I trade in stocks on a small scale, can somebody please explain if/when I will be liable for capital gains tax. Is the tax related to the total amounts sold or just to the profit made from the sales.

Ellie,

If you are trading your stocks through a self-select ISA they are exempt from Capital Gains Tax

If you are trading through a normal account, then you have a capital gains tax annual exemption of 7,700 (7,900 next year).

The capital gains you make are measured on the profit you make during the tax year (5th April to 4th April). The profit is assumed to have been made on the day that you sell the shares. You can offset any Capital Losses against the gains. If you hold the shares for several years the gain can be reduced by taper relief, calculated on the length of time you have held the shares.

If you make more than the Capital Gains threshold then you are liable to pay Capital Gains Tax on the amount above the threshold(this would normally be done through your self assessment tax return each year).

I hope this is clear enough and gives you enough, if not please post again or e-mail me and I will explain further

Ellie,

The pertinent point is, you only become liable for any tax WHEN you sell the shares, ie realise the gain.

If you aren't going to make PROFITS on shares sold within a given tax year (minus any losses on shares sold within the same tax year) of in excess of 7,200, I wouldn't worry about CGT!

If your shares are on the AIM, you cannot trade through ISA's, but if you hold the shares for more than 1 year, you receive 10% CGT reduction, and if you hold for more than 2 years, you only pay 10% CGT on any profits over the CGT limit in any given tax year.

Whilst on the subject of Capital Gains, I am unclear on the tax implications of selling a particular share (either in profit or at a loss) then buying the same share back within a month. I have been told that there must be a 28 day time lapse before the same share may be re-purchased again due to tax reasons. Is this true?

Yes - but it's 30 days not 28 days.

Get help sheet IR294 on shares and capital gains, or pay an accountant to do it for you.

little woman

Thanks for the information.

If I buy shares on margin and am charged interest for that is that offsettable against the gain?

No, you cannot offset it as it is not deemed as an acquisition cost. To put it in to context, if you buy a property to let, and then sell further down the line with a capital gain, you cannot offset the mortgage interest against the capital gain, as that interest is not part of the cost of the asset.

Hi all

Very interesting thread this and would also like to ask a Q.

As I have an Internet trading account which is linked into a seperate bank account with the trader (Hargreaves Lansdown) If I sell shares which have a CGT implication and on the same day buy shares in another company, as the money does not go into my account will I still be liable for CGT?

The reason I ask is that the money does not enter my bank account for a few days after a sell and if I have brought other shares it never does register in my account.

Cheers in advance

Martin

Martin

Sorry to be the bearer of bad news but yes you are still liable for CGT. The CGT liability arises when the trade is closed, irrelevant of where the money goes. The timing is solely based upon sales (when the gains are realised) and not purchases.

Cheers Fundamentalist

I thought that would be the case, would not expect any tax breaks on taking a risk and coming up trumps.

Looks like I might hold my CWV for a while then...

Many thanks for the advice

Martin

Is it just AIM stocks that are not allowed within a self-select ISA? (ie can't put my Pipex in there?) Whereas I can put in some RTD? (fledgling ftse/techmark)

cheers

Any share that is listed on the FTSE market can be put in an ISA, anything on AIM or OFEX can't

Cheers, Fundamentalist. Now, is it worth becoming a Mormon and bringing a private members bill?

BTW rtd should trade sideways for a bit and then hopefully rise nice and steady.

pxc dead at the mo but may rouse itself nearer results prob June 20

Committed long term holder of RTD (see thread) - don't currently trade AIM stocks - as for the bill - wouldn't waste your breath - it appears that Gordon Brown wants to make ISA's less attractive not more - ie reduce dividend credit, reduce annual allowance

I'm well aware of your RTD thoughts - also a comitted long-termer. Thanks for your help.

Can anyone please recommend a reasonably priced computer program that works out Capital Gains?

Quicken tries to do it but matches shares the wrong way round, i.e. first in first out not last in first out. MS Money does the same. Neither of them know about the 30 day rule. Fairshares is very good but since Updata took them over the price has gone up from 80 to 495 (+VAT).

There is Stockmarket Investor 3 (129.95 + VAT) but I don't know much about it. Does anyone use this and if so is it any good?

Chandos

Wow - I do it the old fashioned way and it's much cheaper!

If you use a spreadsheet - some accountants may agree to do it for you (I would!) for a reasonable negotiated fee.

little woman

Thanks for your posts on all threads, which I have found helpful and interesting. I started investing 14 months ago and have only started using this bb fairly recently.

Can you help re your post of 21 Nov 03?

I thought the only reason one had to wait 30 days before repurchasing the same share was if you wish to crystallise a profit to offset against CGT. If this doesn't apply and you are going to remain well within your annual CGT exemption, then is there any reason that you can't repurchase the same share on the same day? You're not saying it's prohibited are you?

