Will I get charged capital gains tax on existing shares that I’d like to move into a shares ISA?

amaraz8

I need help please? I own shares that are worth about 38-40k and if I trade them all, I’ve been told I will be charged 10% capital gains tax on any gain above the £11,700 tax free allowance this year (which I’m trying to avoid). My colleague at work says that he put his shares in a ‘shares isa’ last year via ‘bed and isa’ and avoided paying the capital gains tax when he traded. However, I think the rules may have changed this year to remove this loophole (Barclays investments mentioned this to me). Does anyone know if this is the case...So if I move £20k worth of my existing shares into a shares isa and do the ‘bed and isa’, will I be charged capital gains tax? I’m aware I won’t be charged this when I go to trade the shares from the shares isa but will I get charged capital gains tax on the ‘bed and isa’ trade bit?

I did try calling the inland revenue who say they can’t give financial advice and referred me to isa shares companies who they told me will be able to help, however when I called them up, they also advised they can’t give financial advice! So I’m going round in circles.

Any help would be appreciated!

ColdIron

You are liable for CGT on your gain, essentially the difference between the cost to purchase the shares and their value on sale. As you say there is an allowance of £11,700. Putting the money into an ISA has no mitigating effect on this, it just means you won't have to worry about tax on that money in your ISA in the future. There is a £20,000 limit on annual ISA contributions so if you sold only enough to realise £20,000 would your gain exceed the allowance? You can move the balance or thereabouts in the next financial year(s)

londoninvestor

amaraz8 wrote: »

My colleague at work says that he put his shares in a ‘shares isa’ last year via ‘bed and isa’ and avoided paying the capital gains tax when he traded. However, I think the rules may have changed this year to remove this loophole (Barclays investments mentioned this to me). Does anyone know if this is the case...

Nothing has changed significantly this year. Could be your colleague just didn't make a large enough gain (£11,300 last tax year) to need to pay CGT?


As ColdIron says, if selling £20,000 of shares makes you less than this year's allowance (£11,700) in gains, then you'll have nothing to pay. (Assuming you have no other capital gains of course.)


If your shares have gone up less than about 140% since you bought (i.e. if £20,000 of shares now cost more than £8,300 when you bought them) then you should be good.


Brokers might offer you a "bed and ISA" as if it were a single transaction and only charge you one lot of commission. But from a tax perspective, there's no magic at all - it's a sale from your unwrapped account (which is potentially subject to capital gains), and a purchase in your ISA, and it's taxed just the same as if you asked your broker for the two transactions separately.

bowlhead99

Bed and ISA simply refers to selling some or all of the shares you currently hold, paying whatever tax is due on them from the gain you made (which may be nothing if the gain on the amount of shares you chose to sell is below the annual exemption) and then buying back those same shares inside an ISA so you still basically own the same shares with the same potential growth and dividends in the future that you had the previous day, but now the ones in the ISA are protected from tax.

If your shares are overall worth £40k and you only want to sell £20k-worth of them because you only have space in your current year ISA allowance to buy £20k of them, you are only actually selling half of the shares you own, so you will not have made the full gain that you'd have made if you sold all £40k at once; only half that, because you only sold half the shares.

So for example if the shares have doubled since you acquired them and you sell £20k worth, only half of that £20k proceeds represents profits and the other half is just your cost coming back to you. So you have a £10k gain which is within your CGT exemption for 2018/19.

Or if the shares have tripled in value, then when you sell £20k of shares, they only cost £6667 so your profit is £13333, but you have an £11700 CGT exemption for the year so only about £1600 of gains in excess of the exemption and only £160 tax to pay at 10%. If you didn't want to pay any tax at all, you could simply sell fewer.




Your colleague may have been able to put all his shares into his ISA last year and avoid taxes altogether if for example:

- the shares weren't as valuable then (or he didn't have as many as you) and they all fitted into his ISA subscription allowance, and the capital gain when he sold them to be able to afford to buy them again in his ISA was comfortably within his annual exemption so no tax to pay; or

- perhaps the shares came from an approved share scheme and within 3 months of them maturing in the scheme maturing he applied to transfer them directly into an ISA without needing to sell them first so no gain was ever made on those ones that he transferred directly in. That option is only available for a short time after the share scheme matures.

