Tax queries on short-term trading

ssm90

Hi all,

I have a couple of scenarios for which I am trying to figure out the tax implications for but I can't find anything online which is odd.

Scenario 1

£100k invested at the start of the year in General Stocks and Shares account with someone like Nutmeg or Open Money where you provide a risk rating and then let them do the rest.

Assume no dividends are paid and Capital gains tax allowance is £0.

Assume at the end of the year, the investment is worth £150k.

Am I right in saying if the holding isn't sold no tax is paid? And if everything is sold then CGT is applied to the £50k?


Scenario 2

£100k invested at the start of the year in General Stocks and Shares account with someone like Freetrade or Trading212 where you can buy and sell whatever stock you want instantly - essentially giving you the option to day trade or short term trade.

Assume no dividends paid and Capital gains tax is £0.

Assume at the end of the year the investment is worth £150k, BUT this is achieved through 100s of trades over the year.

For example:
1- £100k plus £10k profit

2- £110k plus £5k profit 
3- £115k minus £20k loss

.
.
.
100 £95k plus £45k profit

How does the tax treatment work here if-

1- All £150k is sold at the end of the tax year ? Same as Scenario 1?
2- All £150k is still invested at the end of the year but obviously £50k is unrealised gains.

Thank you in advance!

MX5huggy

1, If you hold no CGT due if you sell CGT due. There will be dividends even if you choose accumulation units, so you will have to pay income tax on those (after the £1000 dividend allowance).

2. 1. You’ll have CGT to pay on £50k
2.2  You’ll have CGT to pay on any sale that has created a profit minus your losses . 

Dividends will be taxed as in 1. 

You need to keep detailed records, or lump it in an ISA or SIPP and forget about tax. 

eskbanker

ssm90 said:

Scenario 1

£100k invested at the start of the year in General Stocks and Shares account with someone like Nutmeg or Open Money where you provide a risk rating and then let them do the rest.

Assume no dividends are paid and Capital gains tax allowance is £0.

Assume at the end of the year, the investment is worth £150k.

Am I right in saying if the holding isn't sold no tax is paid? And if everything is sold then CGT is applied to the £50k?

Yes, no tax payable if nothing is sold.  If it's all sold, then CGT is applied to the £50K gain, but it's unclear why you'd assume a zero allowance - it would normally be £12,300, which would typically affect disposal phasing decisions, i.e. given the choice, you wouldn't liquidate the whole gain in one go and would stagger this across multiple tax years to mitigate your CGT liability.

ssm90 said:

Scenario 2

£100k invested at the start of the year in General Stocks and Shares account with someone like Freetrade or Trading212 where you can buy and sell whatever stock you want instantly - essentially giving you the option to day trade or short term trade.

Assume no dividends paid and Capital gains tax is £0.

Assume at the end of the year the investment is worth £150k, BUT this is achieved through 100s of trades over the year.

For example:
1- £100k plus £10k profit

2- £110k plus £5k profit 
3- £115k minus £20k loss

.
.
.
100 £95k plus £45k profit

How does the tax treatment work here if-

1- All £150k is sold at the end of the tax year ? Same as Scenario 1?
2- All £150k is still invested at the end of the year but obviously £50k is unrealised gains.

Either way round, you'd need to track the CGT implications of each and every disposal during the year and pay any tax liable based on the cumulative effect, rather than simply looking at start and end positions.  CGT liability is affected by, for example, matching rules when repurchasing recent disposals, and the impact of pooling to derive average costs for each holding, so the frequent trading scenario is significantly more onerous to manage when unwrapped.

soulsaver

MX5huggy said:

1, If you hold no CGT due if you sell CGT due. There will be dividends even if you choose accumulation units, so you will have to pay income tax on those (after the £1000 dividend allowance).

2. 1. You’ll have CGT to pay on £50k
2.2  You’ll have CGT to pay on any sale that has created a profit minus your losses . 

Dividends will be taxed as in 1. 

You need to keep detailed records, or lump it in an ISA or SIPP and forget about tax. 

Div 'allowance' is £2k isn't it?

ssm90

Thanks all for your replies. The 'assume £0 allowance' etc was just to simplify the scenario, I realise this is not the case in reality.

Just on scenario 2.1, is this also true if I'm still invested at year end? So for example, assuming over all those trades I recorded every profit and every loss, taxed each profit transaction and offset any tax from the loss transaction- do I still need to pay this net amount even if all £150k is still invested at year end?

Is there a document/guide that I can read up on this somewhere? The only thing I'm getting confused about is surely if if log all transactions and record the tax implications per transaction, will the net amount of this not be equal to being taxed on the £50k profit?

Thanks again 

Thrugelmir

ssm90 said:

 do I still need to pay this net amount even if all £150k is still invested at year end?

Yes you do. 

Albermarle

On the positive side you will start the next year with only growth on £150K liable for tax .