rw42

Cgt On Shares

16 posts in this topic

Anyone able to recommend a good site that explains CGT implications on shareholdings?

Basic example - made up figures but explain what i'm thinking anyway.

I've bought 100 shares at a price of £500 each, which have now doubled in value to 1k.

I've therefore got an unrealised profit of £50k.

As i understand it, you get an allowance of ~10k profit a year you're allowed to make before you have to start paying CGT, and then you pay at lower/higher rate as appropriate.

If i just held these shares until the company i'm invested in is bought out, then i just use up my allowance for the buyout year:

tax due = (sell price - buy price - tax free allowance) * 0.28 (higher rate CGT).

Is it allowable to say sell/buy enough in one tax year to make an 'instantaneous' 10k profit, which you report on your self assessment, and won't have to pay that as profit come the next tax year?

So - this tax year ending april, sell 20 shares for £20k, meaning a realised profit of £10k, buy back immediately.

This in theory to me results in paying dealing fees / stamp duty on £20k's worth of shares instead of being liable for CGT on it at a later date.

Does this make any sense? I've tried reading the hmrc website, and if i'm understanding it right this isn't allowed, i'd have to sell and then buy back after 30 days to be able to call it a profit. Which for the shares i'm interested in, is too long to be out of the market for..

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Anyone able to recommend a good site that explains CGT implications on shareholdings?

Basic example - made up figures but explain what i'm thinking anyway.

I've bought 100 shares at a price of £500 each, which have now doubled in value to 1k.

I've therefore got an unrealised profit of £50k.

As i understand it, you get an allowance of ~10k profit a year you're allowed to make before you have to start paying CGT, and then you pay at lower/higher rate as appropriate.

If i just held these shares until the company i'm invested in is bought out, then i just use up my allowance for the buyout year:

tax due = (sell price - buy price - tax free allowance) * 0.28 (higher rate CGT).

Is it allowable to say sell/buy enough in one tax year to make an 'instantaneous' 10k profit, which you report on your self assessment, and won't have to pay that as profit come the next tax year?

So - this tax year ending april, sell 20 shares for £20k, meaning a realised profit of £10k, buy back immediately.

This in theory to me results in paying dealing fees / stamp duty on £20k's worth of shares instead of being liable for CGT on it at a later date.

Does this make any sense? I've tried reading the hmrc website, and if i'm understanding it right this isn't allowed, i'd have to sell and then buy back after 30 days to be able to call it a profit. Which for the shares i'm interested in, is too long to be out of the market for..

That's right, you have to wait 30 days to buy them back, otherwise the gain or loss you report in that year is the difference between the price you sold them for and the price you bought them back for. You can sell and buy back within an ISA, subject to ISA limits, report that gain, and there would be no future CGT on those shares, and also no loss relief should they go down in price.

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Which for the shares i'm interested in, is too long to be out of the market for..

You might consider purchasing a call option that will allow you to buy the shares you are interested in at a fixed price at a future date. Look on the Liffe website to get an idea of the cost.

Equity options are primarily an efficient risk management tool. However, they offer a number of other advantages. With equity options you can:

Leverage profit opportunities: when the market rises (or falls), the percentage gains (or losses) exceed the rises (or falls) in the underlying shares;

Lock in a pre-determined sale price for their shares;

Protect stock holdings from a decline in market price;

Generate extra income;

Benefit from a stock price rise without incurring the cost of buying the stock outright.

Effectively the strategy you are looking at a is a call substitution. It allows you to lock in a profit by selling the shares, and allowing the opportunity to buy in again at a price that can be fixed.

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Your 30 days out is one option.

Another is to take specific tax-optimisation measures as and when you get hit with the bill. For example, if you make a £50k gain in one tax year, you can reinvest than in an EIS and defer your capital gain, as well as claim an income tax rebate on your investment, thus gaining twice over.

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Balls, thanks both.

JonB - would do this if i could hold this share in an ISA - AIM listed at the moment although there are plans for FTSE250 listing apparently - wait and see i guess!

sleepwell - great idea, but looking on the liffe site the share i'm looking at isn't on there (AIM listed).

I think i'll just hope for such obscenely large profits that i don't resent paying 30% of it back to the government ;)

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There are risks to using the instruments provided above, and depends on the share. For example many AIM-listed shares aren't ISA-ble. Also many foreign shares are difficult to trade using UK-based instruments, depending on your broker. I use CFDs to hedge my positions but these are as taxable as shares. You can use spread bets, but the lossess are non-offsettable as are the profits. :huh:

www.cgtcalculator.com

Excellent tool for the basic PI to plan tax. Particularly timing your exit points and 30-day wait to buy back in again. I've taken my 10k this year and am just eating into previous years losses, don't have too much to use unfortunately.

Well done on your investment (GKP?) :)

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Well done on your investment (GKP?) :)

Aye - it's been good to me this year!

Ironically everything i did to try and diversify what i was invested in has lost small amounts of money, while i'm averaging 30% up on GKP.

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Nah, i look at prices on shareprice.co.uk and read mostly the LSE forum for chatter through there, occasionally read the iii tab.

Only got into it after my little brother suggested it, and rather glad i did now!

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Excuse my ignorance, but why do you say that?

iii share bbs are generally not the best place to ask for any advice, really. Although it is interesting to watch the emotions on display as the share price swings.

I suggest one starts with the HMRC website for CGT advice, alternatively one could ask someone qualified, such as an accountant. The website I posted is very useful for sorting out the matching, and you can also put in potential scenarios to see what happens to your CGT.

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iii share bbs are generally not the best place to ask for any advice, really. Although it is interesting to watch the emotions on display as the share price swings.

I suggest one starts with the HMRC website for CGT advice, alternatively one could ask someone qualified, such as an accountant. The website I posted is very useful for sorting out the matching, and you can also put in potential scenarios to see what happens to your CGT.

Thanks, that is what I thought you meant. III can be useful to pick up on news you might have missed if you hold many shares, but I agree that there are a lot of rampers on the bbs.

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Agreed. Most stuff i read on the BBs i put into the 'nice if true, but will believe when it happens' category. Theres a little too much exuberance on both the long and short sides for me to take any of it seriously, and some people have annoying habits of posting month old news as 'new'.

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:D

Hold on tight. :)

Aye - it's been good to me this year!

Ironically everything i did to try and diversify what i was invested in has lost small amounts of money, while i'm averaging 30% up on GKP.

p.s. yes you learnt what I learnt too. Diversification = losing on most fronts. Do your research, diligence, and pile it into a small handful of shares. Make loads of money. :)

Edited by Laguarde's Companion

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