I have looked at IR 294 as you suggested, but isn't it IR 284 that's more relevant? Still couldn't find the relevant passage though - probably because IR helpsheets always induce a state of sleep in me!

Many thanks

Madison

Madison,
My understanding is the same as yours. Below is an excerpt from comdirect:-

Gains can mount to a significant level over time and taking advantage of the annual allowance can save a lot of money in the longer term. It used to be possible to "bed and breakfast", where a stock was sold one afternoon and re-purchased the next morning in order to create a paper gain or loss, thereby taking advantage of the allowance. This practice was stopped by Chancellor Gordon Brown, who extended the matching rules to 30 days. Investors must wait 30 days before re-purchasing if they want to take advantage of the tax allowance.

Matching Rules
The matching rules operate in the following order:

Stock purchased on the same day as sale

Stock purchased within 30 days of sale on a First in First Out (FIFO) basis

Purchases made between 6 April 1998 and the day before sale on a Last in First Out (LIFO) basis

Stock acquired between 6 April 1982 and 5 April 1998 on a pooled basis

Stock acquired before 6 April 1982 on a cost as at 31 March 1982 or actual cost

I'm sure somewhere I have written an excel spreadsheet to calculate CGT liability, taking account of the matching rules etc.

I'll dig it out if any one is interested.

neilpos,

Thanks for your reply.

Would still like clarity from someone that repurchasing a share sold earlier in the day is not in itself prohibited.

Don't worry Madison, no one is going to put you in jail for that :-)

My main problem is/has always been, finding out the year in which one can claim losses on companies which have failed. Does anyone know of a list, or source of information, please.
Also re posting no.1. I think the tax year ends on 5th April not 4th.

My question is, how omn earth do all the day traders keep a tally on the CGT due on their miriad of trades? Do you take account of the 30-day rule?

Sorry I've not been watching this thread.

Flatbrokeagain - the 30 day rule is makes no difference to day traders.

The 30 day rule is to establish dates for taper (and any other allowable) relief. Day traders do not hold shares long enough to claim any allowable relief so applying the rule is a waste of time.

Madison - you're right - must have pressed a 9 rather than the 8! It is IR284.

I think my answer in the previous post may help your question.

You may find - but you need to check this - that if the revenue consider you to be a frequent trader then you will be taxed on your overall trading profits rather than for CGT on each transaction. I'll check the rules and come back to you.

Actually they won't. The reason they won't is to do with the gambling laws. If the revenue allow it to be treated as trading profits then they would have to also allow trading expenses. The Revenue do not believe the majority of people can make money trading, and therefore don't want to be put in the position where they would have to allow trading losses.

There has been quite a lot about of this in the Press last year - and I know it was discussed over in the traders room at the time.

This was my original post over in the traders room last year:

Thought you would find this interesting (Suggest you print out the orginal article in case you need it for a rainy day!)

Revenue's confusing share trader status policy

The Revenue is under fire for its policy towards individuals who actively deal in shares.

The Times (http://www.timesonline.co.uk/article/0,,5-799349,00.html) reports that active traders risk surprise tax bills because they may be treated as sole-trading businesses rather than as private investors. However, some regular share dealers who say they would prefer to be taxed as a business are being denied the chance by the Revenue.

The Times cites the example of Sion Roberts, who has been dealing actively in shares since 2001, but has been refused sole trader status by the Revenue. He told the paper: "I have been dealing as many as three or four times a day and have notched up turnover of several million pounds a year. I have even set up my own dealing company and regard myself as a sole trader but the Inland Revenue insists that I am a private individual making capital gains."

Mr. Roberts added: "In the past two financial years I have made some substantial losses which, if a sole trader, I could offset against other income. As an individual I can only offset these against capital gains, which have been few and far between."

Maurice Fitzpatrick of Numerica questioned whether the Revenue's dogmatic approach might change in a bull market.

A Revenue spokesman explained: "Our general standpoint is that active traders are considered to be individuals making capital gains. It is up to those who wish to be classified as sole traders to prove that they do not fall within the category of individuals making capital gains. This has been our position for some time and we are not moving the goalposts on this"

Sure your right, but see the comments from David Gibbs, tax partner at Grant Thornton, in the recent times article.

http://business.timesonline.co.uk/article/0,,9561-1007352,00.html

I should ask my Sis' - she works for the enemy.

No hate mail please.

:-)

The thing about being doing tax work, is that you tell clients things to scare them, even if it's not strictly true. (Because in your defence "it could be" even if you know it's not!)

A large tax practice I used to "contract to" until recently had a couple of clients who declared that they were day traders, and submitted tax return on that basis. It was after the 3 return, the revenue came back and refused the trading status, and the firm made a lot of money undoing it all and correcting under CGT.

anyone have any ideas as to how cgt can be reduced for someone buying and selling on a frequent basis?? are there any items that can be claimed for e.g internet facility and computer??

