Does anyone actually use up their annual CGT allowance?

Does anyone actually use up their annual CGT allowance?

Poll: Does anyone actually use up their annual CGT allowance?

Total Members Polled: 28

Yes - all of it: 32%
Yes - some of it: 21%
No: 46%
Author
Discussion

Seany88

Original Poster:

1,245 posts

221 months

Monday 9th September 2013
quotequote all
Simple question really, I'm curious as to why its even offered as to me it only benefits those with large assets? Or that it'll give you a nice little 'freebie' if you sell a second home that made a bit of capital growth. Was it introduced by the Tories?

Eric Mc

122,053 posts

266 months

Monday 9th September 2013
quotequote all
People who do have an asset or assets to sell in any given tax year will generally be able to make use of some or all of their annual Capital Gains Tax allowance.

Capital Gains Tax was introduced in 1965 by the then Labour Chancellor, James Callaghan.
I am pretty sure that the Annual Exemption was part of the legislation right from the start - not that I would have been an eager reader of tax legislation in 1965, I was 7 years old. I would have been more likely to have been reading The Beano.

Seany88

Original Poster:

1,245 posts

221 months

Monday 9th September 2013
quotequote all
Eric Mc said:
People who do have an asset or assets to sell in any given tax year will generally be able to make use of some or all of their annual Capital Gains Tax allowance.

Capital Gains Tax was introduced in 1965 by the then Labour Chancellor, James Callaghan.
I am pretty sure that the Annual Exemption was part of the legislation right from the start - not that I would have been an eager reader of tax legislation in 1965, I was 7 years old. I would have been more likely to have been reading The Beano.
I'm selling my Beano collection on ebay right now!

I asked the question though as unless you have many assets (cars don't count apparently as tax-free?) then you won't be maximising the exemption most years...that its mainly for the once in a blue moon occasions?

Eric Mc

122,053 posts

266 months

Monday 9th September 2013
quotequote all
For most people, it is.

Obviously, if you dabble in some item such as stocks and shares and make annual profits less than the annual CGT threshold (currently £10,900), or if you have something like a stamp collection or some antique furniture, then you might be able to make use of your CGT allowance every so often.

In theory, HMRC can redefine a set of transactions as "revenue" rather than "capital". If you buy and sell shares on a regular basis they might decide that you are actually running a share trading business which would be covered by Income Tax rules, not Capital Gains Tax rules.

Property developers also have to be careful that they recognise correctly when they are conducting a property development business and not buying a capital asset and then selling it for a capital gain.

CaptainSensib1e

1,434 posts

222 months

Monday 9th September 2013
quotequote all
Seany88 said:
I'm curious as to why its even offered as to me it only benefits those with large assets?
That's not exactly true. If you started investing a few grand a year, perhaps to supplement your pension, in 10 years you could easily be sitting on quite a large profit. It would massively discourage investors if there was no opportunity to make any profit without paying tax.

fandango_c

1,921 posts

187 months

Monday 9th September 2013
quotequote all
CaptainSensib1e said:
Seany88 said:
I'm curious as to why its even offered as to me it only benefits those with large assets?
That's not exactly true. If you started investing a few grand a year, perhaps to supplement your pension, in 10 years you could easily be sitting on quite a large profit. It would massively discourage investors if there was no opportunity to make any profit without paying tax.
If you're Investing a couple of grand a year outside pension, why wouldn't you use an ISA?

fluffnik

20,156 posts

228 months

Monday 9th September 2013
quotequote all
Eric Mc said:
Property developers also have to be careful that they recognise correctly when they are conducting a property development business and not buying a capital asset and then selling it for a capital gain.
How do you tell?

Eric Mc

122,053 posts

266 months

Monday 9th September 2013
quotequote all
You look at what is actually going on.

If one property is purchased - retained for a number of years - and then sold. It is likely this will be a CGT transaction.

If a number of properties are purchased or properties are purchased in sequence, developed, sold, more properties purchased, developed and sold, it is more than likely that you are running a property development business.

It is usually relatively obvious what category the activity falls in to - although there will be occasions when it might not be that clear cut.

jeff m2

2,060 posts

152 months

Monday 9th September 2013
quotequote all
Management of C.Gs. either by offsetting losses or utilising C.G. allowance is essential to maintaing value.

I'm in the US now and no longer get that allowancefurious
We manage ours slightly differently, different rates for long term and short term.
Mr O has just changed tax treatment for 2013 C.Gs.

There does not appear to be a suitable smilie in the list.

chris7676

2,685 posts

221 months

Monday 9th September 2013
quotequote all
Eric Mc said:
In theory, HMRC can redefine a set of transactions as "revenue" rather than "capital". If you buy and sell shares on a regular basis they might decide that you are actually running a share trading business which would be covered by Income Tax rules, not Capital Gains Tax rules.
That sounds a bit insane (but I believe that's the way it can be). What's the regular basis? Could they also 'redefine' the ISA account benefits ?

chris7676

2,685 posts

221 months

Monday 9th September 2013
quotequote all
Seany88 said:
I'm curious as to why its even offered as to me it only benefits those with large assets?
Quite the contrary - it gives a tax-free capital gains to anyone not exceeding sub £11k a year, that will include those with tiny gains. The larger the assets and consequently potential gains, the less of benefit.

