Donate to Remove ads

Got a credit card? use our Credit Card & Finance Calculators

Thanks to bruncher,mark88man,stirlo,johnstevens77,Rhyd6, for Donating to support the site

Capital Gains Tax for Shares

Practical Issues
EverybodyKnows
Posts: 27
Joined: February 11th, 2018, 6:03 pm
Has thanked: 15 times
Been thanked: 25 times

Capital Gains Tax for Shares

#346758

Postby EverybodyKnows » October 10th, 2020, 4:02 pm

I have a few basic queries regarding CGT on shares which I hope others may be able to help me with. Having used my full ISA allowance this year and expecting to use it for the next few years I still have some residual cash left over. My significant other is in a similar position so all that follows will be doubled.

I do not need this money for another 5 years or so. My expectation is that I will invest in a fund and that it will grow over the years (I am sure that we have all had that expectation).

My projected CGT bill will mount up over the years and I will likely have made a surplus of approx £50k. If I do nothing, then I will need to pay CGT on £37,700 (that is, £50k less the annual allowance of £12.3k). So my tax bill would be £1,540.

If my investments do well, it could be more, if they do badly, it could be less. However, I feel that I could make CGT bill close to zero if I sold the shares each year (say March) to take advantage of the annual allowance for that year. I could then repurchase the same shares (say, in April) and repeat each subsequent year.

My transaction costs would be very limited relative to the sums involved. I am aware that I would need to report the sales to the HMRC due to the amounts involved.

So,
Is my understanding of how the rules operate correct?
Is there a flaw in the approach that I have described?
Should I just pay the tax that is due?

Any help is appreciated!

JohnB
Lemon Quarter
Posts: 1298
Joined: January 15th, 2017, 9:20 am
Has thanked: 109 times
Been thanked: 310 times

Re: Capital Gains Tax for Shares

#346760

Postby JohnB » October 10th, 2020, 4:13 pm

If you sell shares you cannot buy back the exact same shares within a month, else the CG is rolled over. Obviously you can buy different shares in your portfolio. What is less well known is that different index trackers are counted as different things for CG, so you can sell Vanguard's FTSE 100 tracker and buy Blackrock's the same day.

I sell enough of my portfolio to keep within the allowance each year. If the proceeds are < 4*annual allowance you don't need to tell HMRC you have done so, else you do.

scrumpyjack
Lemon Quarter
Posts: 1269
Joined: November 4th, 2016, 10:15 am
Has thanked: 90 times
Been thanked: 490 times

Re: Capital Gains Tax for Shares

#346761

Postby scrumpyjack » October 10th, 2020, 4:16 pm

Note that you can 'bed and spouse'. ie Your wife can buy the same shares as you sell on the same day, and you can do the same with a different share.

77ss
Lemon Slice
Posts: 990
Joined: November 4th, 2016, 10:42 am
Has thanked: 75 times
Been thanked: 227 times

Re: Capital Gains Tax for Shares

#346835

Postby 77ss » October 11th, 2020, 6:55 am

EverybodyKnows wrote:.....
Should I just pay the tax that is due?......


No!

I use my CGT aowance every year - and have done so for over 15 years. I was (naively, I suppose) quite startled by just how much this potential liability could mount up.

Well worth doing, in my view.

I sell enough of my unsheltered holdings each year to fund my ISA and SIPP allowances (£22,880 in my case).

I may rebuy the same holdings within a tax shelter - in which case the 30 day rule alluded to by another poster does not apply, or I may take the opportunity to switch some funds into different investments. Commonly, a bit of both.

doug2500
Lemon Slice
Posts: 345
Joined: November 4th, 2016, 11:51 am
Has thanked: 70 times
Been thanked: 117 times

Re: Capital Gains Tax for Shares

#346898

Postby doug2500 » October 11th, 2020, 11:31 am

One thing I've learnt is that due to the magic of compounding it's amazing how quickly CGT can go from being no issue to a headache.

Use that allowance people, especially to fill ISA's.

kempiejon
Lemon Quarter
Posts: 1702
Joined: November 5th, 2016, 10:30 am
Been thanked: 458 times

Re: Capital Gains Tax for Shares

#346903

Postby kempiejon » October 11th, 2020, 11:59 am

Harvesting capital gains annually is part of my tax planning, I have holdings in my trading account but I'm getting them sheltered from tax by filling ISA and SIPP allowances and resetting those gains. It's also handy to be ahead of the game as disposals can be forced upon one by takeovers making an unplanned CGT event. So, resetting the biggest gains annually is smart if the costs are a small %age of profits. Also the tax on dividend income is another 7.5% after your personal allowance so I sold investments with profits paying most income into the ISA/SIPP.

