Capital gains on share sales

bowlhead99

IanManc wrote: »

If you pay the current value at the time of transfer, i.e. buy the shares, how is that not a disposal for value by the wife, chargeable to CGT?

And if you find some reason why it isn't, and so the original purchase price is somehow carried over to the husband as if it had been a simple inter-spouse transfer, then how would his subsequent disposal of the shares not be chargeable to CGT?

I'm genuinely puzzled by your suggestion.

I'm assuming Jamesd is not saying there wouldn't be any charge to CGT. The point of it is to create a charge to CGT on these old hard-to-value shares (when disposed of by the husband), which is within the annual exemption (or if it isn't, pay off the CGT), and then, if desired, re-acquire the portfolio at a known cost at today's price rather than at some unknown costs from pre- 1980s.

However his comments were made in response to someone saying that the husband can't just get them transferred to himself to sell on his own account, because as attorney for his 'better half' he has to act in her interests, and it's not in her interests for her to just *give* some of them to the husband, depriving her of her assets. So he is saying she could sell them to him for fair market value, or simply lend then to him and be given them back after he's done some bed and breakfasting (with gains or losses of that process for his own account). Then she is not giving away any value because she is either getting paid fair value or she is getting back the same number of shares she had lent to her spouse.

Terry_Towelling

Just to recap and echo some of the other comments, the original intent of the thread was indeed how to calculate the capital gain made if the shares were sold when I have no idea of their origins or original value.

And, dmelife, I very much resent the implication that I started this thread in the hope of avoiding tax; that said, if it can be avoided or lessened what's wrong with that? As for not managing the investments correctly, what is that supposed to mean?

My wife's intention has always been that her shares should be divided amongst the children upon her death, which may not be that far away - and hopefully that is what will happen. I don't think anybody would look to the future and think, 'Oh I might get dementia, I'd better do something about my share portfolio before it happens'. And if you think dementia is 'no biggie' you can think again - whilst you still have the capacity!

OK, forget calculating CGT, how about this? Can I put some of her portfolio into an ISA wrapper? Is that what was meant about 'properly' managing the investments?

eskbanker

Terry_Towelling wrote: »

OK, forget calculating CGT, how about this? Can I put some of her portfolio into an ISA wrapper? Is that what was meant about 'properly' managing the investments?

Only via selling them and repurchasing them again within the ISA umbrella, a process known as Bed & ISA, which does bring CGT into play for the asset sale, albeit any subsequent gains are protected once inside the ISA.

masonic

Terry_Towelling wrote: »

OK, forget calculating CGT, how about this? Can I put some of her portfolio into an ISA wrapper? Is that what was meant about 'properly' managing the investments?

Putting the shares into an ISA is equivalent to selling them as far as CGT is concerned, so it would be subject to the same considerations as discussed above.

In making a decision, you need to consider whether there's a distinct possibility that this money would begin to be needed within the next 5-10 years. If so, then leaving it invested in shares would be unwise. You don't want to end up being forced to sell them during a market crash.

Either way, spreading the sale over several tax years as needed to avoid paying CGT is not at all underhand and would be encouraged by any financial adviser.

dmelife

The way this thread was going was in terms of which !!!8216;loophole!!!8217; can be used to avoid paying tax on her gain. Perhaps not your intention but you were keen to follow the !!!8216;advice!!!8217; given to you from the forum, which included the shares being sold to you for current value which will be a disposal and lead to the Cgt being paid anyway. You are very limited as an attorney in what you can do. No large gifts and no !!!8216;borrowing!!!8217; shares to bed & isa etc!

I didn!!!8217;t mean to infer that you are trying to do anything dishonest, that would be evasion not avoidance. I simply meant if you don!!!8217;t have the cost data then it!!!8217;s tough luck, just pay the tax. I don!!!8217;t see you have much choice if you don!!!8217;t want to establish the original costs.

In terms of the tax return, if you do estimate then yes you have to declare it. I didn!!!8217;t say otherwise, and so long as your estimate is reasonable HMRC will most likely go with it. They are more concerned with those that don!!!8217;t put it in the return in the first place!

If the shares had been sold to use the annual cgt exemption over the last few years and then held in an isa you wouldn!!!8217;t have this issue. That is what I am referring to as managed correctly.

masonic

dmelife wrote: »

In terms of the tax return, if you do estimate then yes you have to declare it. I didn!!!8217;t say otherwise, and so long as your estimate is reasonable HMRC will most likely go with it. They are more concerned with those that don!!!8217;t put it in the return in the first place!

If you submit a return that includes estimated figures, then you must submit again with the accurate figures by the submission deadline. If you fail to do so, then you would be chased with the people who fail to submit a return.

I've known someone go through months of questioning by HMRC over a similar issue, so I put it to you YMMV.

If the shares had been sold to use the annual cgt exemption over the last few years and then held in an isa you wouldn!!!8217;t have this issue. That is what I am referring to as managed correctly.

