Discussion
Can anyone tell me if the amount one is paid for shares counts as income?
E.G. If I'm earning £25kpa salary and my share sale nets me £60k, if it's counted as income for tax purposes then I'd be a higher rate tax payer and subject to the new 28% rate on the £60k (if I understand income tax as it stands)
Anyone?
E.G. If I'm earning £25kpa salary and my share sale nets me £60k, if it's counted as income for tax purposes then I'd be a higher rate tax payer and subject to the new 28% rate on the £60k (if I understand income tax as it stands)
Anyone?
This is the detail that needs to be sussed out. Under the "old" CGT system (pre 5 April 2008) taxpayers paid CGT at their top rate of Income Tax. That meant MANY taxpayers paid their CGT at 40%. The main reliefs were-
i) Personal CGT allowance
ii) Indexation or Taper Relief which strove to remove any element of the taxable gain caused by inflation over the period of time the asset had been owned.
Between 6 April 2008 and today, most CGT was a flat 18% irrespective of what rate of Income Tax you paid. The downside was that the Indexation and Taper Relief provisions were abolished.There was a special 10% Flat Rate for the disposal of business assets limited to a lifetime business asset disposal limit of £1 million (later £2 million)
The new rules from today seem to be that if you pay Income Tax on youir earnings and investment income at 20%, the CGT on any gains you make will be taxed at the CGT rate of 18%. The 10% rate for busines assets remains and the lifetime limit has been increased to £5 million.
If you pay Income Tax at either the 40% or the 50% Income Taxc rates, your CGT will be charged at 28% (except for business assets).
I don't THINK that the Capital Gain will be added to your overall non-CGT income to push you into a higher rate Income Tax band.
i) Personal CGT allowance
ii) Indexation or Taper Relief which strove to remove any element of the taxable gain caused by inflation over the period of time the asset had been owned.
Between 6 April 2008 and today, most CGT was a flat 18% irrespective of what rate of Income Tax you paid. The downside was that the Indexation and Taper Relief provisions were abolished.There was a special 10% Flat Rate for the disposal of business assets limited to a lifetime business asset disposal limit of £1 million (later £2 million)
The new rules from today seem to be that if you pay Income Tax on youir earnings and investment income at 20%, the CGT on any gains you make will be taxed at the CGT rate of 18%. The 10% rate for busines assets remains and the lifetime limit has been increased to £5 million.
If you pay Income Tax at either the 40% or the 50% Income Taxc rates, your CGT will be charged at 28% (except for business assets).
I don't THINK that the Capital Gain will be added to your overall non-CGT income to push you into a higher rate Income Tax band.
I thought income had to be regular in nature. If you sell an asset infrequently then you are liable to CGT for the gain. If you trade shares all the time then the gain may be treated as income because it is regular in nature. But I'm no tax expert so you should get professional advice - you've got 6.5 hours before the new CGT rate kicks in!
Eric Mc said:
I don't THINK that the Capital Gain will be added to your overall non-CGT income to push you into a higher rate Income Tax band.
From the announcements your approach does seem to be what they're saying but I guess we need to see the small print.If so it creates a tax oddity similar to Stamp Duty which is a "sudden death" tax. In other words the tax, or a higher rate of tax, applies on the WHOLE amount when you cross the trigger point, not just the excess. Yet the CGT annual allowance is dealt with the other way, tax on excess only.
Edited by Ozzie Osmond on Tuesday 22 June 17:28
Bluebarge said:
I thought income had to be regular in nature. If you sell an asset infrequently then you are liable to CGT for the gain. If you trade shares all the time then the gain may be treated as income because it is regular in nature. But I'm no tax expert so you should get professional advice - you've got 6.5 hours before the new CGT rate kicks in!
If you are "trading" in goods (including various clsasses of assets), then profits and losses on such transactions will be taxed under the Income Tax regulations.If you buy an asset as an investment and then later sell it, any profit on that transaction will be subject to Capital Gains Tax regulations.