Lootman
Lemon Half
Posts: 7943
Joined: November 4th, 2016, 3:58 pm
Has thanked: 68 times
Been thanked: 1415 times

Re: Capital Gains Tax for Shares

#346926

Postby Lootman » October 11th, 2020, 1:27 pm

doug2500 wrote:One thing I've learnt is that due to the magic of compounding it's amazing how quickly CGT can go from being no issue to a headache.

Use that allowance people, especially to fill ISA's.

Indeed. A taxable portfolio of 600K only has to go up by 2% in a year to wipe out the value of that annual CGT-free allowance. So much beyond that and you will never be free.

If by any chance you are not a high-rate taxpayer I would certainly take additional gains to pay only 10% CGT, up to that limit. Even paying 20% CGT might be seen as a bargain some day in the not too distant future.

Charlottesquare
Lemon Quarter
Posts: 1634
Joined: November 4th, 2016, 3:22 pm
Has thanked: 20 times
Been thanked: 189 times

Re: Capital Gains Tax for Shares

#347117

Postby Charlottesquare » October 12th, 2020, 2:59 pm

Lootman wrote:
doug2500 wrote:One thing I've learnt is that due to the magic of compounding it's amazing how quickly CGT can go from being no issue to a headache.

Use that allowance people, especially to fill ISA's.

Indeed. A taxable portfolio of 600K only has to go up by 2% in a year to wipe out the value of that annual CGT-free allowance. So much beyond that and you will never be free.

If by any chance you are not a high-rate taxpayer I would certainly take additional gains to pay only 10% CGT, up to that limit. Even paying 20% CGT might be seen as a bargain some day in the not too distant future.


Agree with your last point, people with assets pregnant with gains have to think very carefully right now whether to cash out under current regime or be left needing to do it in the future under what may well be a far more hostile regime. (Albeit if residential property you are already more expensive so the question is can it get even more costly?( In my opinion yes))

Steveam
2 Lemon pips
Posts: 249
Joined: March 18th, 2017, 10:22 pm
Has thanked: 231 times
Been thanked: 112 times

Re: Capital Gains Tax for Shares

#347176

Postby Steveam » October 12th, 2020, 6:31 pm

As said above - harvesting gains each year is worthwhile as its use it or lose it. If you have a diversified portfolio of shares you may well have losses to balance against some of the gains and although you can carry losses forward they have to be used before the allowance so it’s worth working this stuff through in some detail. Another poster mentioned being caught out late in the year by things such as takeovers and this means you should try to keep flexibility until late in the year. I do take action to defuse gains each year.

doug2500
Lemon Slice
Posts: 345
Joined: November 4th, 2016, 11:51 am
Has thanked: 70 times
Been thanked: 117 times

Re: Capital Gains Tax for Shares

#347181

Postby doug2500 » October 12th, 2020, 6:51 pm

And a joint account can be very helpful too. Or a spouse's account.

EverybodyKnows
Posts: 27
Joined: February 11th, 2018, 6:03 pm
Has thanked: 15 times
Been thanked: 25 times

Re: Capital Gains Tax for Shares

#347218

Postby EverybodyKnows » October 12th, 2020, 9:46 pm

Thank you all for your contributions.

Generally I only keep to a very limited number of shares / trackers so that I do not need to keep tabs on too many. Having to buy a different share for tax purposes is not appealing at all. I like to keep these things simple. If I can buy essentially the same tracker but from a different provider that could be quite appealing. I had not thought of 'bed and spouse' but that could work nicely as well. Just swap them over.

I feel more reassured as to my planned course of action. I have no wish to fall foul of the taxman but equally have no wish to miss out on legitimate allowances. Thank you all for your help.

Happy investing!

Gengulphus
Lemon Quarter
Posts: 3438
Joined: November 4th, 2016, 1:17 am
Been thanked: 1872 times

Re: Capital Gains Tax for Shares

#347313

Postby Gengulphus » October 13th, 2020, 11:06 am

EverybodyKnows wrote:I have a few basic queries regarding CGT on shares which I hope others may be able to help me with. Having used my full ISA allowance this year and expecting to use it for the next few years I still have some residual cash left over. My significant other is in a similar position so all that follows will be doubled.

I do not need this money for another 5 years or so. My expectation is that I will invest in a fund and that it will grow over the years (I am sure that we have all had that expectation).

My projected CGT bill will mount up over the years and I will likely have made a surplus of approx £50k. If I do nothing, then I will need to pay CGT on £37,700 (that is, £50k less the annual allowance of £12.3k). So my tax bill would be £1,540.

If my investments do well, it could be more, if they do badly, it could be less. However, I feel that I could make CGT bill close to zero if I sold the shares each year (say March) to take advantage of the annual allowance for that year. I could then repurchase the same shares (say, in April) and repeat each subsequent year.

