CGT question (bit boring - sorry)

[eyeslikealemur]

Hello.

I have a boring CGT question;

Theoretically, I put £15,000 into a GIA and buy shares in a single stock.

They do well and 3 months later I have £150,000 in the GIA.

Ignoring fees, I think that my CGT liability is £150,000 - £15,000 = £135,000.

In the current tax year I think I can take £15,000 + £3,000 = £18,000 tax free by selling down shares, leaving £132,000 in the GIA.

Next tax year, let's say the shares have fallen a bit to £100,000.

Do I still take £18,000 tax free (assuming Ms Reeves hasn't changed the £3,000 CGT allowance), or is the calculation now different?

I expect bed and ISA may be a better strategy as well for the next tax year (I've used this year's £20,000 allowance).

Thanks.

[Countdown]

eyeslikealemur said:

Hello.

I have a boring CGT question;

Theoretically, I put £15,000 into a GIA and buy shares in a single stock.

They do well and 3 months later I have £150,000 in the GIA.

Ignoring fees, I think that my CGT liability is £150,000 - £15,000 = £135,000.

In the current tax year I think I can take £15,000 + £3,000 = £18,000 tax free by selling down shares, leaving £132,000 in the GIA.

Next tax year, let's say the shares have fallen a bit to £100,000.

Do I still take £18,000 tax free (assuming Ms Reeves hasn't changed the £3,000 CGT allowance), or is the calculation now different?

I expect bed and ISA may be a better strategy as well for the next tax year (I've used this year's £20,000 allowance).

Thanks.

Your premise is wrong - your GT liability only crystallises when you sell the shares so your liability in Year 1 isn't £135k unless you sell ALL the shares.

i.e. Let's say you sold half the shares at the end of the first Financial year. Your capital gain would be (£75,000 - £7,500) = £67,500. You would then deduct £3,000 CGT allowance leaving £64,500 and then you would pay tax on this at 10% or 20%

If the remaining shares fall in price in Year 2 (let's say from £75,000 to £5,000) and you sell them all you will have made a capital loss (£5,000 sale proceeds less £7,500 purchase price) = £2,500 capital loss. In rare circumstances you can offset this against other income, if not youc an carry it forward to future years.

[Simpo Two]

eyeslikealemur said:

In the current tax year I think I can take £15,000 + £3,000 = £18,000 tax free

If the £3K is the CGT allowance, what's the £15K? Income tax allowance and what?

[Countdown]

Simpo Two said:

eyeslikealemur said:

In the current tax year I think I can take £15,000 + £3,000 = £18,000 tax free

If the £3K is the CGT allowance, what's the £15K? Income tax allowance and what?

I may be mistaken but i thought the Op was offsetting the whole of the purchase price against the sale of some of the shares.

[Panamax]

Countdown said:

I may be mistaken but i thought the Op was offsetting the whole of the purchase price against the sale of some of the shares.

Yes, OP needs to check out the pooling rules and the way each share participates pro-rata in the overall gain.

Real world CGT calculations can be a right pita. I can't imagine many people get them right but HMRC faces the huge problem that CGT on investments is one of the most ridiculously expensive taxes to try to police/collect. Unlike property CGT which they've got nailed down just by deploying their Stamp Duty computer system in conjunction with enhanced tax rates, "report and pay" and access to the Land Registry.

[eyeslikealemur]

Thanks.

Yes the £15,000 is initial cost of the shares, but I now realise that £15,000 is correct only if I sell all of them.

So, as Countdown illustrated, if I sell 50% then I use £7,500 as the initial cost figure.

What I'd like to be able to calculate easily (maybe in an Excel chart) is my unrealised gain and how much I need to sell to use my £3,000 annual CGT allowance each year.

I'll have a Google for online CGT calculators.

I know this gets very complicated when you also then buy more shares, but I'm probably not going to do that.

[silentbrown]

eyeslikealemur said:

Hello.
Theoretically, I put £15,000 into a GIA and buy shares in a single stock.

They do well and 3 months later I have £150,000 in the GIA.

In the current tax year I think I can take £15,000 + £3,000 = £18,000 tax free by selling down shares, leaving £132,000 in the GIA.

As Countdown says, your premise is wrong.

You can sell £3,333.33 worth of shares tax free. (They've increased by a factor of 10, so cost you £333.33. Your capital gain is £3,333.33 - £333,33 = £3000)

[Simpo Two]

Countdown said:

I may be mistaken but i thought the Op was offsetting the whole of the purchase price against the sale of some of the shares.

Ah yes, thanks.

If ever there was a job for AI, it's CGT. Or when you hover over the 'sell' button the tax due appears so you can decide whether to sell or not.

[Panamax]

eyeslikealemur said:

I'll have a Google for online CGT calculators.

That's making life harder than it needs to be.

If you paid £1,000 for 320 shares then each share cost you £3.125
If you received £800 for sale of 160 shares that's £5.00 per share.

You therefore received £800 for shares that cost you £500 and your "taxable gain" is £300

Obviously in this example there's no tax to pay because your gain is under £3k, so long as you don't have other gains in the year that push you over £3k.

Yes, it really is that simple.

For many investors the allowance is so low that it's no longer worth using. The risk of "out of market" time probably exceeds any available tax benefit.