Sometimes it is not blindingly clear to which category a transaction or a series of transactions belongs.
On the whole though, it is usually fairly obvious whether someone is actually "trading" in assets or a person who has made a one-off gain.
Another interesting one arises for property dealers.
If you own a shop selling oranges, the profits on sales of oranges are taxed as income, but if you sell the shop the profit you make is a capital gain.
So if you have a shop selling properties, if you sell the shop the profit you make is a capital gain, but why shouldn't the profits you make on selling stock be taxed as income?
If you own a shop selling oranges, the profits on sales of oranges are taxed as income, but if you sell the shop the profit you make is a capital gain.
So if you have a shop selling properties, if you sell the shop the profit you make is a capital gain, but why shouldn't the profits you make on selling stock be taxed as income?
Ozzie Osmond said:
Eric Mc said:
I don't THINK that the Capital Gain will be added to your overall non-CGT income to push you into a higher rate Income Tax band.
From the announcements your approach does seem to be what they're saying but I guess we need to see the small print.If so it creates a tax oddity similar to Stamp Duty which is a "sudden death" tax. In other words the tax, or a higher rate of tax, applies on the WHOLE amount when you cross the trigger point, not just the excess. Yet the CGT annual allowance is dealt with the other way, tax on excess only.
Edited by Ozzie Osmond on Tuesday 22 June 17:28
Thanks for the feedback, chaps.
groak said:
Another interesting one arises for property dealers.
If you own a shop selling oranges, the profits on sales of oranges are taxed as income, but if you sell the shop the profit you make is a capital gain.
So if you have a shop selling properties, if you sell the shop the profit you make is a capital gain, but why shouldn't the profits you make on selling stock be taxed as income?
The premises from which the business operates would be classified as a Business Fixed Asset and would not be part of the trading stock of development properties. Therefore, if the business premises was sold, it would not form part of its trade sales and any gain on disposal would be subject to Capital Gains Tax rules rather than Income Tax rules.If you own a shop selling oranges, the profits on sales of oranges are taxed as income, but if you sell the shop the profit you make is a capital gain.
So if you have a shop selling properties, if you sell the shop the profit you make is a capital gain, but why shouldn't the profits you make on selling stock be taxed as income?
Things get a bit more complicated if teh business trades as a limited company. Companies do not pay Capital Gains Tax at the Capital Gains Tax rates of 10%, 18% or (now) 28%. They pay Capital Gains Tax at the Corporation Tax rate. For a small company that will now be 20% but for larger companies this will be 28% (curiously the same as the higher rate of CGT for individuals
). Limited companies do not get the £10,100 allowance either. Eric Mc said:
groak said:
Another interesting one arises for property dealers.
If you own a shop selling oranges, the profits on sales of oranges are taxed as income, but if you sell the shop the profit you make is a capital gain.
So if you have a shop selling properties, if you sell the shop the profit you make is a capital gain, but why shouldn't the profits you make on selling stock be taxed as income?
The premises from which the business operates would be classified as a Business Fixed Asset and would not be part of the trading stock of development properties. Therefore, if the business premises was sold, it would not form part of its trade sales and any gain on disposal would be subject to Capital Gains Tax rules rather than Income Tax rules.If you own a shop selling oranges, the profits on sales of oranges are taxed as income, but if you sell the shop the profit you make is a capital gain.
So if you have a shop selling properties, if you sell the shop the profit you make is a capital gain, but why shouldn't the profits you make on selling stock be taxed as income?
Things get a bit more complicated if teh business trades as a limited company. Companies do not pay Capital Gains Tax at the Capital Gains Tax rates of 10%, 18% or (now) 28%. They pay Capital Gains Tax at the Corporation Tax rate. For a small company that will now be 20% but for larger companies this will be 28% (curiously the same as the higher rate of CGT for individuals
). Limited companies do not get the £10,100 allowance either. Pothole said:
Can anyone tell me if the amount one is paid for shares counts as income?