My transaction costs would be very limited relative to the sums involved. I am aware that I would need to report the sales to the HMRC due to the amounts involved.

So,
Is my understanding of how the rules operate correct?

Esseentially correct, yes - but as people have indicated, there are some devils in the details. They can generally be avoided by never repurchasing the same type of shares on the same day as you sold them or in the following 30 days - so for instance, if you sell on March 31st, avoid buying that same type of share on March 31st or on any of the 30 days of April. So the first 'safe' day to repurchase is May 1st, 31 days after you sold. One can get caught out by thinking of the '30-day rule' as saying that you only need to wait 30 days and can repurchase on April 30th...

If you do repurchase on the day you sold or in the following 30 days, by the way, it's not a CGT non-event, as the comment about the capital gain being "rolled over" might suggest. Instead, you make a capital gain on the sale, but it's calculated on the basis that you sold the shares you repurchased (the CGT rules don't care that that's treating you as selling something you don't yet own), not the shares you originally purchased. When you're selling a share to realise a large gain or a large loss in order to make good use of your CGT allowance, this will usually destroy the point of the exercise by only realising a small gain or loss - but you'll still have the nuisance of needing to calculate the gain or loss...

One other possible 'gotcha': selling ABC FTSE100 tracker and immediately buying XYZ FTSE100 tracker, where ABC and XYZ are two different suppliers of FTSE100 trackers, does not count as the same type of share and so doesn't run foul of the '30-day rule'. Selling ABC FTSE100 tracker on platform 1 and immediately repurchasing it on platform 2 does count as the same type of share, and the CGT rules will match the sale up to the repurchase (again, they don't care that it simply isn't possible for your sale on platform 1 to have come from shares you only ever held on platform 2). So if you use the 'different providers' technique to avoid the '30-day rule', it's important to understand the it means the providers of the fund, not the providers of the platform on which you trade.

EverybodyKnows wrote:Should I just pay the tax that is due?

That breaks down into (at least) two questions. The first is "Should I just pay the tax that is legally due?", and the only answer one can give here under this site's rules is "Yes" - but one is legally allowed to arrange things to keep the tax that is legally due down. Otherwise, for instance, one wouldn't be allowed to use an ISA, to refuse a higher-paying job because one likes the lower-paying job one has got, and many other things... Realising capital gains and losses so as to make good use of one's CGT allowance is just another such thing.

The second is "Should I just pay the tax that is morally due?" - but how much tax is morally due is a question with many different answers depending on who you ask! And not a question for this board, given the board's "Practical Issues" description. If by any chance you do want to discuss it, I think it's political enough and contentious enough that the place for it is the Polite Discussions board.

Gengulphus

EverybodyKnows
Posts: 27
Joined: February 11th, 2018, 6:03 pm
Has thanked: 15 times
Been thanked: 25 times

Re: Capital Gains Tax for Shares

#348425

Postby EverybodyKnows » October 17th, 2020, 9:19 am

Thanks for the very clear reply Gengulphus. I am not very adventurous in my investments or tax affairs and try to keep both predictable and well within the rules.

I do not mind paying tax that is due but do not see the harm in using options, such as ISA's and allowances, in the manner in which they were intended. Investing in film companies that are designed to lose money to offset gains elsewhere is of no appeal...

I think a discussion on what tax is morally due would be interesting but I am more of a wallflower when it comes to contentious matters - I have enough of those challenging discussion during the day that I prefer to avoid it in the evenings.

Lootman
Lemon Half
Posts: 7943
Joined: November 4th, 2016, 3:58 pm
Has thanked: 68 times
Been thanked: 1415 times

Re: Capital Gains Tax for Shares

#348428

Postby Lootman » October 17th, 2020, 9:39 am

EverybodyKnows wrote:I do not mind paying tax that is due but do not see the harm in using options, such as ISA's and allowances, in the manner in which they were intended. Investing in film companies that are designed to lose money to offset gains elsewhere is of no appeal...

One idea I have toyed with but not really tried is to open two equal and opposite positions in something. Assuming some movement in the underlying, there is a good chance that at the end of the tax year one position shows a decent gain and the other an equivalent loss. You could then realise the position with the loss and keep the other (for at least 30 days anyway), rolling it forward to a later tax year.

The result would be a loss that you can use for tax purposes without actually taking any market risk. If I was going to do this I would probably use options, but it is probably too much faff for most people. What I do do towards the end of every tax year is sell off my losers as that effectively gives me a higher annual CGT-free allowance, whilst avoiding the need to account for carried forward losses.

As for what tax I should "morally" pay, that is an easy one. The smallest amount I can get away with paying!


Return to “Taxes”

Who is online

Users browsing this forum: No registered users and 4 guests