HMRC - Investor or Trader
Discussion
HMRC guidance states that whether you are an investor or trader is a 'statement of fact'.
Now I don't 'draw an income' because I invest - but I do that using limit orders and stop losses. That means I can generate a number of transactions during the period of an investment in the same asset / stock. That means I convert that asset back to cash a number of times but I don't draw it from the broking account. Also, I often partial sell. All these assets are 'normal' under the CGT rules (ie. £12,300 limit applies).
Anyone any experience of that with the HMRC - does intention come into it or do they just work on frequency or do they just make it up as they go along in order to ensure you end up paying income tax rather than CGT ?
These would all be assets that can't be held in tax efficient vehicles (ISA SIPP etc)
Thanks.
Now I don't 'draw an income' because I invest - but I do that using limit orders and stop losses. That means I can generate a number of transactions during the period of an investment in the same asset / stock. That means I convert that asset back to cash a number of times but I don't draw it from the broking account. Also, I often partial sell. All these assets are 'normal' under the CGT rules (ie. £12,300 limit applies).
Anyone any experience of that with the HMRC - does intention come into it or do they just work on frequency or do they just make it up as they go along in order to ensure you end up paying income tax rather than CGT ?
These would all be assets that can't be held in tax efficient vehicles (ISA SIPP etc)
Thanks.
Edited by Tegriffic on Friday 14th May 03:51
Carrying on an action or a series of actions with a view to generating a profit is the basic HMRC definition of "trading" i.e. as in running a business. Business profits are subject to Income Tax and Class 2/4 National Insurance.
Whether an individual decides to draw money from their activity to live off is not a consideration.
Whether an individual decides to draw money from their activity to live off is not a consideration.
This is a good link:
http://www.cgtcalculator.com/
You need to be aware of the 30 day rule, so if you'rebuying back an asset (be that share option, share, cfd etc) within 30 days then there are complex matching rules.
If you put each and every transaction from 30 days pre tax year to 30 days post tax year into this website then it will work out CGT for you.
http://www.cgtcalculator.com/
You need to be aware of the 30 day rule, so if you'rebuying back an asset (be that share option, share, cfd etc) within 30 days then there are complex matching rules.
If you put each and every transaction from 30 days pre tax year to 30 days post tax year into this website then it will work out CGT for you.
As Eric has already set out, trading is trading and whether you’re drawing out any cash on a regular basis doesn’t change things.
From the brief description in OP it sounds as though it could be difficult to run an argument along the lines, “Yes, I do these things regularly with a view to making money but I’m not trading”.
The sort of question to consider is, “If HMRC ask to have a look at my bank statements what will they see and what may that lead them to conclude?”
From the brief description in OP it sounds as though it could be difficult to run an argument along the lines, “Yes, I do these things regularly with a view to making money but I’m not trading”.
The sort of question to consider is, “If HMRC ask to have a look at my bank statements what will they see and what may that lead them to conclude?”
I have personal experience of this, what I say is not advice but based on how it went for me.
I was trading lots of shares, CFD's, options and wanted some clarification of my position.
To cut a very long story short, HMRC's view was, since I had a business which was not an Investment Business, I could not be a Trader, therefore everything fell under CGT.
The use of Options, CFD's and short term "turns", did not alter that position. This was 2012 and every year since, there has never been any comment.
The reason the bar is set so high for trading is because Goldman Sachs used to have a very complex Currency shorting scheme, my understanding of it was that they bought Turkish lira, knowing it would devalue and create a tax loss and on the other side the individual had a tax fee opposite bet.
Loads of income tax saved and no NI.
You could seek advice from a Tax Barrister, I enquired and back in 2011, it was about £4K but I had no need as I was fine with the CGT position, the Barrister couldn't guarantee but it would have shown that I had sort professional advice offered some protection
I was trading lots of shares, CFD's, options and wanted some clarification of my position.
To cut a very long story short, HMRC's view was, since I had a business which was not an Investment Business, I could not be a Trader, therefore everything fell under CGT.
The use of Options, CFD's and short term "turns", did not alter that position. This was 2012 and every year since, there has never been any comment.
The reason the bar is set so high for trading is because Goldman Sachs used to have a very complex Currency shorting scheme, my understanding of it was that they bought Turkish lira, knowing it would devalue and create a tax loss and on the other side the individual had a tax fee opposite bet.
Loads of income tax saved and no NI.
You could seek advice from a Tax Barrister, I enquired and back in 2011, it was about £4K but I had no need as I was fine with the CGT position, the Barrister couldn't guarantee but it would have shown that I had sort professional advice offered some protection
bmwmike said:
Does this include selling high and rebuying same stocks back low, within their volatility ranges, within an stocks & shares ISA? Surely thats just investing. No point buying high and selling low is there
It's not in an ISA but essentially yes that's what's going on. These assets are relatively volatile. The intent is to protect the investment value and stop losses trigger whereupon the buy back point will be at a lower price (but not subject to any trading 'system'). Because of the volatility that creates a frequent buy, sell, buy, sell pattern during the tax year.So in my mind I guess, does this constitute a trading for profit venture - hence why I ask about intent because to me it's just active management to protect an ongoing investment.
Tegriffic said:
bmwmike said:
Does this include selling high and rebuying same stocks back low, within their volatility ranges, within an stocks & shares ISA? Surely thats just investing. No point buying high and selling low is there
It's not in an ISA but essentially yes that's what's going on. These assets are relatively volatile. The intent is to protect the investment value and stop losses trigger whereupon the buy back point will be at a lower price (but not subject to any trading 'system'). Because of the volatility that creates a frequent buy, sell, buy, sell pattern during the tax year.So in my mind I guess, does this constitute a trading for profit venture - hence why I ask about intent because to me it's just active management to protect an ongoing investment.
To HMRC ( at least at a local level), their interpretation of a "trader" is a person who trades 50 bips on currency. At the more specialist teams, they might look more closely at intention but overwhelmingly they treat the buying and selling of equities as investment
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