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.