Capital gains on share sales

jamesd

Terry_Towelling wrote: »

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

Yes. You should be trying to use her annual CGT allowance to reduce the amount of gains on which CGT will eventually be due. As part of that those shares should be placed into an ISA so there's no future CGT liability on them.

Keep_pedalling

jamesd wrote: »

Yes. You should be trying to use her annual CGT allowance to reduce the amount of gains on which CGT will eventually be due. As part of that those shares should be placed into an ISA so there's no future CGT liability on them.

I would agree with using the annual allowance, but to provide some liquid assets rather than to put in a S&Ss ISA, which is really only suitable for long term investments.

I would also try to establish the actual gains on at least some of these shares, so I could liquidate as much as possible, without exceeding her allowance. Large FTSE companies do publish 1982 values to assist you here as in the following sample from BP.

https://www.bp.com/content/dam/bp/pdf/investors/bp-capital-gains-tax-for-bp.pdf

Terry_Towelling

jamesd wrote: »

Yes. You should be trying to use her annual CGT allowance to reduce the amount of gains on which CGT will eventually be due. As part of that those shares should be placed into an ISA so there's no future CGT liability on them.

Why? Is there a CGT liability on shares that get transferred by Will upon death? I thought it was all a potential IHT liability at that point. Have I got that wrong too?

Like I said, if I have to dispose of the shares to self-fund residential care any CGT grab by HMRC will only serve to shorten the amount of time over which we are able to self-fund. At current rates/values that would amount to around two months of residential care. So the state has to start paying for care two months earlier and we effectively get the tax back at that point.

Either way, she ends up with £23.5K left in assets and living in a care-home. So, pay it to the taxman or pay it to a care home - it makes no effing difference to what she is left with.

The better idea is to gamble on her not needing care or not having to self-fund her care - which can happen regardless of wealth. If, as I hope, she won't have to go into residential care, taking precautions now that will attract fees and have an ongoing cost is throwing money away and depriving the children of the inheritance she has always intended for them.

Perhaps I need to clarify that there is no prospect of her ever spending any of her cash or assets on anything ever again - she no longer has the capacity to do anything meaningful. We can't do anything or go anywhere except for drives in the car around the local country lanes. There is almost nothing left of the person she was. Life revolves around eating, sleeping (a bit), using the toilet (if I'm lucky) and personal hygiene (if I'm up to the fight). So, the question of disposal for enjoyment/fun isn't going to come up.

Frankly, the money would be better used if it could be bequeathed now or just given away to charity but you can't do that or you get sh4t on from a great height.

Does that make any difference to anyone's view point?

masonic

Terry_Towelling wrote: »

Like I said, if I have to dispose of the shares to self-fund residential care any CGT grab by HMRC will only serve to shorten the amount of time over which we are able to self-fund. At current rates/values that would amount to around two months of residential care. So the state has to start paying for care two months earlier and we effectively get the tax back at that point.

Either way, she ends up with £23.5K left in assets and living in a care-home. So, pay it to the taxman or pay it to a care home - it makes no effing difference to what she is left with.

<snip>

Does that make any difference to anyone's view point?

I was always looking at it from the perspective of going down the path of least hassle for yourself. That would still seem to be selling what you can below the CGT threshold and optionally buy back within an ISA.

Given, as you say, the money can't make a meaningful difference to her quality of care, it probably makes most sense to Bed & ISA on the assumption that the shares will form part of an inheritance, but with the reassurance that if funds are required, the shares can be sold - hassle free - at a time when you will not be wanting to waste any energy on clarifying the tax position.

grey_gym_sock

in these difficult circumstances, doing nothing has something to be said for it. you have enough things to deal apart from finances.

however, as masonic says, selling some shares (without incurring CGT) and buying them back inside an ISA could reduce future hassle. there is no great urgency about this, though, since ISA and CGT allowances are per tax year, so it's a question of getting one round of selling and buying back done by next april 5. to allow for possible delays, it might be sensible to start taking any action 2 or 3 months before that.

as you've said, there are unavoidable costs to sell and buy back. however, there are a few ISA providers with no on-going management charges (e.g. iweb). however, there the possibility that they will introduce new charges in the future (i'm currently trying to transfer an ISA from another provider who's introduced new charges to iweb), so there can be a bit more hassle (or potential costs) when holding shares in an ISA instead of as certificates.

whatever you decide, finding out the original cost (or 31 march 1982 value) of shares would help. (you mentioned 1 is an investment trust; that's treated in the same way as other companies.)

jamesd

No CGT liability on death but you get to inherit an extra ISA allowance equal to the total value of her ISAs. Since there is the potential need to sell in the future while she's alive it's also sensible to try to reduce the hassle if it happens.

Terry_Towelling

Right, time to summarise and draw this thread to a close. Thanks to your collective wisdom I now have the answer to my original question and I also have a few wheezes to potentially avoid future tax.

With some guesswork, and using the methods suggested, I may be able to get the CGT liability down from a potential maximum of around £8K to less than £5K and potentially zero if she lives long enough - sorry if that sounds cold but I have to detach myself sometimes to keep it together.

