CGT and swing trading shares.

[Chris_H]

I've tried to find the answer to this, but I'm still not sure. So I'm hoping someone can give me a definitive answer.

Here's the scenario:

I bought 16000 shares @ £1.00 each. They are now worth £2.00 each.
I sell the lot for £2.00 and buy them back 30 minutes later for £1.90.

Is my CGT liability the full £16K profit on the original purchase price, or is it the £1600 being the difference between the sale and the purchase prices (forget stamp duty for purposes of ease)?

Say I did this five times in a year. Have I a liability of £80K or £8000 over the course of a tax year?

[Zippee]

As far as I'm aware (happy to be proved wrong) it's the profit per transaction. So you'll be liable for the 16k profit on the first trade and then on the 2nd etc. Obviously over the year this may be offset against any losses.

[Eric Mc]

Why would you buy and sell the same shares multiple times in quick succession?

[Chris_H]

Eric Mc said:

Why would you buy and sell the same shares multiple times in quick succession?

To benefit from the price fluctuations.

[chris7676]

There is a (silly, annoying) rule called "bed and breakfast" meaning that if you buy them back within 30 days, you do not generate capital gains, so no tax liability, but your liability will be there once you sell them for good.

[Eric Mc]

Would you be in danger of becoming a share trader rather than an individual with Capital Gains?

[chris7676]

Eric Mc said:

Would you be in danger of becoming a share trader rather than an individual with Capital Gains?

That would only be the case if you had no other income.

[Eric Mc]

chris7676 said:

Eric Mc said:

Would you be in danger of becoming a share trader rather than an individual with Capital Gains?

That would only be the case if you had no other income.

And where did you pick up that little gem?

I am pretty sure having other sources of income would not preclude someone from running a share trading business.

[MrGRT]

There are 3 rules and they have to be applied in sequence to calculate your CGT.

1) Shares bought and sold the same day are matched together (covers your example)
2) Bed and breakfasting rule - shares sold but then bought within 30 days are matched together
3) anything else.

[Hyper10]

I agree with Eric, you need to be extremely careful as HMRC are looking at intention as well as the actions to base their judgement as to the nature. It is a red flag to them to see lots of "trades" but in itself is not enough for them to make a determination. The real danger is if you and you alone are making these trades as they will say you are controlling matters. The actual correct approach is to find a broker who will open you a "discretionary" account, the broker will decide if a trade is good for the account and of course welcomes your input but may not always agree and may not act on your advice as they will ultimately decide if the investment albeit a short turn around is good for the portfolio. There are lots of urban myths but ultimately if a broker has the final say no matter how much your portfolio trades, any gains are capital with the exception of income from dividend stocks, if we carry that through the other way, if you retain control, you wouldn't need to trade a lot before HMRC will at least question your motivation.ALL IN IMO DYOR

Eric Mc said:

chris7676 said:

Eric Mc said:

Would you be in danger of becoming a share trader rather than an individual with Capital Gains?

That would only be the case if you had no other income.

And where did you pick up that little gem?

I am pretty sure having other sources of income would not preclude someone from running a share trading business.

[Eric Mc]

I can see why "control" would be a key point. It is a fundamental aspect of running one's own business.

The last thing you would want would be HMRC deciding that what you were doing was trading as a business rather than making capital acquisitions and disposals.

[Chris_H]

I see. As I don't have any other source of income, it looks like this could be an issue then. Thanks for your replies.

[Eric Mc]

People who buy and sell property to "do up" and sell have a similar problem.

[twinturboz]

As someone who trades shares daily, I did some research into this a few years back.

Obviously each case depends on the personal circumstances but, and I'm happy to be corrected, from what I found I think it's rare for hmrc to class an individual as a trader.

Eric will probably know more about this than me, but they have to apply the badges of trade to try and determine if you are trading or investing. There are several case laws that seem to back up that it's difficult for an individual to be classed as a trader.

The general conclusion I came to was that if you had an organised disciplined system then you may be taxed as income, but if your trades are based on speculation and your not hedging then its CGT.

Few links:

http://www.hmrc.gov.uk/manuals/bimmanual/bim65701....
http://www.taxationweb.co.uk/tax-articles/business...

[Eric Mc]

It may be rare but it is till something that someone who intends to trade regularly needs to be aware of.

I think it is quite ironic that people who "trade" in shares on a regular basis would be mortified if they were classified as "trading" by HMRC.

[twinturboz]

Agreed very ironic. Not sure how much difference it really makes as I assume if one was classed as a trader they would go down the Ltd route.


OP, don't know how many transactions you have but if you can justify the cost then there's a cgt calculator as part of their software at www.timetotrade.co.uk which will generate the SA108 form.

[Hyper10]

Good links, thanks. Interesting HMRC didn't like trading especially when a loss was claimed

twinturboz said:

As someone who trades shares daily, I did some research into this a few years back.

Obviously each case depends on the personal circumstances but, and I'm happy to be corrected, from what I found I think it's rare for hmrc to class an individual as a trader.

Eric will probably know more about this than me, but they have to apply the badges of trade to try and determine if you are trading or investing. There are several case laws that seem to back up that it's difficult for an individual to be classed as a trader.

The general conclusion I came to was that if you had an organised disciplined system then you may be taxed as income, but if your trades are based on speculation and your not hedging then its CGT.

Few links:

http://www.hmrc.gov.uk/manuals/bimmanual/bim65701....
http://www.taxationweb.co.uk/tax-articles/business...

[Eric Mc]

twinturboz said:

Agreed very ironic. Not sure how much difference it really makes as I assume if one was classed as a trader they would go down the Ltd route.


OP, don't know how many transactions you have but if you can justify the cost then there's a cgt calculator as part of their software at www.timetotrade.co.uk which will generate the SA108 form.

For a sole trader the immediate effect would be to

a) lose the Capital Gains Tax Annual Allowance (currently £10,600)
b) pay tax at Income Tax rates (20%/40%/50%) rather than CGT rates (18%/28%)

Limited companies don't get the Capital Gains Tax annual allowance.

[ATM]

Sorry for the Hijack here but can you offset share dealing losses against income tax?

So if someone is PAYE and earns 10k per month but loses 9k per month on their share dealings can they reclaim the tax paid on this 9k per month?

Can this be back dated?

[Eric Mc]

ATM said:

Sorry for the Hijack here but can you offset share dealing losses against income tax?

So if someone is PAYE and earns 10k per month but loses 9k per month on their share dealings can they reclaim the tax paid on this 9k per month?

Can this be back dated?

You can't have it both ways.

If you are "trading" shares but have always looked on the transactions as being in the nature of capital acquisitions and disposls, then any losses incurred can only be offset against other capital gains. Capital losses cannot be offset against ordinary income.

If you were trading in shares and paying Income Tax on the trading profits (as opposed to Capital Gains Tax), then your trading losses genuinely could be offset against any other income received in the same tax year the trading loss was incurred or carried forward for ofset against future trading profits. I am using the term "trading" here in the general meaning of the word as in "sole trader".