If he had £40k worth for example, which had doubled in value from when he bought them he could move half into an ISA (no gain recognised as the shares were never sold) and then sell the other half outside the ISA (selling £20k with £10k profit and comfortably within his allowance), so no tax to pay at all. But moving shares directly into an ISA ...without having to sell them first and put cash into the ISA and buy them back in the ISA... is not something you can do once you run out of time to do it. Maybe that's why someone has said that the 'loophole' rules that applied to him no longer apply to you. Because the rest of the CGT rules have not changed for years.



As a thought, if you have a spouse you could give them half your shares and each sell £20k each and both stuff your own ISAs with the proceeds - that way you get to use two annual exemptions in one year.


You might prefer to keep some and not sell them if it would result in paying tax. Of course, that won't be much comfort if to save a couple of thousand quid in tax you hold onto them until the next tax year in the hope of using another annual exemption, but meanwhile the shares half in value and you lose a lot more than a couple of thousand quid while waiting.

Terry_Towelling

I've just been going through a similar although perhaps a bit more complicated version of what you are describing and have learned much from the forum and thence from HMRC pages.

First question to you; do you know what you paid for the shares in the first place? If the amount you get for selling them is no more than £11700 more than you paid, you have no CGT liability at all.

Second point is that you don't get charged CGT per se, you have to declare details of your sales to HMRC if the amount you sell (outside an ISA) exceeds £11700 in any one tax year. Even then you will only get a CGT bill if the money you make exceeds the price you paid by £11700.

Third point is beware if the shares have gone through company reorganisations with returns of capital etc since you bought them.

So, you could put shares to the value of £20K through a Bed & ISA switch this tax year but those sales would have to be declared to HMRC regardless of the gain you make. If that gain is less than £11700, you have no CGT to pay. Once in the ISA your shares are safe from future CGT liability.

To avoid the possible hassle of an HMRC declaration you can still use Bed & ISA but you'll have switch less than £11700 of shares this tax year.

Don't forget to keep records of everything and don't forget, if you switch £11700 into an ISA through Bed & ISA now, any future share sales this tax year will mean you then have to declare all sales made to HMRC - including the Bed & ISA ones.

londoninvestor

Terry_Towelling wrote: »

Second point is that you don't get charged CGT per se, you have to declare details of your sales to HMRC if the amount you sell (outside an ISA) exceeds £11700 in any one tax year. Even then you will only get a CGT bill if the money you make exceeds the price you paid by £11700.

If your profit is less than £11,700 and the amount you received from selling is less than four times that (£46,800), then there's no need to write to HMRC or complete the CGT part of a tax return.

So if you're selling only £20,000 worth - what matters really is just whether your gain was over £11,700 or not.

I'm not allowed to post links yet, but if you search for "Capital Gains Summary notes (2018)" on the HMRC website you should find this... (These numbers are for 2017-18, so a little lower than they will be for 2018-19.)

HMRC wrote:

Fill in the ‘Capital gains summary’ pages if:
• you sold or disposed of chargeable assets which were worth more than £45,200
• your chargeable gains before taking off any losses were more than £11,300 (‘annual exempt amount’)

ColdIron

Terry_Towelling wrote: »

Second point is that you don't get charged CGT per se, you have to declare details of your sales to HMRC if the amount you sell (outside an ISA) exceeds £11700 in any one tax year

So, you could put shares to the value of £20K through a Bed & ISA switch this tax year but those sales would have to be declared to HMRC regardless of the gain you make

To avoid the possible hassle of an HMRC declaration you can still use Bed & ISA but you'll have switch less than £11700 of shares this tax year.

Don't forget to keep records of everything and don't forget, if you switch £11700 into an ISA through Bed & ISA now, any future share sales this tax year will mean you then have to declare all sales made to HMRC - including the Bed & ISA ones.

For the purpose of CGT forget Bed and ISA, it's just an administrative convenience that can save you a transaction and might give you a break on fees

It is certainly not true that you have to report sales (as opposed to gains) above the annual allowance


If your total gains are less than the tax-free allowance

You don't have to pay tax if your total taxable gains are under your Capital Gains Tax allowance.
You still need to report your gains in your tax return if both of the following apply:

• the total amount you sold the assets for was more than 4 times your allowance
• you're registered for Self Assessment

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

bowlhead99

Terry_Towelling wrote: »

Second point is that you don't get charged CGT per se, you have to declare details of your sales to HMRC

Yes, we have a self assessment system so you tell them rather than them trying to charge you

if the amount you sell (outside an ISA) exceeds £11700 in any one tax year. Even then you will only get a CGT bill if the money you make exceeds the price you paid by £11700.

