Capital gains tax

[dropbrick]

Hi,
New here (as you know and sorry for the spams so far, getting up to speed very quickly thanks to all of you)

I’ve been using this calculator to check capital gains tax https://taxscouts.com/calculator/capital-gains-tax/

Can I ask what is the correct way of handling the taxes in case of Invest and CFD accounts ? Keep track of each sale and dividend and sum these at the end of the tax year ? Please let me know how you do it … just don’t want to screw things up and have HMRC after me because I forgot to report £1!

PS Do distributing ETFs pay in cash ? Is there a date that is better waiting for before selling and not miss out on these payments ?

Thanks!!

[Richard.W]

I am happy to help a bit with this as it is a subject I know well. You can also read on HMRC pages: https://www.gov.uk/capital-gains-tax

Firstly, Capital Gain Tax. This is the same for investments in CFD and Invest accounts.

Let’s do an example. Suppose I sell 10 shares of Apple. To figure out my capital gain HMRC says that I should take the proceeds of sale in GBP (using exchange rate on day of sale) and subtract 10 x the per share purchase price (also in GBP using exchange rate at time of purchase) of shares of Apple I have purchased previously or will purchase in the next 30 days. The per share purchase price is calculated by finding the average price as computed within certain categories, in a particular priority order: (1) firstly, any shares of APPL bought the same day, (2) secondly, any shares bought in the 30 days after the sale, (3) finally, any shares bought on previous days. In the case of (3) I am to use the average cost per share, averaged over all the purchases I may have made prior to my sale of shares. This collection of previously purchased shares is called a Section 104 holding.

For typical long term investors only (3) will actually be relevant because all owned shares will be in a Section 104 holding. But beware of (1) in case you sell one day and buy back in a few days later.

If in the course of a tax year I make gains on some sales and losses on other sales, the losses can be netted off against the gains. There is a trap to be aware of. The UK has a £12,300 CG tax free allowance. Suppose I had gains of £14k and losses of £10k. This would net to £4k and I would owe no tax. But I have lost the benefit of the full £12,300 tax free allowance. It would be better to net off only £1700 of losses, leaving £12300 net gains and hence no tax, and then carry the rest of the losses forward to use against gains next year. But this is not allowed. You must put all your losses into the calculation of net gain. However, there is a way around this in that you are not required to declare your losses immediately in the year they took place. You can delay the declaration for 4 years.

I think that covers the main points. Please ask again if any questions remain in your mind.

Obviously, a platform like Trading 212 cannot easily help with capital gains tax calculation. You have your own decisions to make again when to realise gains and losses. I manage this by keeping a Google sheet with lines for each different investment I own: APPL, MSFT, JNJ, etc. I track the date, number of shares bought or sold, price in USD, exchange rate that day and cost or proceeds in GBP. average cost per share of all shares bought in previous days.

Here are the top few lines of an example, showing the information I keep in order to prepare for capital gains tax calculations. This is for ETF SUWS which is priced in USD.

[Richard.W]

@dropbrick

Do distributing ETFs pay in cash ? Is there a date that is better waiting for before selling and not miss out on these payments ?

Yes. If you want to receive a dividend then you need to hold the shares until the ex-dividend date. It is best to find the information about dividend amounts and dates by reading on the web site of the ETF provider. iShares, Vanguard, State Street … they all have very informative and easy to use web sites.

In the UK there is a £2000 per year tax free dividend allowance. Taxable dividends arise from ordinary shares and from both distributing and accumulating ETFs.

[dropbrick]

And of course if I’m under the capital gains allowance I don’t have to declare anything right ? Just if I’m over I need to do self assessment, correct ?

[Richard.W]

Read https://www.gov.uk/capital-gains-tax/work-out-need-to-pay

You do need to complete a self-assessment if you are reporting any losses or if your gains before losses are above a certain amount.

[dropbrick]

Do I need to keep track of anything or literally the CFD account has some statement option somewhere to keep track of buy/sell/profits ? (I haven’t done a trade in the real one yet, just ISA)

[Richard.W]

Reading this may help.

Tax enquires for UK investor

It is simple to complete your tax return if you can answer No to both of the following questions. If so then you will not have to report anything - though you will have to keep records of your gains in case you are asked. Did you dispose of chargeable assets worth more than £48,000? Are your total chargeable gains before deducting losses more than £12,300? If you cannot answer No to both of these then there is much to keep track of (though dates is enough, not times). Unless HMRC allow you t…

You probably need to keep your own records. See Results section of the app and trading statements received in email.

[dropbrick]

So, If I can answer no to both of these I don’t have to do any paperwork right ?

Did you dispose of chargeable assets worth more than £48,000?

Are your total chargeable gains before deducting losses more than £12,300?

