Capital Gains Tax query

bowlhead99

tcallaghan93 said:

bowlhead99 said:

Nuggy96 said:

bowlhead99 said:

Nuggy96 said:

Gadfium said:

CGT is irrelevant until you realise a profit exceeding the CGT limit in any one tax year.

So in theory in this case there's no difference between a General Investment Account (non-ISA) vs a S&S ISA if I invest as said above around £6-10,000 as my gains highly unlikely will be above £12,300 bracket? I wouldn't have to pay any other taxes either such as income tax?

If the income from these investments taken together with any other dividends or interest outside an ISA exceeds your personal saving allowance (if investing in a fund paying or accumulating interest distributions) or dividend allowance (if investing in a fund paying or accumulating dividend distributions) then you would need to pay tax on the income... but the amount of interest or income per tax year you'd make on a £10k investment is not going to be a lot, so if it's your only investment you're likely to be within the allowances. 

Note however that even if the income from the fund is within those allowances and taxed at 0%, it's still 'income' and so would cause your total income to rise, which might be a factor if higher income causes you to lose personal allowance (income over £100k per year) and pay more tax because of that, or pay child benefit clawback, or have your personal savings allowance reduced from £1000 to £500 or £nil for going into the higher rate or additional rate tax brackets (at £50k or £150k of total income).

For many people it would not be an issue at all to have a small amount of investment funds outside an ISA or pension wrapper, because there wouldn't be any CGT or income tax to pay. But you would have to keep records, so that if challenged on it you could prove that you hadn't made enough to pay either type of tax. 

Hi Bowlhead,

Thanks for your answer, so to clarify my position, my S&S ISA doesn't affect at all so that's fine, I'm a basic tax rate payer getting say £500 per year in interest from savings accounts which eats up my personal savings allowance of £1k. The gains I make from the GIA wouldn't eat into my PSA of £500 remaining would it? Would I have to pay any income tax on these gains? or it just CGT?

The general answer to this is that if you're investing in a non-isa-protected fund or funds that are mostly or exclusively invested in interest-producing investments (e.g. cash and bonds), then the gains on it would go under capital gains tax but the income earned may be treated as interest rather than dividends and so would go against your remaining personal savings allowance 

Whereas if the investments held in the funds you're using are more than 40% invested in equities (shares), the gains on them still go under capital gains tax but the income earned is treated as dividends (rather than interest) and would go against your £2000 p.a. dividend allowance.

/
How is this worked out for accumulating unit trusts? Do you have to work out the dividends you would have received had you held income units and tax that as income less the dividend allowance, and then the capital gains vs the capital gains threshold? Also is the dividend allowance on top of the PTA? Say you earn £12.5k this year from work and receive over £2k in dividends what happens with that?

If you are using accumulating unit trusts you will get a statement from your platform at least annually telling you what income has been accumulated on your behalf on the relevant dividend dates  Some platforms are faster at doing it than others - some will give you the info as you go along whereas others you may need to wait for the consolidated tax certificate at the end of the tax year.   If you want to know the figures in advance of your getting the statement for planning purposes you could work it out approximately by looking at what the equivalent income classes would have paid as a proportion of the value of the unit when it went ex-div.

For exchange traded instruments which are not distributed through a platform (not relevant to you if you're using unit trusts or UK OEICs) then presuming it is a UK reporting fund under the offshore funds regime, the fund manager will publish an annual statement of excess undistributed income per share for their accounting year, which would constitute a deemed distribution six months after the end of their accounting year, and you could apply to the number of shares you held to figure out what income you're deemed to have received at that point.

The amount of income that's been allocated to you (although not physically distributed because you didn't want the money so the fund reinvested it internally) would be income to you, but because it is effectively reinvested on your behalf it would also be an allowable 'cost' for CGT purposes, increasing the base cost of the shares or units that you hold, which will be relevant when you eventually sell your holding and consider whether any CGT is due on the proceeds.  So each element of the price growth of an Acc fund unit over the longer term is only going to end up being subject to tax on either the income tax regime or the CGT regime rather than both.

Also is the dividend allowance on top of the PTA? Say you earn £12.5k this year from work and receive over £2k in dividends what happens with that?

If by PTA you mean the annual personal allowance (standard £12.5k) then yes. The dividends are always considered to sit at the 'top' of your pile of earnings.  So if you earn £12.5k from work, that will use up all of your £12.5k personal allowance, and then the dividends would sit on top.