Half right, you do owe CGT if the net proceeds exceed the net costs (giving you a gain) which when offset against and other capital losses you make in the same year and any carried forward from previous years, is over the £11700 exemption.

But you don't have to tell them about your activity just because the sales proceeds from what you sold exceeds £11700. You only have to tell them if you make a gain greater than your £11700 exemption or - if you're required to do a tax return - the sales proceeds exceed four times the current exempt amount (i.e. £46800).

So if you can sell (e.g.) £40,000 of these shares during the tax year and don't sell any other assets ; and the gain is only (e.g.) £11500 - there is no need to tell the taxman the details all, because you are below the exempt amount and your aggregate sales proceeds for the year are not 4x the exempt amount.

You would only need to tell Mr HMRC if you particularly want him to look at your numbers and confirm the maths adds up and that the gain is below the exemption so there's no liability. If you had made £11500 losses instead, it would be worth telling him so the losses could be recorded by HMRC and carried forward for you to use against future gains... but in the case of a small gain rather than a small loss there's no reporting requirement if there gains aren't over 11700 and the proceeds aren't over 4x 11700.

To avoid the possible hassle of an HMRC declaration you can still use Bed & ISA but you'll have switch less than £11700 of shares this tax year.

You mean make less than £11700 of gains. If you make £12,000 or £20,000 of total proceeds for the tax year (shares, investment properties etc) and less than £11700 of gross gains, there's no reporting /declaration requirement unless you want to make one.

Don't forget to keep records of everything and don't forget, if you switch £11700 into an ISA through Bed & ISA now, any future share sales this tax year will mean you then have to declare all sales made to HMRC - including the Bed & ISA ones.

Again not quite right; you can make £46799 of sales (including the ones you sold to bed and ISA) without telling HMRC about any of them if your gross gains are not over £11700.

And even if you do make £46801 of sales, you only need to tell HMRC if you are otherwise required to do a self assessment tax return. Someone doing a full self-assessment tax return because they have a second property income or have been asked to do one by HMRC due to them going over the £100,000 income level at which their personal allowance starts to taper away, would have to fill out the full return completely and accurately following all instructions. If you haven't been required to do a tax return for any other reason you don't need to volunteer your gains calcs if you havent made a gain in excess of the exemption.

If the law suddenly changed this year and I missed it, apologies and please let me know, but that's how it has worked for quite some time.

amaraz8

Appreciate all the responses, Im trying to process all this info, but its all a bit confusing to me! (This is all new to me!)

Just to give you a bit more info, the shares I bought were from an employee share scheme with the company I work for. It was a 3 year share plan and I paid a total of £9,000 over the 3 years.. It matured last year and I have the certificate which is for 4,000 odd shares, but because the share price has gone up, they are now worth today around £40k. This means my profit will be around £31k if I sell them all. I worked out through a cgt calculator that if I was to sell all 4,000 odd shares at once, Id have to pay around £2k tax. (I did not include the £9,000 I paid for and the £11,700 tax free to work out the cgt)

Because of what my colleague had told me, I had therefore planned to trade in enough to give me the £11,700 tax free, then put £20k into the shares ISA (as this is the limit they allow). The rest I had planned to keep and trade in a different year.

So am I right in thinking from what you all are saying, is that by putting the £20k worth of shares in the ISA and doing the bed and isa trade bit, that I would still have to declare this to the inland revenue and pay the capital gains tax on this £20k trade, but then no extra cgt is required once the shares are in the isa?

Also just to clarify, my colleague was also in the same share plan as me and also paid £9,000 in total for the 3 years. However when he sold all his shares last year, the share price wasnt as high as today but they were still worth about £34k so he still made a profit of about £25k....

Tom99

If you sell £15,000 worth of shares your gain will be £11,700 so no tax to pay. If you sell £20,000 worth of shares your gain will be £15,500 so tax to pay on £3,800 at either 10% or 20%

You could have transfered £20,000 worth of shares to an ISA, CGT free, if you had done that within 90 days of buying them.

bowlhead99

amaraz8 wrote: »

Because of what my colleague had told me, I had therefore planned to trade in enough to give me the £11,700 tax free, then put £20k into the shares ISA (as this is the limit they allow). The rest I had planned to keep and trade in a different year.

