Trading 212

Bowsa

Hi all, 

I am new to investing and Trading212 appears to be an easy platform to start on, allowing me to invest small amounts and move them around quite easily and freely. I am concerned about the CGT side of thing:

Is the £12,300 different from any taxable amount from a salary.

I.E.
if I made 20,000 p/a salaray I have 12,500 before I pay tax
then £10,000 in investments would I still need to pay CGT on the 10k?
or would I only pay 20% CGT on any amount about the 12,300 ?


Also I assume you don't pay any CGT until it leaves your wallet in Trading 212, so for example I can move it out of a specific stock, and leave it to purchase another stock without worrying about losing money or paying tax?

bowlhead99

Bowsa said:

Is the £12,300 different from any taxable amount from a salary.

I.E.
if I made 20,000 p/a salaray I have 12,500 before I pay tax
then £10,000 in investments would I still need to pay CGT on the 10k?
or would I only pay 20% CGT on any amount about the 12,300 ?

The 12300 is an exemption that can be used against your net capital gains (your capital gains less your capital losses), in a similar way to how the 12500 is an allowance that can be used for your income taxes.  The 12300 can only be used on capital gains while the 12500 can only be used on income.

If you have £20,000 of income from your job and £20,000 gains from your share trading, the first £12500 of your salary is covered by personal allowance and the last £7500 will need income tax to be paid  on it, while the first £12300 of the gains is covered by the annual exemption and the last £7700 will need capital gains taxes to be paid on it. If you had £20,000 of income and only £10,000 of gains, you wouldn't pay any taxes on the gains because they would all be covered by the annual exemption for the first £12300 of gains.

Also I assume you don't pay any CGT until it leaves your wallet in Trading 212, so for example I can move it out of a specific stock, and leave it to purchase another stock without worrying about losing money or paying tax?

HMRC don't care where your money is at a point in time. If you have sold a specific stock, you consider whether the proceeds of sale of those shares exceed the cost per share of those shares, and if they do, you have a gain. Whether you invest it into another stock on Trading 212, or another stock on Trading 121, or Trading ABC, or put the money in your bank account, or throw it in the bin, you have still made a gain. After the end of the tax year you consider all your gains that you made for the tax year and subtract all the losses that you made for the tax year and if the net amount is over £12300, you will have some tax to pay. You won't be protected from that by the fact you 'kept it in your wallet' at Trading 212. Trading 212 don't care about your personal tax position, HMRC care about your personal tax position.

However, you mention you are only going to invest 'small amounts'. You have an annual ISA subscription allowance of £20,000. So, if you are going to use Trading 212 anway, why not put the money in a Stocks & Shares ISA with them, rather than a normal trading account? Then you don't need to keep records of all your transactions because capital gains and dividends made inside an ISA account are outside the scope of UK tax.

Bowsa

Appreicate you coming back to me...... 
So if  you for arguments sake I invested 

£100,000 in T212 and made 25% profit
£125,000 in my stocks
I then fill out a CGT form as I am over the £12,300 tax free allowance and pay 20% tax on the £12,700 
tomorrow the stock falls through the floor and I lose everything, I've made no gain in real terms and now a massive loss.
is that correct?

wmb194

Bowsa said:

Appreicate you coming back to me...... 
So if  you for arguments sake I invested 

£100,000 in T212 and made 25% profit
£125,000 in my stocks
I then fill out a CGT form as I am over the £12,300 tax free allowance and pay 20% tax on the £17,200 
tomorrow the stock falls through the floor and I lose everything, I've made no gain in real terms and now a massive loss.
is that correct?

If I’m understanding what you’ve written, no, the gain or a loss is only calculated at the time you sell. If you haven’t sold anything then you don’t need to do anything. 

ColdIron

Bowsa said:

Appreicate you coming back to me...... 
So if  you for arguments sake I invested 

£100,000 in T212 and made 25% profit
£125,000 in my stocks
I then fill out a CGT form as I am over the £12,300 tax free allowance and pay 20% tax on the £17,200 
tomorrow the stock falls through the floor and I lose everything, I've made no gain in real terms and now a massive loss.
is that correct?

No

You only realise a gain or loss when you sell. If you sold before the fall you won't make a loss. If you didn't sell until after the fall that gain was only on paper and you won't pay any tax on the eventual loss. You could use that loss to offset other (possibly future) gains elsewhere

CGT is 10% for basic rate tax payers

You only report the cumulative gains and losses for the previous financial year and not every time you make a sale

If you use an ISA or pension there is no CGT to worry about

Bowsa

Ok what you've both written makes a lot more sense now.
do you need to fill out a CGT regardless of having made more that the 12,300? or is it only when you're over that you do

bowlhead99

Bowsa said:

So if  you for arguments sake I invested 

£100,000 in T212 and made 25% profit
£125,000 in my stocks
I then fill out a CGT form as I am over the £12,300 tax free allowance and pay 20% tax on the £17,200 
tomorrow the stock falls through the floor and I lose everything, I've made no gain in real terms and now a massive loss.
is that correct?