Eric Mc

122,053 posts

266 months

Monday 9th September 2013
quotequote all
chris7676 said:
Eric Mc said:
In theory, HMRC can redefine a set of transactions as "revenue" rather than "capital". If you buy and sell shares on a regular basis they might decide that you are actually running a share trading business which would be covered by Income Tax rules, not Capital Gains Tax rules.
That sounds a bit insane (but I believe that's the way it can be). What's the regular basis? Could they also 'redefine' the ISA account benefits ?
No - because an ISA is an ISA. There is no possibility of having an account that MAY or MAY NOT be an ISA.

It can be much more difficult to ascertain if a transaction is a one-off gain on an investment or whether it was entered into with a profit making motive behind it or there was an intention to enter into a series of such transactions.


chris7676

2,685 posts

221 months

Monday 9th September 2013
quotequote all
Eric Mc said:
No - because an ISA is an ISA. There is no possibility of having an account that MAY or MAY NOT be an ISA.

It can be much more difficult to ascertain if a transaction is a one-off gain on an investment or whether it was entered into with a profit making motive behind it or there was an intention to enter into a series of such transactions.
Equally a Capital Gain is a Capital Gain smile

Are you suggesting that only 'accidental' capital gains are Capital Gains, while those made with the intention of making profit are income ? Who in their right mind would NOT intend to make a gain / profit while investing in an asset anyway ? confused

fluffnik

20,156 posts

228 months

Monday 9th September 2013
quotequote all
Eric Mc said:
You look at what is actually going on.

If one property is purchased - retained for a number of years - and then sold. It is likely this will be a CGT transaction.

If a number of properties are purchased or properties are purchased in sequence, developed, sold, more properties purchased, developed and sold, it is more than likely that you are running a property development business.
I'm planning on doing a bit of both and improving/adapting properties matched to reliable long term tenants.

I'm a little worried about the CGT implications of trading one tenant specific property for another several years down the line.

Eric Mc said:
It is usually relatively obvious what category the activity falls in to - although there will be occasions when it might not be that clear cut.
I'm currently a sole trader, should I be considering a company?

Eric Mc

122,053 posts

266 months

Monday 9th September 2013
quotequote all
chris7676 said:
Eric Mc said:
No - because an ISA is an ISA. There is no possibility of having an account that MAY or MAY NOT be an ISA.

It can be much more difficult to ascertain if a transaction is a one-off gain on an investment or whether it was entered into with a profit making motive behind it or there was an intention to enter into a series of such transactions.
Equally a Capital Gain is a Capital Gain smile

Are you suggesting that only 'accidental' capital gains are Capital Gains, while those made with the intention of making profit are income ? Who in their right mind would NOT intend to make a gain / profit while investing in an asset anyway ? confused
Got it in one.

You have to understand why wee have CGT at all. Before 1965, items that did make a gain on disposal that were not part of an individual's trading activity might escape tax altogether. Norman Wisdom famously won a case where he pleaded succesfully that he wasn't a gold trader and he had just been lucky in that gold values had risen before he sold his "investment".

CGT came about to ensure that some tax would be paid on such windfalls.

Since then, of course, with CGT firmly established, people will deliberately "steer" a transaction into the realms of CGT in preference to keeping it as a normal trading or earned activity BECAUSE of the favourable taxation under CGT rules. An awful lot of tax avoidance schemes are actually based on the different tax treatment between "capital" and "revenue" transactions.
Ask any banker about how he received his bonus.

Eric Mc

122,053 posts

266 months

Monday 9th September 2013
quotequote all
fluffnik said:
Eric Mc said:
You look at what is actually going on.

If one property is purchased - retained for a number of years - and then sold. It is likely this will be a CGT transaction.

If a number of properties are purchased or properties are purchased in sequence, developed, sold, more properties purchased, developed and sold, it is more than likely that you are running a property development business.
I'm planning on doing a bit of both and improving/adapting properties matched to reliable long term tenants.

I'm a little worried about the CGT implications of trading one tenant specific property for another several years down the line.

Eric Mc said:
It is usually relatively obvious what category the activity falls in to - although there will be occasions when it might not be that clear cut.
I'm currently a sole trader, should I be considering a company?
Are you planning on running a business that develops property. It's not that unusual you know.

Vixpy1

42,625 posts

265 months

Monday 9th September 2013
quotequote all
I use the full allowance every year trading shares

Eric Mc

122,053 posts

266 months

Monday 9th September 2013
quotequote all
You just need to be sure that you don't become a "share trading business".

You also need to be aware of the reporting thresholds for CGT purposes. Even if you have made no gain or a gain lower than the annual allowance, you will need to report the fact that you have had capital disposals if the gross sale [proceeds exceed £42,400 (2012/13).

Edited by Eric Mc on Monday 9th September 18:15

Lawrence5

1,253 posts

236 months

Monday 9th September 2013
quotequote all
Plenty I deal with in trust administration..... we pay out to use the tax free allowance

Vixpy1

42,625 posts

265 months

Monday 9th September 2013
quotequote all
Eric Mc said:
You just need to be sure that you don't become a "share trading business".

You also need to be aware of the reporting thresholds for CGT purposes. Even if you have made no gain or a gain lower than the annual allowance, you will need to report the fact that you have had capital disposals if the gross sale [proceeds exceed £42,400 (2012/13).

Edited by Eric Mc on Monday 9th September 18:15
Both covered thanks Eric smile