Harry

you cant claim "expenses" against CGT such as computer/internet, these can only be offset if you are declaring trading as an income and being taxed purely for income tax (ie losing your CGT allowance). the only costs that can be offset are those which are clearly linked to the trade (ie broker costs/stamp duty)

if you want any more help give me a shout

Try this site for calculating your capital gains tax - I have used it for calculating my cgt over last 5 years and it really is quite good - it processed about 1500 trades and works out cgt liability etal - and its for free.


http://www.cgtcalculator.com/

Baza

Just used the above site to check my calculations and the only difference is where I've opened a short in one year and closed it in the next. The cgtcalculator treats the gain / loss as arising in the first year (with the opening sale) but surely it must be in in the second year (with the closing buy)?

Can anyone confrim please?

profit or loss, whether long or short is assessed in the financial year the trade is closed, so yes should be in the second year (the calculator must be working on when the sell takes place rather than when the position is closed)

Many thanks Fundamentalist

To claim a loss from previous years (04/05) do you just fill in the CGT pages for that year and send it in?

Also, is it still not possible to complete the CGT section online this year?

With regard to claiming losses from previous years, you have 5 yrs and 10mths from the end of the tax year the loss arose in to claim it. Assuming you didnt fill in CGT page for the previous year then yes id fill this in and calculate the loss from it. Id then include the loss on this years form in the box for "losses brought forward set against this years gains (box F6), youll also need to calculate whether youve used up all your losses or are still carrying any forward to future years (boxes 8.15 to 8.21)

Havent declared any CGT this year so am not sure whether its still unavailable online, though if you are claiming for previously undisclosed losses at the same time then i think youll need to go down the paper route with a short cover letter explaining that youve included the previous year page to declare losses not previously disclosed

Thanks again Fundamentalist

Mr Ripley - if you contact the people who wrote the software - they are usually very good at coming back with answers to your queries and telling you how to manage the problem. I think they have a contact us email address. I had a response within an hour for a query ?

Thanks Bhunt - will do

What if the money you use to trade is between 3 friends,but the trading account is set up in one name only. how would we prove this? How far back can you go with your losing trades?

Losing trades you can claim as losses against gains upto 5yrs and 10mths after the end of the tax yr they occurred in.

As for the 3 friends on one trading account, you really should have a business agreement set up to cover this and profits losses should be accounted for on a business basis rather than just splitting any profits gains between the 3 individuals

Thanks Fundamentalist!

Have been having a discussion on CGT liability and I have a query regarding "notification limit". Can anyone clarify what "total sales proceeds" are, in that if they are under 35,200 you do not have to declare anything. Does it mean proceeds after taking account of total gain minus total losses or is it the total value of all your transactions throughout the year? Would appreciate any comments :-)

It is the value of your transactions - add up everything that is sold in the tax year.

Including the amount you put into the investment so if you buy 100 shares at 10 that investment is also included in the transaction value?
Sorry if I'm being dense but I haven't heard of this either..

No, Stockbunny. As far as I'm aware it is just the value of everything you sell, irrespective of your buy price
eg.in one tax year:
you sell a share at 2000, (you originally bought at 1000)
you also sell a share at 500, (you originally bought at 1000)
your total share sale proceeds for that year is 2500 - the price you bought at (or when it was) is irrelevant in calculating the 'total sale proceeds'. That is to the best of my knowledge anyway.

So the original buying price is not disregarded, as when you sell you get back what you originally invested also in the total sale amount. If you are buying and selling something like RIO it wouldn't take long to techncially have total sales on that limit.

If anyone else knows anything please post cos despite Framptons best efforts I'm still confused, but this is not unusual!

ttt - Little woman are you about???

Frampton is correct. Total sale proceeds are exactly that - the total amount of money you got (after any sales commission) from selling the stock. Yes, you are also right in thinking you don't need many transactions to have total sales more than the declarable limit. It is irrelevant what profit you made, if any, which is subject to a separate limit. You are obliged to declare for CGT if you breach either limit in any tax year.

Exotoxin, can you post what the limit is please.

For the current 2006-2007 tax year the total sales limit is 35,200 and the profit limit is 8,800. Last year it was 34,000 & 8,500.

Thanks Frampton and Exotoxin - that is what we feared!

Details on this site. Figure is always 4 times the CGT limit

Low Incomes Tax Reform Group - Tax help - PensionersPersonal belongings where sale proceeds are less than 6000 ... There is no CGT on the sale of your own home provided you have lived there throughout the ...
www.litrg.org.uk/help/pensioners/incomesover/understandingcgt.cfm - 72k -

Stockbunny, I was off line when you posted the second time, do you get it now? If you sell a block of shares for 36,000 pounds you would have to declare it even if you are selling for exactly the same price you bought at ie. you are not making a profit or a loss. It doesn't matter how much you spend on buying shares (that only comes into it for calculating a gain or a loss).

Framption and Exotoxin - many thanks - yes I get it now :>)

Glad to hear that bunny!