Shares - Cgt And Income Tax

[einbachsystems]

Hi folks hope I can pick your brains briefly...

In tax year '08 to '09 and the current tax year I have been both buying, selling and receiving dividend income on shares. Now overall, to date, I have made a loss of between five and six hundred pounds (I don't have the exact figure here).

My overall income is below £37400 per year so I believe that I have no tax to declare seeing as the 10% rate is covered by the tax credit (please correct me if I'm wrong).

Should I be submitting a tax return? My losses, as I understand it, do not need to be declared for five years after 31st January proceding the relevant tax year end.

The reason I am slightly perplexed and perturbed by this premise is that I am leaving the country in a few days, not to return for four months. It will be difficult for me to fill out a tax return as I've never done so before and will not have access to an accountant. When I spoke to HMRC on the phone, the call centre operative exclaimed that I should write to them immediately to notify them of my dealings "because if I am receiving income from shares and I don't notify them, then I could be subject to a fine."

My argument for not doing so is that I have no tax to declare on income and merely a loss to declare on the sale of shares, which I wish to use to offset my anticipated gains in the future.

One other thing that has been niggling is whether future capital gains will be classed as income if the sale of shares increases my total income for the tax year above £37,400. Currently I earn about £22k per annum basic but if I do well on the shares then this might bring me above the income tax threshold so I need to pay 32.5% instead of 10% on income. Or is CGT just taxed at 18% regardless of other 'income'?

Thanks in advance,

Martin

[David Griffiths]

The HMRC call centre operative is wrong (well, there's a surprise :rolleyes: ) Buying and selling shares for most people is not a trade, but a series of investments. It's not easy to define where the line is crossed but the Revenue's own guidance - here - (http://www.hmrc.gov.uk/manuals/bimmanual/bim65701.htm) indicates that to be trading you are likely to have to move "huge volumes of shares very quickly". Pity that their own operatives can't find it.

So that rules out a fine for late notification of trade. The dividends remain part of your income, but you only have a tax liability if the total income is in the higher rate bracket, which kicks in at about £43,400.not £37,400. You don't therefore have to notify HMRC that you need to submit a tax return.

The profits on shares will not be classed as part of your income. The profits, less any losses, will be subject to capital gains tax. There is an annual exemption of £10k and the excess over that amount is currently taxed at a flat rate of 18%. That could change obviously, but under current rules you'll be OK

[einbachsystems]

Thanks David that is just what I believed to be correct but It's very gratifying to hear it from a seemingly competent 3rd party.

I'm now going to leave my portfolio to 'mature' in the hope that in a year or so I will be looking at a nice profit. Having just started out a little over a year ago, my main weekness has been short-termism and buying and selling too frequently when I don't really have the time to carry out proper research on a regular basis. But I've learnt a lot and will do my best not to track them for a while and concentrate on a better social life instead!

Thanks again!! Great forum!

[John Mansley]

In addition to the advice posted above, I'd just add that you have an obligation to inform HMRC when you receive untaxed income. For most of us, this will only happen if we receive enough income to be higher rate taxpayers but the tax on some or all of that income is only deducted at source at the basic rate.

You would inform HMRC via form SA1 which can be downloaded from their website.

In your circumstances (assuming a salary of £22k and no other income) this amounts to more than ~£19,200 of net dividends received, which I'm guessing would amount to a very good year indeed!