Discussion
I recently sold some shares at a healthy profit and have set aside some cash to pay CGT. A friend who has run his own business for years told me recently that I would have no liability as I can take into account the previous 5 years' allowances to calculate what I owe.
(I made just over £40k)
Can anyone give me a clue if my mate is correct or if he's not how much I'm likely to owe?
(I made just over £40k)
Can anyone give me a clue if my mate is correct or if he's not how much I'm likely to owe?
Pothole said:
I recently sold some shares at a healthy profit and have set aside some cash to pay CGT. A friend who has run his own business for years told me recently that I would have no liability as I can take into account the previous 5 years' allowances to calculate what I owe.
(I made just over £40k)
Can anyone give me a clue if my mate is correct or if he's not how much I'm likely to owe?
You need to wait for Eric to come along.(I made just over £40k)
Can anyone give me a clue if my mate is correct or if he's not how much I'm likely to owe?
However, your friend may well be correct. There used to be a Capital Gains allowance of about £6k. Recently it has been raised to £9k(I Think!).
The very worst case is that you may have to pay tax on £10k.
Don
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This question is in the wrong forum (more suited to "Finance" I would suggest).
You cannot carry forward unused CGT allowances from previous years so the friend's advice is wrong.
Each year, an individual can make a Capital Gain in that year up to a certain amount and not be liable to any CGT.
The current CGT allowaqnce is £10,100.
If your gain is below this level you will pay no CGT.
If the gain exceeds £10,000, you will be charged CGT at either 10%, 18% or 28% depending on
a) whether the disposal was a disposal of a business asset
b) whether it WASN'T a business asset
c)whether you pay Income Tax at the higher rates or not
If the proceeds on the items sold are less than £40,400, you do not need to complete a Self Assessment tax return
If the proceeds on sale are greater than £40,400 you are obliged to complete a Self Assessment tax return, no matter how large the gain actually was.
You cannot carry forward unused CGT allowances from previous years so the friend's advice is wrong.
Each year, an individual can make a Capital Gain in that year up to a certain amount and not be liable to any CGT.
The current CGT allowaqnce is £10,100.
If your gain is below this level you will pay no CGT.
If the gain exceeds £10,000, you will be charged CGT at either 10%, 18% or 28% depending on
a) whether the disposal was a disposal of a business asset
b) whether it WASN'T a business asset
c)whether you pay Income Tax at the higher rates or not
If the proceeds on the items sold are less than £40,400, you do not need to complete a Self Assessment tax return
If the proceeds on sale are greater than £40,400 you are obliged to complete a Self Assessment tax return, no matter how large the gain actually was.
For personal reasons I hope this is correct but I don't think allowances can be carried forward, you just get the £9K allowance in the year in which you dispose of the assets.
On the other hand, if the gain is via a business interest you may get 'Entrepreneur's Relief' and only pay 10% CGT.
I would love to know the proper answer to this and would happily stand to be corrected.
On the other hand, if the gain is via a business interest you may get 'Entrepreneur's Relief' and only pay 10% CGT.
I would love to know the proper answer to this and would happily stand to be corrected.
.Random question but can your profit be adjusted for indexation at all? ie/ you bought the shares 10 years ago for say £1000 and sell for £20'000, a straight profit of 19k and hence and approx 9k CGT liability.
However, 1k 10 years ago would have been worth more than today given inflation etc, so could the book cost be indexed up each month/year to account for inflation and hence lower the actual profit?
I hope that makes sense anyway...
However, 1k 10 years ago would have been worth more than today given inflation etc, so could the book cost be indexed up each month/year to account for inflation and hence lower the actual profit?
I hope that makes sense anyway...
Not any more. For individuals, Indexation was abolished in 1998. It was replaced by Taper Relief (which kind of did the same thing but in a cruder way) but Taper Relief itself was abolished in 2008.
When Taper Relief and Indexation relief were abolished for good in 2008, any assets purchased between 31 March 1982 and 5 April 2008 lost all the Taper Relief and Indextion they would have received if they had been disposed of before 6 April 2008.
When Taper Relief and Indexation relief were abolished for good in 2008, any assets purchased between 31 March 1982 and 5 April 2008 lost all the Taper Relief and Indextion they would have received if they had been disposed of before 6 April 2008.
OK, thanks Eric, superbly detailed answer given the scant info I gave. Could you give me one more bit of advice?
I made over £40,400. I was unemployed between April 1st 2010 and October 2010 and have been earning £8 an hour since then so I'm not on a higher rate of tax.
I don't understand the term 'business asset'. I bought the shares by paying into a sharesave scheme (unusual but not unheard of for private companies) then exercised the options when the scheme matured. I sold my shares on the day of the IPO.
What rate of CGT am I liable for?
Can't really answer that without knowing the terms and conditions of the scheme. Buying and selling of shares in a company would normally NOT constitute a transaction involving a business asset but certain employee schemes might. If that is the case, then the special Entrpeneurial Relief Rate of 10% would apply - although it's not quite as simple as multiplying the gain on disposal by 10%.
As you appear to be a basic rate tax payer, if the disposal proceeds are £40,000 and that equates to the gain as well, £40,000 would be sufficient to put at least some of the gain into the higher tax rate areas.
For example, if your Annual Salary was £15,000 and the gain was £40,000. Your total gross income for the the year would be £55,000. The higher rate threshold is £43,875. That means about £12,000 of the gain would be taxed at the higher Capital Gains Tax rate - which could be as high as 28%.
As you appear to be a basic rate tax payer, if the disposal proceeds are £40,000 and that equates to the gain as well, £40,000 would be sufficient to put at least some of the gain into the higher tax rate areas.
For example, if your Annual Salary was £15,000 and the gain was £40,000. Your total gross income for the the year would be £55,000. The higher rate threshold is £43,875. That means about £12,000 of the gain would be taxed at the higher Capital Gains Tax rate - which could be as high as 28%.
Pothole said:
ouch! What's the best way to go about paying it? (don't want to get stung further with a fine down the line sometime)
You need to file a Self Assessment tax return for the tax year in which the gain occured. Presumably you are talking about the current tax year i.e 2010/11. If you notify HMRC now, they will send you out either a paper return or notify you that you need to submit one electronically. Either way they will contact you and give you a self assessment tax numbner - usually referred to as a UTR.If you already complete Self Assessment tax returns, you just need to submit one as normal but complete the section that deals with Capital Gains.
Taxes due on the 2010/11 self assessment tax return are payble by 31 January 2012.
It is, fluff, but imho the whole idea of CGT is a bit skanky. I played a reasonably pivotal role in the company being very profitable for the 7 years I worked there, helping it to grow from 60 staff to about 1500, 1000 of those in UK. That's a lot of income tax, then there's all the other tax the company paid and the salaries which were spent in UK, contributing via VAT etc. This is the thanks I get!
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