The first £2000 of dividends (which don't fit inside your personal allowance because the personal allowance was being used up by your employment income) will be taxed at 0% because of the existence of the 'dividend allowance' (which is really just a special 0% band for the first £2k of your dividends in a given tax year).

However for further dividends beyond that, which don't fit into either your personal allowance or the 0% dividend allowance band, you would be paying income tax on them; the rate of UK income tax on dividends for a 'basic rate' taxpayer is 7.5%, or if your total income had moved you into higher rate bracket, 32.5%, or an even higher rate if you were in the £150k+ additional rate bracket.

bowlhead99

Nuggy96 said:

bowlhead99 said:

Nuggy96 said:

bowlhead99 said:

Nuggy96 said:

Gadfium said:

CGT is irrelevant until you realise a profit exceeding the CGT limit in any one tax year.

So in theory in this case there's no difference between a General Investment Account (non-ISA) vs a S&S ISA if I invest as said above around £6-10,000 as my gains highly unlikely will be above £12,300 bracket? I wouldn't have to pay any other taxes either such as income tax?

If the income from these investments taken together with any other dividends or interest outside an ISA exceeds your personal saving allowance (if investing in a fund paying or accumulating interest distributions) or dividend allowance (if investing in a fund paying or accumulating dividend distributions) then you would need to pay tax on the income... but the amount of interest or income per tax year you'd make on a £10k investment is not going to be a lot, so if it's your only investment you're likely to be within the allowances. 

Note however that even if the income from the fund is within those allowances and taxed at 0%, it's still 'income' and so would cause your total income to rise, which might be a factor if higher income causes you to lose personal allowance (income over £100k per year) and pay more tax because of that, or pay child benefit clawback, or have your personal savings allowance reduced from £1000 to £500 or £nil for going into the higher rate or additional rate tax brackets (at £50k or £150k of total income).

For many people it would not be an issue at all to have a small amount of investment funds outside an ISA or pension wrapper, because there wouldn't be any CGT or income tax to pay. But you would have to keep records, so that if challenged on it you could prove that you hadn't made enough to pay either type of tax. 

Hi Bowlhead,

Thanks for your answer, so to clarify my position, my S&S ISA doesn't affect at all so that's fine, I'm a basic tax rate payer getting say £500 per year in interest from savings accounts which eats up my personal savings allowance of £1k. The gains I make from the GIA wouldn't eat into my PSA of £500 remaining would it? Would I have to pay any income tax on these gains? or it just CGT?

The general answer to this is that if you're investing in a non-isa-protected fund or funds that are mostly or exclusively invested in interest-producing investments (e.g. cash and bonds), then the gains on it would go under capital gains tax but the income earned may be treated as interest rather than dividends and so would go against your remaining personal savings allowance 

Whereas if the investments held in the funds you're using are more than 40% invested in equities (shares), the gains on them still go under capital gains tax but the income earned is treated as dividends (rather than interest) and would go against your £2000 p.a. dividend allowance.

The categorisation of this lies fully with HMRC? I would be investing in probs 8/10 risk with nutmeg so mainly equities.
My main worry is i guess going over my PSA allowance of £1k but i think unlikely.
My final question, would i need to submit any paperwork regarding my shares at any point i.e. end of tax year or when selling shares, as at the moment, I don't have to submit anything tax wise for interest in current/savings accounts

If you are just going to be investing in a mid risk or reasonably high risk portfolio from Nutmeg they will put you mostly in the equities ETFs and you will be generally paying dividend tax rather than interest tax on the income they tell you you've earned, and you won't go over your allowances on the small amounts you mention.

You don't need to submit anything to HMRC if you don't have any tax to pay. You just have to keep records so that you know you didn't have any income on which you needed to pay tax, and keep your records for a few years into the future in case of later HMRC query. 

After you've served whatever minimum time you need to, to qualify to keep the free signup bonus at Nutmeg, presumably you'll extract the money from Nutmeg (who are a relatively expensive provider) and go back to investing your money inside an ISA anyway, where no tax paperwork is needed (and where the same sort of funds can be found more cheaply with other providers).

Nuggy96

bowlhead99 said:

Nuggy96 said:

bowlhead99 said:

Nuggy96 said:

bowlhead99 said:

Nuggy96 said:

Gadfium said:

CGT is irrelevant until you realise a profit exceeding the CGT limit in any one tax year.