E.G. If I'm earning £25kpa salary and my share sale nets me £60k, if it's counted as income for tax purposes then I'd be a higher rate tax payer and subject to the new 28% rate on the £60k (if I understand income tax as it stands)
Anyone?
I believe it is, and is now being taxed no differently than when CGT is calculated with investment income, which if both added together is at the higher tax rate Tax year 2010/11 (link http://www.hmrc.gov.uk/rates/it.htm) being at the 40% higher rate tax, then brings the CGT to the taxable rate of 28%.E.G. If I'm earning £25kpa salary and my share sale nets me £60k, if it's counted as income for tax purposes then I'd be a higher rate tax payer and subject to the new 28% rate on the £60k (if I understand income tax as it stands)
Anyone?
The following is taken from HMR&C link I received today:
Q5 How can I find out if I am a basic rate or higher rate taxpayer?
A5 If you are an employee the P60 form you receive from your employer at the end of every year should tell you the total amount of income you have received from your employment. You will have to add to this any other income, such as interest from banks and building societies. For those who must complete a self assessment return the notes to the return will explain how to determine their taxable income and rates of income tax for their return. For full details of current tax rates and limits go to our website on http://www.hmrc.gov.uk/rates/it.htm.
Q6 How can I work out if I have any of my basic rate band left when calculating
my CG liability?
A6 You can work out if you have any available lower band rate left by checking the rates of tax at http://www.hmrc.gov.uk/rates/it.htm. For the tax year 2010/11 most people will start paying higher rate income tax only on income over £43,875 although this will depend on whether you have any other allowances. If your income is below that amount, gains up to the unused amount of the band are chargeable at 18%. Any amounts that exceed any unused amount of the basic rate band are chargeable at 28%. If your income uses up the whole of your basic rate band all your gains are charged at 28%.
Wings said:
Pothole said:
Can anyone tell me if the amount one is paid for shares counts as income?
E.G. If I'm earning £25kpa salary and my share sale nets me £60k, if it's counted as income for tax purposes then I'd be a higher rate tax payer and subject to the new 28% rate on the £60k (if I understand income tax as it stands)
Anyone?
I believe it is, and is now being taxed no differently than when CGT is calculated with investment income, which if both added together is at the higher tax rate Tax year 2010/11 (link http://www.hmrc.gov.uk/rates/it.htm) being at the 40% higher rate tax, then brings the CGT to the taxable rate of 28%.E.G. If I'm earning £25kpa salary and my share sale nets me £60k, if it's counted as income for tax purposes then I'd be a higher rate tax payer and subject to the new 28% rate on the £60k (if I understand income tax as it stands)
Anyone?
The following is taken from HMR&C link I received today:
Q5 How can I find out if I am a basic rate or higher rate taxpayer?
A5 If you are an employee the P60 form you receive from your employer at the end of every year should tell you the total amount of income you have received from your employment. You will have to add to this any other income, such as interest from banks and building societies. For those who must complete a self assessment return the notes to the return will explain how to determine their taxable income and rates of income tax for their return. For full details of current tax rates and limits go to our website on http://www.hmrc.gov.uk/rates/it.htm.
Q6 How can I work out if I have any of my basic rate band left when calculating
my CG liability?
A6 You can work out if you have any available lower band rate left by checking the rates of tax at http://www.hmrc.gov.uk/rates/it.htm. For the tax year 2010/11 most people will start paying higher rate income tax only on income over £43,875 although this will depend on whether you have any other allowances. If your income is below that amount, gains up to the unused amount of the band are chargeable at 18%. Any amounts that exceed any unused amount of the basic rate band are chargeable at 28%. If your income uses up the whole of your basic rate band all your gains are charged at 28%.
ks!These are all the questions and answers from HMR&Cs help link on CGT following todays budget.
Q1 Why is the change effective from 23 June 2010 and not from April 2011?
A1 Ministers decided to bring in changes immediately so as to provide certainty to investors.