So you wouldn't take issue if the OP had done this over the last few years. Is it any different if he does so over the next few years? Is there really any difference between moving into an ISA and disposing of the shares without the use of an ISA?

grey_gym_sock

nobody has quite explained (though i'm sure several posters understand it) the rule about transfers of shares between spouses. for capital gains tax purposes, a transfer between spouses is treated as a "no gain, no loss" disposal for the transferor (in this case: the wife); this is regardless of what price is paid for the transfer (of whether it's a gift). but when the transferee (in this case: the husband) subsequently goes on the sell the shares, he uses the same cost basis for the shares as the wife would have used if she'd sold them in the normal way (not the amount he paid the wife for the shares).

the effect of this is that the gains the wife has made on the shares don't disappear, but both spouses' capital gains tax allowances (of £11,700, in the current tax year) can be set against these gains. the uncertainty about the cost basis for the wife's shares also doesn't disappear: it just gets passed onto the husband when the shares are transferred.

as has been said, in view of the husband acting as the wife's attorney, a gift of shares is inappropriate in this case, but a sale of some shares, from wife to husband, for their market value, is perfectly fine.

lending shares to the husband (as opposed to selling them) wouldn't work, because then the wife is still the beneficial owner of the shares, and capital gains tax is based on beneficial ownership, so the husband's capital gains tax allowance can't be used.

getting some of the shares into ISAs would be a sensible plan. there are some costs to do this, because you have to sell and buy back the shares. but it is in the wife's interests to minimize any future capital gains tax, so it's very much consistent with the duties of an attorney to do this.

so, if you can't establish the cost basis for the shares at all, then the wife could sell up to £11,700 worth of shares in this tax year, and buy them back inside a stocks & shares ISA. some ISA providers will offer a "bed & ISA" service, which will do this a little more cheaply and conveniently.

the ISA allowance is £20,000 this tax year. so to make use of the remaining £8,300, the wife could sell shares worth up to £11,700 to the husband for their current market value, and then subscribe £8,300 cash to an S&S ISA and buy the same shares inside the ISA (and perhaps buy the other £3,400 of shares outside the ISA - or just keep that in cash). and the husband can then sell those shares worth up to £11,700 on the market, which is within his capital gains tax allowance.

then, if the situation hasn't changed by the start of next tax year (6 april), repeat the process using the next year's tax allowances.

Terry_Towelling

A few more points to clear up. One should not infer my original response to the advice given as 'keenness' to actually do any one particular thing. At that point I was making sure I understood the advice and its implications.


Yes, when you have a normal functioning life you can plan over the years what you're going to do. Sadly, coping with dementia in a spouse is all-consuming and everything else has taken a back seat until now. It is only recently, with a rapidly accelerated decline in ability, that I have had to start dealing with her finances fully.


It sounds like a reasonable idea to sell £11700 (or more if I can establish a 'starting value') of her shares and to then buy them back for her within an ISA (once I've established the likely costs). This has the advantage of reducing any future CGT liability (keenness) and she retains the shares to be able to pass them on in her Will to the children. Even if they weren't bought back in an ISA it would still help reduce future CGT as this would create a new 'start' value for that block of shares.


As for hoping to repeat the process next tax year, I find it hard to think/plan more than a few hours ahead but that would be a good idea. I think I'm still going to have to start researching the 'start' values of her shares anyway and I will carry on hoping that I can cope and residential care never becomes a reality.


Does it make any difference that one of holdings is an Investment Trust rather than actual shares in a single company?

Terry_Towelling

Right, here we go. Thanks again for the advice, all. Selling shares between spouses or putting them into an ISA seem reasonable things to consider but neither is without cost or ongoing fund-management charges - and, I accept, that these methods might provide protection should dividends and other income combine to require dividend tax be paid.


However, when I stepped back to look at the whole picture, believe it or not, the best way to protect her interests is to do nothing at all. If she dies at home (as I hope - and just writing these things down makes me feel uncomfortable) then everything will be in the right place to bequeath as she has wished, her estate should fall under the IHT limit and we have paid no fees or taxes getting to that point.


If, however, she does need residential care and, if we have to self-fund (which isn't necessarily the case), I can sell things then, declare their acquisition values as Nil (or whatever I have discovered by then) and take the CGT hit. Regardless of the state of the market at that time, the loss of funds to CGT would do nothing more than move her asset values a couple of months closer to the point where the state will have to pay for her care. The state will thereby end up paying for her care earlier and the funding it has to supply to do that is broadly equivalent to the amount that has been paid in CGT.


It's all a gamble anyway because no one knows how long a person with dementia will last and, yes, I know that state-funding has a weekly cap and we may have to top it up to keep her in a good place.


Does anyone disagree that this is a reasonable way to look after her share portfolio?

jamesd

IanManc wrote: »

If you pay the current value at the time of transfer, i.e. buy the shares, how is that not a disposal for value by the wife, chargeable to CGT?

And if you find some reason why it isn't, and so the original purchase price is somehow carried over to the husband as if it had been a simple inter-spouse transfer, then how would his subsequent disposal of the shares not be chargeable to CGT?

You're partly on the right track there and I was partly wrong. The problem is that even though the transfer is deemed to happen with neither a gain nor a loss, it still counts as a disposal for CGT purposes for the wife. Which means a transfer between them can't be used to get two certainly no need to make a CGT declaration allowances.

So only the wife's own CGT allowance can be used for this.