Capital gains tax

OPENSPACES

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

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?

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.

OPENSPACES

I suppose the question is why do they want to know it. I suppose it just a ruse to find out how much money you have tucked away

Previn

Re the 4* reporting threshold... This link suggests it has to be reported whether self assessment is completed or not....

https://www.gov.uk/capital-gains-tax/work-out-need-to-pay

bowlhead99

It does suggest that, yes. However, the Gov UK website is dumbed down in the interests of simplicity and at the end of the day, HMRC would prefer to receive more information than less, so it's in their interest for such pages to make readers err on the side of caution. Whereas, bowlhead99 is rarely wrong.

If you go back to the underlying law:

Taxes Management Act 1970 section 8 gives HMRC broad powers to require people to do a tax return.

Taxation of Chargeable Gains Act 1992 refers to reporting limits in section 3A - which you won't find in the original version of the 1992 act on legislation.gov.uk, but it was added after Section 3 by the Finance Act 2003 (Schedule 28, Part 1, "Reporting Limits", which is on that site).

This states that where in the case of an individual:

(a) the amount of Chargeable Gains accruing to him in any year of assessment does not exceed the exempt amount for that year, and
(b) the aggregate amount or value of the consideration for all chargeable disposals of assets made by him in that year does not exceed for times the exempt amount for that year,

a statement to that effect is sufficient compliance with so much of any notice under section 8 of the Management Act as requires information for the purposes of establishing the amount in which he is chargeable to capital gains tax for that year.

So, where that takes you, is *if* HMRC have told you they want you to report your reportable activities, income, deductions etc etc for a particular period for whatever reason, it is a valid defence for the Chargeable Gains aspect of it to simply confirm in writing or through a signed return that you didn't have gains over the exempt amount and that you didn't have disposals valued at over 4x the exemption. If you sign off a full self assessment return and leave the CG pages blank, that's what you're deemed to be doing. If you cannot make that statement (eg you *do* have disposals over 4x) then you would need to comply with their request in full and disclose the disposals and related gains/losses on the return like it tells you in the instructions.

If HMRC have *not* told you that you must do a return for the period, you don't need a defence to the request to give all your proceeds and disposals information, because there is no such request. There is just the standard obligation to inform them that you have taxes which you owe (e.g. due to gains over the exemption). So, in the absence of a demand for you to deliver a tax return you don't need to worry about some "threshold" over which you would tell them about things that didn't generate a tax bill, because they are *not* asking for that information. Only by asking you to do a tax return would they be asking for that information.

In the OP's case he was explicitly told they weren't demanding him to do a tax return. So, if he doesn't have taxable gains over threshold there is no need to file any returns, reports or letters stating the gross amounts of his disposals, because as someone who has not been requested to do a return, he's not obligated to give it.

If he was someone like me, who has been asked to do a tax return, he would have to either
i) report the disposals activity (if over 4x or leading to a non exempt gain) or

ii) leave it blank to show he was under 4x and didn't have any gain not covered by the exemption.

But if he wasn't asked to do that, he doesn't need to volunteer that information if it is all exempt.

The below HMRC CGT manual page discusses this, and is consistent with the above

https://www.gov.uk/hmrc-internal-manuals/capital-gains-manual/cg20220

That page from the manual confirms what I said, i.e.

i) a person may be required to supply information about chargeable gains, HMRC's authority for this is in TMA 70/ S8.

ii) then from TCGA92/ S3A, *if required to make a return* an individual need not make a detailed return of chargeable gains where aggregate consideration for all disposals (except exempt assets and spouse/civil partner transfers) are over 4x exempt, and the gains before deducting losses do not exceed annual exempt amnt.

If HMRC have not exercised their right to require you to make a return, and you don't have a non exempt gain to report and you don't want to declare any losses (to offset current year gains in excess of exemption, or to carry to future years) there is nothing to do.

OPENSPACES wrote: »

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 ?

Yes, if you are buying and selling stocks by way of business like a market trader buys and sells tat and antiquities, it can be classed as a trade. Yours won't be, as "just some pensioner with a share or two that he likes".

OPENSPACES wrote: »

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%

Sounds about right, after first using the annual exemption and any current year losses or prior year carried forward losses to offset the gains.

OPENSPACES wrote: »

I suppose the question is why do they want to know it. I suppose it just a ruse to find out how much money you have tucked away

If you're the kind of person with financial affairs large or interesting enough that they want you to tell them about your tax affairs through a tax return, and you are making a significant disposal (s), there is a risk that there is something subject to tax that's been missed or miscalculated.

Plus it gives them a general insight into your wealth and cashflows, which is of general interest if they have future enquiries. From that perspective, the more information they gather from you, the better (from their POV)