Q2 What support does this measure give entrepreneurs?
A2 The Government continues to support entrepreneurs by increasing the lifetime limit for entrepreneurs’ relief to £5 million.
Q3 As an entrepreneur what rate will I pay before and on/after 23 June 2010 when disposing of qualifying assets?
A3 You will effectively pay 10% on disposal of any qualifying assets throughout the tax year 2010/11, although the method by which this is achieved is different for gains arising before 23 June 2010 and those arising on or after that date.
Q4 Why don’t you just charge a flat rate depending on whether you are a lower rate or higher rate taxpayer rather than use different rates?
A4 The Government have decided to introduce two CGT rates to promote fairness in the tax system.
Q5 How can I find out if I am a basic rate or higher rate taxpayer?
A5 If you are an employee the P60 form you receive from your employer at the end of every year should tell you the total amount of income you have received from your employment. You will have to add to this any other income, such as interest from banks and building societies. For those who must complete a self assessment return the notes to the return will explain how to determine their taxable income and rates of income tax for their return. For full details of current tax rates and limits go to our website on http://www.hmrc.gov.uk/rates/it.htm.
Q6 How can I work out if I have any of my basic rate band left when calculating
my CG liability?
A6 You can work out if you have any available lower band rate left by checking the rates of tax at http://www.hmrc.gov.uk/rates/it.htm. For the tax year 2010/11 most people will start paying higher rate income tax only on income over £43,875 although this will depend on whether you have any other allowances. If your income is below that amount, gains up to the unused amount of the band are chargeable at 18%. Any amounts that exceed any unused amount of the basic rate band are chargeable at 28%. If your income uses up the whole of your basic rate band all your gains are charged at 28%.
Q7 Do I still offset my losses against my gains in the way I used to do?
A7 You can set off losses, and the annual exempt amount, in the way which is most beneficial for you unless a specific rule limits the way you can set off the loss in question. (An example is a “clogged” loss on an asset you dispose of to a relative or other “connected person” that can be deducted only from certain types of gain.)
Q8 I’m a pensioner selling my home to pay for my care home fees. Will I have to pay CGT?
A8 In the great majority of cases CGT private residence relief means there will be no CGT to pay when you sell your home. But it will depend on your circumstances. You can get guidance on private residence relief on our website. Or ask your agent
for advice.
Q9 How do I decide whether a gain is chargeable at 18% or 28%?
A9 Gains on disposals made before 23 June 2010 are chargeable at 18%. Where gains qualify for entrepreneurs’ relief the amount of the gain is reduced by 4/9 and then the net gain is taxed at 18%. This produces an effective tax rate of 10%.
Gains on disposals made on or after 23 June 2010 are chargeable at 18%, if they fall within your basic rate band, or 28% for gains above that level, unless they
qualify for entrepreneurs’ relief in which case they are chargeable at 10%.
Q 10 I am likely to have a mix of pre and post 23 June 2010 disposals with CGT gains. Do the pre 23 June 2010 gains count as using up my available basic rate
band?
A10 No.
Q11 In 2009 I deferred a gain by investing in enterprise investment scheme (EIS) shares. The gain would have been chargeable at 18%. If the gain comes back into charge after 22 June 2010, at what rate will it be taxable?
A11 A deferred gain that comes back into charge on or after 23 June 2010 will be chargeable at 18% or 28% depending upon your income tax liability.
Q12 I am not domiciled in the UK and currently elect to pay my tax on the remittance basis. What rate will I pay on any Capital Gains disposals in 2010/11?
A12 Gains arising (or treated as arising) before 23 June 2010 are chargeable at 18%. For gains arising on or after 23 June 2010, the rate will depend upon whether your income exceeds the amount of your basic rate band. If any basic rate band is not used, gains up to the unused amount are chargeable at 18%, and all other gains are chargeable at 28%. If you pay the £30,000 “remittance basis charge”, you are deemed to have used up your full lower rate allowance and any gains will be taxed at 28%.