Can you explain the below ?

then carry the rest of the losses forward to use against gains next year…

I can carry losses onto the next year ?

[Richard.W]

You can declare and apply a loss against gains at any time up to four years after the point the loss was incurred. Also, you can carry losses forward indefinitely, but they must be applied against gains and therefore may reduce the extent to which you can benefit from the £12.3k tax free allowance.

For your peace of mind, I highly recommend a thorough reading of relevant HMRC pages about capital gains tax. It is worth investing time in learning from the source. These pages are well written and include examples.

Tax when you sell shares

The following page tells how to handle losses.

Capital Gains Tax

[dropbrick]

Just to see if I understood well. Suppose I use the invest account and buy AAPL or an ETF(distributing).

If I buy and sell and my total gains(excluding losses and dividends) are below the allowance for CGT I don’t have to file any paperwork. Correct ? As long as my total sell amount is under 4x the CGT allowance from what I’ve read.

So say I put in 36.9k in the invest account, it goes up 33% to 49.2, I can then sell everything within the same tax year and I don’t have to fill any paperwork As gains are 12.3 and total sale is 4x the allowance… (I have no other assets or properties just PAYE income and savings)

Is that correct @Richard.W ?

[Richard.W]

Yes. Correct. But I recommend you also read on HMRC website. Perhaps you will learn something more.

[dropbrick]

I read the rest of the documents… I just don’t get one thing… I need to file for self assessment to report I have to pay no taxes if I sell more than 49.2k in the tax year even if my gains are less than 12k…

Have you done this before ? I don’t have this problem but I was wondering if I start to buy/sell via Invest or CFD account I might do… as easy to reach 49.2k even with 5k if you do a few transactions…

[Richard.W]

Yes. If you trade often you can reach the amount requiring tax reporting
But remember thar the “cost” of your trade in CFD is the opening margin. So buy and sell 10 Apple on 20% margin would be cost of 10x 20% x $319 x 0.810 = £510. So you could do that around 95 times and stay within reporting limit. In Invest you reach limit with 19 repeated buy and sell as cost £2550, approximately.

The rules reduce tax reporting for a buy and hold Investor who infrequently sells. But if you are actively trading you will have to report your transactions. It is not difficult. You attach a pdf file to your online tax return that you print from your own spreadsheet, where on each line you state a closing capital gain or loss: instrument and quantity involved, date opened, cost, date closed, closing proceeds and gain/loss.

I have done as above in my tax returns. But I only have a few CFD trades to report. If I had hundreds then I would be more efficient and just report one aggregate line, say “CFD trading, total costs, total proceeds, total gains before losses, total losses, total gains”. HMRC will not fine you for reporting too little detail. They will simply ask for more detail if they wish to. So long as you can back up the figures with details, if asked, you should be ok.

I once chatted with HMRC Customer Support on Twitter about how much detailed information I should give about the dozens of purchases going into the makeup of a Section 104 shareholding, and was told I could provide a one line summary, so long as I retained details should they ever wish to enquire.

It would be interesting of anyone else with experience could comment. At least one community member has mentioned being a tax accountant (which I am not).

If you have never registered for self assessment, don’t fear it. The online form completion is quite easy. May as well get used to it.

[Davo7]

Hi Richard,

Sorry to piggy back on this conversation, however my queries related to the same topic. I understand the limit for any capital gains and how to offset losses…but if i sell more than £48k’s worth of shares in a tax year, do I just need to report it in the self assessment, or are you actually taxed on the amount above £48k?

Thanks
David

[Richard.W]

You are taxed on any net gains over £12,300. You can leave the capital gains section of the self assessment empty if you are not deducting losses, have proceeds less than 48k and have net gains less than 12.3k. Otherwise you have to report details. The online self assessment tool prompts you what to do.

Losses do not have to be reported immediately. Sometimes it can be better to claim them in a later year. You can delay reporting and claiming losses up to 4 years.

[Davo7]

So to confirm, CGT only applies to gains over £12,300 and the reporting of any assets sold over £48k is merely for illustration purposes and does not have any tax implications?

[Richard.W]

The point is that HMRC want to know details when someone is selling as much as 48k even if the gains mean no tax is due.

Eg. They would find it odd if someone sold 100000 of stock for gain of just 1000. So they want to see details.

48k is the current number. But it changes each year. The self assessment tool will prompt you with the threshold number.

[Davo7]

Thanks Richard, that’s clear, appreciate your help.

[pipo]

Why do UK people bother with all this tax reporting headache when you have an ISA available? Just curious.

[CirensOC]

Because you can only invest £20k max in an ISA. So if you want to invest anymore than that you’ll get taxed on an earnings over £12k.