Selling shares that are kept for many years

planforfuture

Please advise.
I have kept some shares (thru the employee shares purchase scheme) for nearly 30 years during my employment with a company in the early 90s. 
I am puzzled 
1) Since I have never touched those shares that were deposited in a US trading bank, do I have to pay capital gain tax if I sell them? All the dividends paid to the account are automatically taxed as per the W-8BEN agreement btw US and UK.
2) when selling shares how do I work out the profits as those shares I kept for many years have gone thru stock split e.g. 1 to 2, 2 to 3 etc. Also, those shares I purchased many years ago e.g. £10k pounds probably equivalent to £100k in today's value due to inflation.
Your advice will be much appreciated.

eskbanker

planforfuture said:

1) Since I have never touched those shares that were deposited in a US trading bank, do I have to pay capital gain tax if I sell them? All the dividends paid to the account are automatically taxed as per the W-8BEN agreement btw US and UK.

Yes, they're subject to CGT when you sell them - dividends are subject to income tax (if applicable) but that doesn't affect CGT.  You have an annual CGT allowance (currently £12,300) so you only actually pay CGT if sales in a tax year exceed this, so you have the option of staggering sales across multiple tax years to minimise or even eradicate CGT liability.

planforfuture said:

2) when selling shares how do I work out the profits as those shares I kept for many years have gone thru stock split e.g. 1 to 2, 2 to 3 etc. Also, those shares I purchased many years ago e.g. £10k pounds probably equivalent to £100k in today's value due to inflation.

You have to work out the total purchase cost and by dividing this by the current number of units gives an up to date average unit cost that already accounts for splits, etc, which you then deduct from sale proceeds to calculate gains.  Inflation is irrelevant - it's what you actually paid that counts.

https://www.gov.uk/tax-sell-shares/work-out-your-gain

planforfuture

I have started receiving dividends of those shares every year I kept in the US bank since seven years ago. The dividend amount that I received every year (e.g. equivalent to £1500) did not  exceed the UK dividend allowance that are specific for each year and I have kept those dividends in the same US bank for the last seven year. I never touched them and I am thinking of moving them (e.g. £10,000) back to my UK bank. Do I need to declare them as income or else and pay additional tax? And is the amount relevant (e.g. £10k, £20k or £30k) if those are dividends I received over the last 7 years and every year they are below the UK dividen allowance limit? Bear in mind that I have already paid 15% US tax (as per W8-BEN form) for every dividend I received.
I have also kept a record of the dividends I received every year.

masonic

The UK dividend allowance has not been around for 7 years, but unless you are a higher rate taxpayer, the withholding tax on your US dividends would cover your full UK income tax liability due to double taxation relief. If you are a basic rate taxpayer, unless you have other foreign income beside those dividends, or your foreign dividends exceeded £2000 in any tax year, it was not necessary to declare the income to HMRC when it was received.

planforfuture

So I can withdraw and transfer those accumulated already paid dividends them to the UK anytime and any amount I wish irrelevant whether they are kept in an US or UK bank? And they are irrelevant to the current tax year dividend allowance as those are already paid dividends in previous tax years? I am in higher tax rate @40% when those dividends were paid and I did not receive any other dividends or foreign incomes beside those dividends. Please explain what does double taxation relief? And how about those dividends paid before 2016?

masonic

planforfuture said:

So I can withdraw and transfer those accumulated already paid dividends them to the UK anytime and any amount I wish irrelevant whether they are kept in an US or UK bank? And they are irrelevant to the current tax year dividend allowance as those are already paid dividends in previous tax years? I am in higher tax rate @40% when those dividends were paid and I did not receive any other dividends or foreign incomes beside those dividends. Please explain what does double taxation relief? And how about those dividends paid before 2016?

Taxes are payable on income when it is paid, not when it is transferred to the UK and it is irrelevant where you put the money.

Dividends paid prior to 6th April 2016 were taxed at 32.5% for higher rate taxpayers, meaning that the 15% US tax you paid was insufficient to cover your UK tax liability. The double taxation relief means that the 15% tax can be offset against the 32.5% tax you were liable to pay, leaving unpaid tax of 17.5%, so you should have declared this foreign income to HMRC and paid that tax. From 6th April 2016, the dividends were covered by the allowance, so there would have been no further tax to pay in those tax years.

planforfuture

Thanks for the very useful advice. Much appreciated, How do I go about declare those dividends (i.e. foreign income) paid before 2016 to HMRC as I want to be honest with them?

masonic

planforfuture said:

Thanks for the very useful advice. Much appreciated, How do I go about declare those dividends (i.e. foreign income) paid before 2016 to HMRC as I want to be honest with them?

See https://www.gov.uk/undeclared-income for details. Scroll down to the 'Overseas income' section.

Scrudgy

Depending on the method used to bring the money back to the UK, it is likely that your US stockbroker will not have the best currency rates or transfer fees. Fidelity for example charge me 2.5% for the first $10k, which reduces in % as the transfer gets larger - not cheap.

Instead I opened a TransferWise multiple currency account and have the proceeds from my share sales transferred to there for free as there is no Fidelity charge for same currency transfer. I then transfer my money to pounds using TransferWise for a much reduced fee.

TransferWise actually give you a bank account and swift code, address etc in the home currency that then you can link to your own account bank home to have the converted GBP placed into.

When I set it up, TransferWise appeared to be the best service I could find, however there could be better and cheaper providers by now, so look around.

planforfuture

Thanks guys for the advice.

planforfuture

I forgot to mention that the shares kept in the US bank is a joint account with my wife and who has been a houseperson (i.e. not employed and with no other incomes) during those years (pre-2016) where the dividends were paid. I have now worked out that between 2010 and 2015, we have received approx. £735 (after US 15% tax withholding as per W8-BEN) per year so if we split the dividend then we both received £368 each per year as foreign income eligible for 17.5% (15% already paid via W8-BEN) UK tax of £64 each. Since My wife was not employed, am I right that for the £368 dividend she received, there is no need to declare the income as it's well below her income tax allowance? As for myself, is it possible and legal that I can give my wife my £368 dividend for that year to my wife (as gift?) therefore not needing to declare the foreign income for 17.5% UK tax?