Ofset cgt against debt

funnymonkey

Good evening.
I was just wondering if hypothetically if you made money of stocks and shares in a trading account yiu could ofset against credit card debt used to buy the shares in the 1st instance.
Wouldnt recommend but having a friendly discussion with my mate.
Cheers

masonic

If your friend was trading as his profession, he would be classed as self-employed and his gains would be treated as income. He would be entitled to deduct his costs, such as the cost of servicing borrowings, and pay income tax on his profits. However, this would probably be less favourable tax treatment than if he was simply investing or trading as a hobby, where he'd benefit from a capital gains allowance and typically lower rate of tax, but would be unable to deduct incidental costs from his gains.

eskbanker

funnymonkey said:

I was just wondering if hypothetically if you made money of stocks and shares in a trading account yiu could ofset against credit card debt used to buy the shares in the 1st instance.

'Offset' in what way?  If you sell investments then the (post-tax) proceeds can be used for paying off credit card debt, among a multitude of other possibilities, but what would that actually achieve, i.e. what's your hypothesis here?  Credit card interest has no role in calculating CGT if that's what you're asking....

funnymonkey

Thank you for your answers.
I believe an explanation is needed.

Lets say for example someone borrowed 50k on their credit card and invested that money in stocks and shares.
If that money doubled in value giving him 100k.
He then sold 50k worth of shares and paid off his credit card debt.
Could he not pay any cgt on the shares he just sold as he is just settling the dept but and further sales will be subject to cgt.
Hope this makes sense

eskbanker

funnymonkey said:

Lets say for example someone borrowed 50k on their credit card and invested that money in stocks and shares.
If that money doubled in value giving him 100k.
He then sold 50k worth of shares and paid off his credit card debt.
Could he not pay any cgt on the shares he just sold as he is just settling the dept but and further sales will be subject to cgt.

As far as taxation is concerned, the asset disposal and the card debt are entirely unrelated, so the former is liable to CGT (subject to annual thresholds, etc) regardless of how the purchase was originally funded.  Hopefully it remains a hypothetical question as it's clearly not a good idea!

AnotherJoe

funnymonkey said:

Thank you for your answers.
I believe an explanation is needed.

Lets say for example someone borrowed 50k on their credit card and invested that money in stocks and shares.
If that money doubled in value giving him 100k.
He then sold 50k worth of shares and paid off his credit card debt.
Could he not pay any cgt on the shares he just sold as he is just settling the dept but and further sales will be subject to cgt.
Hope this makes sense

In that example, the £50k of shares he sold, cost him £25k (since he sold half and the full cost was £50k) and he made £25k.

So he owes CGT on £25k gain.

Paying off the full CC debt, or none of it,  is utterly irrelevant as to the profit he made. The gains on those shares are the sale price of shares sold, minus the cost price to acquire the shares he sold (and not all shares he bought which your example gives)

masonic

AnotherJoe said:

funnymonkey said:

Thank you for your answers.
I believe an explanation is needed.

Lets say for example someone borrowed 50k on their credit card and invested that money in stocks and shares.
If that money doubled in value giving him 100k.
He then sold 50k worth of shares and paid off his credit card debt.
Could he not pay any cgt on the shares he just sold as he is just settling the dept but and further sales will be subject to cgt.
Hope this makes sense

In that example, the £50k of shares he sold, cost him £25k (since he sold half and the full cost was £50k) and he made £25k.

So he owes CGT on £25k gain.

Paying off the full CC debt, or none of it,  is utterly irrelevant as to the profit he made. The gains on those shares are the sale price of shares sold, minus the cost price to acquire the shares he sold (and not all shares he bought which your example gives)

He might only "owe" CGT on about half of it if he still had his allowance available.

AnotherJoe

masonic said:

AnotherJoe said:

funnymonkey said:

Thank you for your answers.
I believe an explanation is needed.

Lets say for example someone borrowed 50k on their credit card and invested that money in stocks and shares.
If that money doubled in value giving him 100k.
He then sold 50k worth of shares and paid off his credit card debt.
Could he not pay any cgt on the shares he just sold as he is just settling the dept but and further sales will be subject to cgt.
Hope this makes sense

In that example, the £50k of shares he sold, cost him £25k (since he sold half and the full cost was £50k) and he made £25k.

So he owes CGT on £25k gain.

Paying off the full CC debt, or none of it,  is utterly irrelevant as to the profit he made. The gains on those shares are the sale price of shares sold, minus the cost price to acquire the shares he sold (and not all shares he bought which your example gives)

He might only "owe" CGT on about half of it if he still had his allowance available.

Fair point. I should have said CGT needs to be calculated, using this as a £25k gain and taking into account his allowance and any other actual losses and gains. Seemed obvious but then given the nature of the initial Q, maybe not.