Q13 The coalition agreement talked about CGT rates becoming more closely aligned with income tax rates. Does this mean that the 28 % rate will go up to
40 or 50% next year?
A13 The Chancellor will decide the rates of CGT for 2011-12 in the Budget in 2011.
Q14 Is there any change to the annual exempt amount (AEA) of £10,100 for 2010/11
A14 There is no change to the AEA for 2010/11.
A15 How will HMRC help me calculate my CGT liability for 2010/11?
A15 We will provide guidance in time for people to complete their returns for 2010-11
and we are looking at how we can automate the process as much as possible.
Q1 Why is the change effective from 23 June 2010 and not from April 2011?
A1 Ministers decided to bring in changes immediately so as to provide certainty to investors.
Q2 What support does this measure give entrepreneurs?
A2 The Government continues to support entrepreneurs by increasing the lifetime limit for entrepreneurs’ relief to £5 million.
Q3 As an entrepreneur what rate will I pay before and on/after 23 June 2010 when disposing of qualifying assets?
A3 You will effectively pay 10% on disposal of any qualifying assets throughout the tax year 2010/11, although the method by which this is achieved is different for gains arising before 23 June 2010 and those arising on or after that date.
Q4 Why don’t you just charge a flat rate depending on whether you are a lower rate or higher rate taxpayer rather than use different rates?
A4 The Government have decided to introduce two CGT rates to promote fairness in the tax system.
Q5 How can I find out if I am a basic rate or higher rate taxpayer?
A5 If you are an employee the P60 form you receive from your employer at the end of every year should tell you the total amount of income you have received from your employment. You will have to add to this any other income, such as interest from banks and building societies. For those who must complete a self assessment return the notes to the return will explain how to determine their taxable income and rates of income tax for their return. For full details of current tax rates and limits go to our website on http://www.hmrc.gov.uk/rates/it.htm.
Q6 How can I work out if I have any of my basic rate band left when calculating
my CG liability?
A6 You can work out if you have any available lower band rate left by checking the rates of tax at http://www.hmrc.gov.uk/rates/it.htm. For the tax year 2010/11 most people will start paying higher rate income tax only on income over £43,875 although this will depend on whether you have any other allowances. If your income is below that amount, gains up to the unused amount of the band are chargeable at 18%. Any amounts that exceed any unused amount of the basic rate band are chargeable at 28%. If your income uses up the whole of your basic rate band all your gains are charged at 28%.
Q7 Do I still offset my losses against my gains in the way I used to do?
A7 You can set off losses, and the annual exempt amount, in the way which is most beneficial for you unless a specific rule limits the way you can set off the loss in question. (An example is a “clogged” loss on an asset you dispose of to a relative or other “connected person” that can be deducted only from certain types of gain.)
Q8 I’m a pensioner selling my home to pay for my care home fees. Will I have to pay CGT?
A8 In the great majority of cases CGT private residence relief means there will be no CGT to pay when you sell your home. But it will depend on your circumstances. You can get guidance on private residence relief on our website. Or ask your agent
for advice.
Q9 How do I decide whether a gain is chargeable at 18% or 28%?
A9 Gains on disposals made before 23 June 2010 are chargeable at 18%. Where gains qualify for entrepreneurs’ relief the amount of the gain is reduced by 4/9 and then the net gain is taxed at 18%. This produces an effective tax rate of 10%.
Gains on disposals made on or after 23 June 2010 are chargeable at 18%, if they fall within your basic rate band, or 28% for gains above that level, unless they
qualify for entrepreneurs’ relief in which case they are chargeable at 10%.
Q 10 I am likely to have a mix of pre and post 23 June 2010 disposals with CGT gains. Do the pre 23 June 2010 gains count as using up my available basic rate
band?
A10 No.
Q11 In 2009 I deferred a gain by investing in enterprise investment scheme (EIS) shares. The gain would have been chargeable at 18%. If the gain comes back into charge after 22 June 2010, at what rate will it be taxable?