In this example you only have a 25% 'capital gain' of £25,000 if you have actually created those gains by selling individual stocks or ETFs which you have bought , for more than you paid for them. Not if you buy £100k of Apple and it is just sitting there worth £125k but you haven't sold it.

But yes if you have sold everything and then bought new stocks it is feasible that you would have made £25k of gains and be holding a portfolio of £125k, after making £25000 of (realised gains less realised losses) during the 2020/21 tax year. At the end of the tax year (or as you go along, but much easier to do it at the end of the tax year, given you may have losses as well as gains and losses can be offset from the gains) you can declare this to the tax man. You would be exempt for the first £12300 and pay tax on the last £12700 (you have a typo above, where you wrote £17200).

If you pay the tax bill from your current account rather than with the cash from your T212 account, you might go into the 2021/22 tax year with £125,000 of stocks in the account. From that point the stock might fall through the fall and you lose everything, but it is a different and later tax year than the one where you made the gains and paid the taxes. You can report your losses for that later (e.g. 2021/22) tax year to HMRC so that HMRC will let you carry them forward to a future tax year iafter that, in which you do make gains. If there are no more gains ever because it puts you off investing or your future gains are within your future annual exemptions, you won't really be able to 'use' the losses.

But like the others above mentioned, a gain is when you sell something for more than you paid for it, not just something increasing in value. If you had made £25000 of paper profits but no actual realised gains by the end of this tax year, you could sell approx half of the stocks this tax year to use up your £12300 annual exemption and the other half on the first day of the new tax year to use up whatever annual exemption they give you for that year, and overall only owe a tiny amount of tax, if any.

bowlhead99

Bowsa said:

Ok what you've both written makes a lot more sense now.
do you need to fill out a CGT regardless of having made more that the 12,300? or is it only when you're over that you do

If you have made gains more than £12300 you need to either fill out a form or do a full self assessment tax return, to let HMRC know about them, because there's tax to pay

If you are required to do a full self assessment tax return (which you might be doing for a variety of other reasons), you have to include the details of your disposals if either, your gains exceed £12300 OR if your total sales proceeds are over 4x the annual exemption amount (i.e. £12,300 x 4 = £49,200) even if you haven't made more than £12300 of gain. The logic for that second one being, if you sell £50,000 of stock over the course of the year and claim that it only cost £40,000 to buy so the gain is only £10,000 so no tax to pay because you're claiming an exemption, HMRC will see that's a big number with potential for the calculation to be incorrect and so they would like to see the calculation.

If you did not make gains more than £12300 this year so there is no tax to pay, and you don't have any losses to claim that you want to be able to carry forward to future years, and you are not otherwise required to do a self assessment tax return for any other reason, then you don't need to tell them anything.

Bowsa

I am employed so  CGT forms only need to be filled in if I make more than £12,300 gain.
and thats annually reset, so if I earn
£12,299 year 1
£12,299 year 2
£12,299 year 3

meaning just under 36k of income from investments over 3 years then I still would not need to declare anything whatsoever.

bowlhead99

Bowsa said:

I am employed so  CGT forms only need to be filled in if I make more than £12,300 gain.
and thats annually reset, so if I earn
£12,299 year 1
£12,299 year 2
£12,299 year 3

meaning just under 36k of income from investments over 3 years then I still would not need to declare anything whatsoever.

Yes you have the right idea that £12300 of gains in a tax year - when you are not required to do a self-assessment tax return for any other reason -does not require you to tell HMRC. The clock stops and restarts at the end and beginning of each tax year. For year 2 you might find the exempt amount has gone up or down rather than stayed the same - generally, it has gone up.

But try not to mix up the terminology - you are not talking about making 'income from investments' here, you are talking about making capital gains from selling investments for more than you paid for them. Income would be stuff like dividends or interest or property income distributions received from your investments, which are covered under income tax rather than capital gains tax and have their own tax rates. 

So if you earn 'income' (whether actually received, or earned inside an accumulating ETF), that would be reported under income tax rather than capital gains tax. If there's not a lot of it you can write to HMRC and tell them, so that they can adjust your tax code if necessary, without doing a formal self-assessment form.

ColdIron

Bowsa said:

I am employed so  CGT forms only need to be filled in if I make more than £12,300 gain.
and thats annually reset, so if I earn
£12,299 year 1
£12,299 year 2
£12,299 year 3

meaning just under 36k of income from investments over 3 years then I still would not need to declare anything whatsoever.

Earnings are subject to income tax and not capital gains tax, they are separate regimes. If by earn you meant gained though disposals then that is almost correct. Your gains are not considered to be income as dividends from those investments would be. This may sound picky but the differences are important