Given her rapidly accelerating decline I anticipate 1 to 3 years tops (but nobody really knows). A £3K tax saving represents around 2 to 4 weeks of care home fees. Zero tax equates to 5 to 10 weeks. In other words, as I said, all I would be doing is forestalling the point at which the state has to start funding her care by a couple of months. She still ends up with £23.5 in non-property assets and rots away in a care home.

The only fly in the 'do nothing' ointment would therefore appear to be if her assets are liquidated with a tax liability and she then dies before the state has funded her care for a month or two. It's all a gamble but I still believe the odds favour the 'do nothing' approach because I am determined to keep her at home with me.

I will still do some research into acquisition values (if only to stop HMRC from potentially taking more than they are entitled to) and will consider the Bed & ISA option.

Thanks again to all - and remember, don't just save your cash without having a true purpose for its eventual use - spend it, bequeath it, give it away and pray for a life unaffected by dementia.

bowlhead99

If she does need to sell up, it will be convenient for those gains not just to be arriving in one tax year because they will push her into the "higher rate" bracket for CGT in that tax year (assuming she's normally basic rate), making her pay tax at 20% of the gain in excess of annual CGT exemption instead of 10% for a basic or nil rate income taxpayer.

For example, say she has £60k of shares which increased over the decades by a huge amount so that £50k of the £60k is gain.

If you sell £13k this week for her and £13k for you, and the same again at the end of the first week of April 2019, there is zero CGT to pay because all gains are covered by the annual allowances for each of your for those tax years. That's £52k of the £60k sold and the CGT clock resetso depending on market movements etc, she only has £8-10k of shares that haven't had a recent sale and so carry £7-9k of embedded gains.

If she was forced to liquidate them for care costs the tax bill at 10% is less than £1k which as you say is likely to be pretty inconsequential in terms of her weekly care costs and probably just gets lost in the roundings before the council steps in and helps out with care.

However if instead you don't do any of that advance selling to make use of your CGT exemptions, she just has a pile of shares with the embedded gain of £50k (plus growth from now) so when she suddenly cashes them in, after her annual exemption she has maybe £40k+ of gains that year, and on top of state/other pension she's likely to be higher rate tax leading to her paying 10% on some gains and 20% (the higher rate) on others, giving a potential tax bill of £5k or more.

Whie it's tempting to say that £5k's just another four to six weeks in a home, so the council will just step in earlier if she had paid it away in tax, so don't worry about it, I generally think it's better to plan to not have the tax bill if one can help it.

For example you might sell the assets to prepare to pay it all on care bills, and pay for a few months of those bills, but then she unexpectedly dies a month before the council need to step in and take over. So you would have sold nearly all the assets to raise funds, incurred a tax bill on nearly all of the assets, and then, tadaaa, actually you don't need to pay further care bills because she's dead. [Sorry if that sounds insensitive]. So you don't sell the last few thousand of shares for her - they just get inherited - but she does owe HMRC five thousand quid of gains tax for the shares you did sell.

If you'd instead made judicious use of her (and your) annual CGT exemptions, that five thousand pounds bill wouldn't exist because there was relatively little gain embedded in the first £50k- worth of assets you liquidated for the initial months of care fees (as what you were selling was in an ISA, or if not was simply an investment fund that had only been acquired in May 2018 or April 2019 so didn't have much gain built up).

So as this is a money saving forum I would go along with the idea of making use of her (and your) exemptions. Costs to sell and purchase some general investment fund as a replacement are pretty nominal. If she doesn't sell them in her lifetime and her heirs get them, they'd still be getting sold at *some* point anyway, even by the heirs. So the 'cost and hassle to sell a bunch of old share certificates from the 1970s' still exists.

Terry_Towelling

Thanks, Bowlhead. I did allude to the 'fly in the ointment' as being her death before council care funding effectively 'repaid' any CGT.

As her Attorney I have to act in her best interests and also consider her wishes. This is why I am loath to permanently convert shares into cash because that's not what she wanted to happen to them. I will now investigate all the possibilities and, at the very least, find out how best to transfer shares to me and then back to her without falling foul of the law or the rules of being an Attorney. This would at least establish a new acquisition value point for any future CGT calculation. Also, doing it this way might avoid the problems of keeping things under the CGT limit of £11700 - perhaps?

On the subject of slipping into the 20% CGT band, her pensions and other incomes (Excl dividends and interest) are below the £11850 allowance, so (according to HMRC wording) she has no 'taxable' income to add to the capital gain excess and the 20% threat recedes somewhat.

If all else fails I can still go down the Bed and ISA route - but would still prefer to do nothing.

Terry_Towelling

Once again, thanks to all for many useful suggestions - I have an answer to my original question and I have learned much and been pointed in directions that have enabled me to learn even more.

I have, however, been a numpty (nothing new in that). Because a person is allowed to retain assets worth £23.5K before care is funded by the state, I can simply ensure that the assets retained are the shares instead of cash. I can balance the use of cash (she has a bit) with some equity sales and probably spread those sales across more than one tax year - if we have that long. If I also manage some of the funds carefully (ISAs, transfers etc) this will probably take away the CGT threat completely.