So in theory in this case there's no difference between a General Investment Account (non-ISA) vs a S&S ISA if I invest as said above around £6-10,000 as my gains highly unlikely will be above £12,300 bracket? I wouldn't have to pay any other taxes either such as income tax?

If the income from these investments taken together with any other dividends or interest outside an ISA exceeds your personal saving allowance (if investing in a fund paying or accumulating interest distributions) or dividend allowance (if investing in a fund paying or accumulating dividend distributions) then you would need to pay tax on the income... but the amount of interest or income per tax year you'd make on a £10k investment is not going to be a lot, so if it's your only investment you're likely to be within the allowances. 

Note however that even if the income from the fund is within those allowances and taxed at 0%, it's still 'income' and so would cause your total income to rise, which might be a factor if higher income causes you to lose personal allowance (income over £100k per year) and pay more tax because of that, or pay child benefit clawback, or have your personal savings allowance reduced from £1000 to £500 or £nil for going into the higher rate or additional rate tax brackets (at £50k or £150k of total income).

For many people it would not be an issue at all to have a small amount of investment funds outside an ISA or pension wrapper, because there wouldn't be any CGT or income tax to pay. But you would have to keep records, so that if challenged on it you could prove that you hadn't made enough to pay either type of tax. 

Hi Bowlhead,

Thanks for your answer, so to clarify my position, my S&S ISA doesn't affect at all so that's fine, I'm a basic tax rate payer getting say £500 per year in interest from savings accounts which eats up my personal savings allowance of £1k. The gains I make from the GIA wouldn't eat into my PSA of £500 remaining would it? Would I have to pay any income tax on these gains? or it just CGT?

The general answer to this is that if you're investing in a non-isa-protected fund or funds that are mostly or exclusively invested in interest-producing investments (e.g. cash and bonds), then the gains on it would go under capital gains tax but the income earned may be treated as interest rather than dividends and so would go against your remaining personal savings allowance 

Whereas if the investments held in the funds you're using are more than 40% invested in equities (shares), the gains on them still go under capital gains tax but the income earned is treated as dividends (rather than interest) and would go against your £2000 p.a. dividend allowance.

The categorisation of this lies fully with HMRC? I would be investing in probs 8/10 risk with nutmeg so mainly equities.
My main worry is i guess going over my PSA allowance of £1k but i think unlikely.
My final question, would i need to submit any paperwork regarding my shares at any point i.e. end of tax year or when selling shares, as at the moment, I don't have to submit anything tax wise for interest in current/savings accounts

If you are just going to be investing in a mid risk or reasonably high risk portfolio from Nutmeg they will put you mostly in the equities ETFs and you will be generally paying dividend tax rather than interest tax on the income they tell you you've earned, and you won't go over your allowances on the small amounts you mention.

You don't need to submit anything to HMRC if you don't have any tax to pay. You just have to keep records so that you know you didn't have any income on which you needed to pay tax, and keep your records for a few years into the future in case of later HMRC query. 

After you've served whatever minimum time you need to, to qualify to keep the free signup bonus at Nutmeg, presumably you'll extract the money from Nutmeg (who are a relatively expensive provider) and go back to investing your money inside an ISA anyway, where no tax paperwork is needed (and where the same sort of funds can be found more cheaply with other providers).

Great thanks, that was a the exact explanation i needed to understand, very succinct and to the point. Great Help!

Tommo2411

I live in Scotland. 

My friend has offered to lend me £20000.00 interest free
Am I liable to pay Capital gains Tax On this temporary loan ?

eskbanker

Tommo2411 said:

I live in Scotland. 

My friend has offered to lend me £20000.00 interest free
Am I liable to pay Capital gains Tax On this temporary loan ?

As per https://www.gov.uk/capital-gains-tax, CGT is payable on gains in the value of assets, so is nothing to do with loans:

Capital Gains Tax is a tax on the profit when you sell (or ‘dispose of’) something (an ‘asset’) that’s increased in value.

[...]

You pay Capital Gains Tax on the gain when you sell (or ‘dispose of’):

• most personal possessions worth £6,000 or more, apart from your car
• property that’s not your main home
• your main home if you’ve let it out, used it for business or it’s very large
• shares that are not in an ISA or PEP
• business assets

These are known as ‘chargeable assets’.

