return, which include disclosing your sales proceeds and gains/losses where the proceeds are >4x that year's exemption even if the gains are under the exemption and you're not bothered about claiming the losses.

However, if you don't have to fill out a tax return, you don't need to tell them about your gains and losses if the gains are less than the exemption and you don't want to claim any losses.

I suppose if I sell shares and then buy back in I have to calculate the average price paid as at the time of each sell ?

Yes, if you have 10000 shares that cost you an average of £1 each your cost per share is £1 each. When you sell 2000 of those shares (regardless of whether you make a gain or loss on doing that) the remaining shares still have an average cost of £1 each, ie £8000.

Then if you buy another 1000 shares at £5 each for £5000, your pool of shares will be 9000 shares with a total cost of £13000, or £1.44444 each. So, next time you sell, the shares you're selling will have a cost of £1.44444 each.

If you're buying back in quick succession after selling, ie within 30 days, beware of the special rules to stop such "bed and breakfasting". If you sell 2000 shares on 1 Sept and buy back 1000 shares on 22 Sept, the 2000 shares you sold won't all get matched against the old purchases which had cost you £1 a share. 1000 of them will get matched against the future purchase-in-less-than-30days-time of 1000 shares, perhaps with no gain or even a loss, and only 1000 of them would be left over to match against the historic holding of shares that cost a pound each.

Am I correct in saying that CGT tax is calculated as if it is extra earnings ?

No, it's taxed as if it is capital gains, which have different rates to earnings because they are gains and not income.

OPENSPACES

I have heard that if you have so many trades you can be classed as a trader in which case profit becomes classed as earnings rather than CGT. Any truth in that ?

OPENSPACES

With the basic rate of tax threshold being £45K and my income £30k does that mean the first £15k of gains I pay 10% on and the rest 20%

TBC15

bowlhead99 wrote: »

Then in that case they didn't 'forget' about the "four times" limit. The four times limit is relevant if you have to fill out a tax return, because then you have to follow the rules for properly completing a tax return, which include disclosing your sales proceeds and gains/losses where the proceeds are >4x that year's exemption even if the gains are under the exemption and you're not bothered about claiming the losses.

However, if you don't have to fill out a tax return, you don't need to tell them about your gains and losses if the gains are less than the exemption and you don't want to claim any losses.

Yes, if you have 10000 shares that cost you an average of £1 each your cost per share is £1 each. When you sell 2000 of those shares (regardless of whether you make a gain or loss on doing that) the remaining shares still have an average cost of £1 each, ie £8000.

Then if you buy another 1000 shares at £5 each for £5000, your pool of shares will be 9000 shares with a total cost of £13000, or £1.44444 each. So, next time you sell, the shares you're selling will have a cost of £1.44444 each.

If you're buying back in quick succession after selling, ie within 30 days, beware of the special rules to stop such "bed and breakfasting". If you sell 2000 shares on 1 Sept and buy back 1000 shares on 22 Sept, the 2000 shares you sold won't all get matched against the old purchases which had cost you £1 a share. 1000 of them will get matched against the future purchase-in-less-than-30days-time of 1000 shares, perhaps with no gain or even a loss, and only 1000 of them would be left over to match against the historic holding of shares that cost a pound each.

No, it's taxed as if it is capital gains, which have different rates to earnings because they are gains and not income.

Thanks for the information about X4 requirement only applicable if you are required to fill out a return.