As you've worked out, if you paid £9k for them and they are now worth £40k, selling the whole lot gives you £31k gain. Every share that you sell, 31/40ths of the proceeds is profit. So, if you wanted to only make £11700 profit and not pay any tax, you could only actually sell (roughtly) about £15k worth of shares because that would be about £11600 of profit and £3400 cost.

You could put all that £15k into an ISA, buy the shares back again inside the ISA (or if preferred, buy completely different shares or investment funds inside the ISA, to diversify your assets a bit). Then you would never have to worry about tax on gains or income from that particular £15k ever again because investments in an ISA aren't taxable.

But because the shares have performed so strongly, if you don't want to pay any tax at all you can't sell as much as £20k worth, because that will create more than £11.7k of gains and there will be some tax to pay. If you want to make enough money to use the full £20k of allowance this year you will have to pay a bit of tax to get hold of the cash.

So am I right in thinking from what you all are saying, is that by putting the £20k worth of shares in the ISA and doing the bed and isa trade bit, that I would still have to declare this to the inland revenue and pay the capital gains tax on this £20k trade, but then no extra cgt is required once the shares are in the isa?

Yes, selling half of your shares this year and making half the total potential profit (about £15.5k if the total profit on the whole £40k sale would be £31k) is something that would be declared to HMRC becaue it is more than your exemption, but whatever you choose to buy in the ISA with the proceeds (whether shares from that company or some different shares altogether) will not have future taxes on it.

Also just to clarify, my colleague was also in the same share plan as me and also paid £9,000 in total for the 3 years. However when he sold all his shares last year, the share price wasnt as high as today but they were still worth about £34k so he still made a profit of about £25k....

Anything your colleague sold last year outside an ISA would have been a taxable capital gain with 25/34ths of the proceeds being a gain.

Your colleague probably took advantage of the rule that lets him move £20k worth of his shares *directly* into an ISA within 90 days of the share scheme maturing without needing to do a sale and without having any gain made outside the ISA. Then he sold that £20k of shares inside the ISA where there is never any tax to pay on share sales. Separately, his remaining £14k of shares that didn't fit inside the ISA could have simply been sold outside the ISA, with 25/34ths of the proceeds being a gain (about £10k) which conveniently fits inside the annual exemption.

Unfortunately the option of moving shares *directly* into an ISA without selling them first is no longer available to you because you're well beyond the '90 days after the scheme matures' deadline. So the only way that you can put the shares in the ISA is by selling the shares to get cash (a taxable event) and using cash to contribute to an ISA, and then buying them back in the ISA. So if you load up the ISA as fast as possible (£20k a year) you will have paid tax (because the profit on a £20k sale is more than the annual exempt amount of profit), but will avoid tax on the profits in the future.


It sounds like your colleague was able to make £25k of profit with no tax to pay last year, while you didn't take any action to use the special 'direct transfer to ISA within 90 days of scheme maturing' opportunity, and now face bigger tax bills because all of your sales will be outside an ISA and generate capital gains. Still, it's not all doom and gloom - if you sold the whole lot and made a gain of £31k, after your £11700 exemption for the current year you would only be paying CGT on a little less than £20k profits, at 10% and/or 20%, which is only a few thousand quid, and will still leave you with net profits in your pocket after tax of more than £25k which is more than your colleague made.

If you think about it, £40k of shares in one single company out of the 20,000 companies available in the world is a bit bonkers unless you have a million pound investment portfolio and have some inside information about why that company has been undervalued by the stock market compared to all the other tens of thousands of listed companies. Especially if you still work for the company and a downturn in their fortunes could have a negative impact on your job as well as dropping the value of the shares by 50-100%.

Rather than find a way to keep the shares and minimise the tax, a lot of people would not mind paying a bit of tax on their profits so they could reinvest the sales proceeds in investment funds that hold shares in hundreds of other companies and not have all their eggs in one basket. I appreciate that was not the question asked but usually worth mentioning when someone is grappling with how shares actually work and is holding shares which have quadrupled in value.