GardenLover13

I understand why capital gains tax is paid and have the calculator, to work out the figures. However, have been divorced for 6 years and only now selling the jointly owned marital home plus an additional jointly owned home that was being rented but is now empty. If the CGT is to be split 50/50, how does this work in practical terms? This I don't understand, any advice greatly appreciated.

eskbanker

GardenLover13 said:

I understand why capital gains tax is paid and have the calculator, to work out the figures. However, have been divorced for 6 years and only now selling the jointly owned marital home plus an additional jointly owned home that was being rented but is now empty. If the CGT is to be split 50/50, how does this work in practical terms? This I don't understand, any advice greatly appreciated.

On disposal, each person is liable for any CGT on the gains made on their stake since acquiring it in the first place, unless some other arrangements were agreed during financial separation negotiations?

As above, there is an exemption for selling your main home though, so gains made while either of you lived in either property should be able to be excluded from CGT....

https://www.gov.uk/tax-sell-home

noClue

bowlhead99 said:

Nuggy96 said:

bowlhead99 said:

Nuggy96 said:

bowlhead99 said:

Nuggy96 said:

Gadfium said:

CGT is irrelevant until you realise a profit exceeding the CGT limit in any one tax year.

So in theory in this case there's no difference between a General Investment Account (non-ISA) vs a S&S ISA if I invest as said above around £6-10,000 as my gains highly unlikely will be above £12,300 bracket? I wouldn't have to pay any other taxes either such as income tax?

If the income from these investments taken together with any other dividends or interest outside an ISA exceeds your personal saving allowance (if investing in a fund paying or accumulating interest distributions) or dividend allowance (if investing in a fund paying or accumulating dividend distributions) then you would need to pay tax on the income... but the amount of interest or income per tax year you'd make on a £10k investment is not going to be a lot, so if it's your only investment you're likely to be within the allowances. 

Note however that even if the income from the fund is within those allowances and taxed at 0%, it's still 'income' and so would cause your total income to rise, which might be a factor if higher income causes you to lose personal allowance (income over £100k per year) and pay more tax because of that, or pay child benefit clawback, or have your personal savings allowance reduced from £1000 to £500 or £nil for going into the higher rate or additional rate tax brackets (at £50k or £150k of total income).

For many people it would not be an issue at all to have a small amount of investment funds outside an ISA or pension wrapper, because there wouldn't be any CGT or income tax to pay. But you would have to keep records, so that if challenged on it you could prove that you hadn't made enough to pay either type of tax. 

Hi Bowlhead,

Thanks for your answer, so to clarify my position, my S&S ISA doesn't affect at all so that's fine, I'm a basic tax rate payer getting say £500 per year in interest from savings accounts which eats up my personal savings allowance of £1k. The gains I make from the GIA wouldn't eat into my PSA of £500 remaining would it? Would I have to pay any income tax on these gains? or it just CGT?

The general answer to this is that if you're investing in a non-isa-protected fund or funds that are mostly or exclusively invested in interest-producing investments (e.g. cash and bonds), then the gains on it would go under capital gains tax but the income earned may be treated as interest rather than dividends and so would go against your remaining personal savings allowance 

Whereas if the investments held in the funds you're using are more than 40% invested in equities (shares), the gains on them still go under capital gains tax but the income earned is treated as dividends (rather than interest) and would go against your £2000 p.a. dividend allowance.

The categorisation of this lies fully with HMRC? I would be investing in probs 8/10 risk with nutmeg so mainly equities.
My main worry is i guess going over my PSA allowance of £1k but i think unlikely.
My final question, would i need to submit any paperwork regarding my shares at any point i.e. end of tax year or when selling shares, as at the moment, I don't have to submit anything tax wise for interest in current/savings accounts

You just have to keep records so that you know you didn't have any income on which you needed to pay tax, and keep your records for a few years into the future in case of later HMRC query. 

By records, you mean if I have a summary made using spreadsheet, will that be enough? Of course I assume there will be some "receipt" and transaction records on the platform(s) you use...?

ColdIron

No. You will need formal documents. Contract Notes and Consolidated Tax Certificates

noClue

Let's say the only other income other than my fulll time job is from selling some funds, will the platform I am with provide this after the end of tax year? Sorry newbie here.