A11 A deferred gain that comes back into charge on or after 23 June 2010 will be chargeable at 18% or 28% depending upon your income tax liability.
Q12 I am not domiciled in the UK and currently elect to pay my tax on the remittance basis. What rate will I pay on any Capital Gains disposals in 2010/11?
A12 Gains arising (or treated as arising) before 23 June 2010 are chargeable at 18%. For gains arising on or after 23 June 2010, the rate will depend upon whether your income exceeds the amount of your basic rate band. If any basic rate band is not used, gains up to the unused amount are chargeable at 18%, and all other gains are chargeable at 28%. If you pay the £30,000 “remittance basis charge”, you are deemed to have used up your full lower rate allowance and any gains will be taxed at 28%.
Q13 The coalition agreement talked about CGT rates becoming more closely aligned with income tax rates. Does this mean that the 28 % rate will go up to
40 or 50% next year?
A13 The Chancellor will decide the rates of CGT for 2011-12 in the Budget in 2011.
Q14 Is there any change to the annual exempt amount (AEA) of £10,100 for 2010/11
A14 There is no change to the AEA for 2010/11.
A15 How will HMRC help me calculate my CGT liability for 2010/11?
A15 We will provide guidance in time for people to complete their returns for 2010-11
and we are looking at how we can automate the process as much as possible.
So the £43,875 earnings limit counts for CGT purposes. That is a bit of a stinger.
I can see people looking at perhaps putting some of their assets into limited companies as a means of avoiding the 28% personal CGT rate.
Of course. I'll have to look at any sneaky changes they may have made to the way CGT is taxed in companies
I can see people looking at perhaps putting some of their assets into limited companies as a means of avoiding the 28% personal CGT rate.
Of course. I'll have to look at any sneaky changes they may have made to the way CGT is taxed in companies
Is there any form of taper relief built into the new setup, does anyone know.
I can't see anything that says there is, but then again haven't (yet) found anything to say there isn't.
Of course I know there won't be, having branched out into a couple of BTL properties to assist with pension after poor pension fund performance/management/government intervention.
Manoevre you into a course of action due to them getting things wrong and screwing it up, and THEN stitch you up.
Bs!!
I can't see anything that says there is, but then again haven't (yet) found anything to say there isn't.
Of course I know there won't be, having branched out into a couple of BTL properties to assist with pension after poor pension fund performance/management/government intervention.
Manoevre you into a course of action due to them getting things wrong and screwing it up, and THEN stitch you up.
B
s!!Here's the sting (from Wings post above),
"gains up to the unused amount of the [basic rate] band are chargeable at 18%. Any amounts that exceed any unused amount of the basic rate band are chargeable at 28%. If your income uses up the whole of your basic rate band all your gains are charged at 28%."
So for practical purposes it's more or less a new CGT rate of 28% for everyone, with no indexation or taper relief.
"gains up to the unused amount of the [basic rate] band are chargeable at 18%. Any amounts that exceed any unused amount of the basic rate band are chargeable at 28%. If your income uses up the whole of your basic rate band all your gains are charged at 28%."
So for practical purposes it's more or less a new CGT rate of 28% for everyone, with no indexation or taper relief.
If you have an established "trading" company, there might be some scope in using that company to hold an asset foor you rather than to purchase it privately. Small Trading Companies will only be paying Corporation Tax on Capital Gains at 20% rather than the higher CGT rate of 28%.
Setting up a limited company solely to hold an investment asset won't work as well because investment companies wil pay Corporation Tax at the new rate of 28% -although this will be reduced over the next few years.
With limited companies, there is always the added problem of how the individuals extrract money from the company without incurring any further tax charges.
Setting up a limited company solely to hold an investment asset won't work as well because investment companies wil pay Corporation Tax at the new rate of 28% -although this will be reduced over the next few years.
With limited companies, there is always the added problem of how the individuals extrract money from the company without incurring any further tax charges.
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