wanted high risk short term investment...

System

Tom99 wrote: »

Making a loss of £20k but sharing it with the taxman who will return £3.6k is still a actual loss of £16.4k, where on earth is the sence in that? If the tax rate was 90% or even 50% there might be some logic in doing it.

You are ignoring that with high risk investments there is a chance of a profit otherwise why invest! A simple example might help. Suppose there is a high risk investment that makes a profit (before tax) of £10,000 with probability of 50% and a loss (before tax) of £10,000 with probability of 50% so the expected payoff is £0 therefore you would not bother to invest. Due to the CGT tax liability (for simplicity assume a tax rate of 20%), the losses are reduced to £8,000 and profits, assuming that the profits can be taken tax free in the next tax year, are still £10,000 so the expected payoff is £1,000 therefore you invest (assuming that you are risk neutral). The point is that the taxman is sharing the losses and this changes the expected payoff.

Tom99

Economic wrote: »

You are ignoring that with high risk investments there is a chance of a profit otherwise why invest! A simple example might help. Suppose there is a high risk investment that makes a profit (before tax) of £10,000 with probability of 50% and a loss (before tax) of £10,000 with probability of 50% so the expected payoff is £0 therefore you would not bother to invest. Due to the CGT tax liability (for simplicity assume a tax rate of 20%), the losses are reduced to £8,000 and profits, assuming that the profits can be taken tax free in the next tax year, are still £10,000 so the expected payoff is £1,000 therefore you invest (assuming that you are risk neutral). The point is that the taxman is sharing the losses and this changes the expected payoff.

[FONT=Verdana, sans-serif]Yes that's true but the taxman is only taking between 10%-18% of the downside risk and only then if the loss occurs in the next 2 mths.

[/FONT] [FONT=Verdana, sans-serif]If however you were a professional gambler prepared to take very high risks it makes sense.[/FONT]

thenewcomer

does cryptocurr come under CGT?

Superscrooge

Malthusian wrote: »

Assuming a basic rate non-residential-property liability, a bill of £3,600 implies a gain over the allowance of £36,000.

If you invest £36,000 and lose the lot, you've thrown away £32,400 over a bill of £3,600. Classic case of the tax tail wagging the investment dog.

Although the downside is limited by the potential to offset losses, so is the upside because you're planning to cash it in on 4 April, so we know you'll be paying CGT on any gain, possibly at a higher rate.

I agree with the above. Throwing away £32,400 in an attempt to save £3,600 tax bill is not sensible.

Rather than fretting about paying tax. I'm hoping that next year my investments are so successful that I am liable to pay £6million in capital gains tax!