Capital Gains Tax

[seancass]

Capital Gains

Can any of the accountants within the membership help me with this quick query please?

Last October I sold a business and it is posible that a small capital gains liability may have been realised. I understand that any capital gains realised can be 'rolled over' into a new business (within a year of the sale or within the next tax year following the sale?).

I am currently in business as a freelance, self-employed writer. Can I assign any capital gain incurred from the sale of my last business to the $25K+ that I need to place in an IB account to assume PDT status if I am to make trading a full time occupation?

I hope this makes sense. I won't be seeing my own accountant until next month by which time he will have assessed any capital gains liability for the last tax year.

Seancass

 

[Trader333]

I cant asnwer your capital gain question but if you want to pattern day trade I would suggest putting in at least $30K


Paul

 

[bonsai]

sean

nice try

can't do any harm to try as you have an existing cgt problem.

get with your accountant and try very hard to 'shape' things
to look like a business.

really dont see how you can do it but nothing ventured ?

- most businesses have customers -

you gonna register for VAT ?
you gonna advertise ?
you gonna pay yourself wages ?
do you have registered office premises?
etc

 

[seancass]

Paul and Bonsai,

Certainly can't be a business then, so looks like any cgs will be paid. It was just a thought. Thank you for the replies.

Best wishes,
Sean

 

[Trader333]

Sean,

If you have any previous capital losses you can offset them against any capital gains.


Paul

 

[seancass]

Thanks for that, Paul.

I haven't any losses yet, but when I start trading for real...!!!??

I have been paper trading for the last few days and have learnt much. The only psychological barrier I have, is not so much to do with trading for real as it is in sending $30K across the Atlantic to a firm where other traders have raised concerns following statements alluding to the fact that IB has not received the money!!

Just how secure is IB as a temporary home for one's money whilst trading; we're not talking peanuts when wiring them $30K? I am concerned also at a recent post I read (may have been on another site) where a customer's money would not be released until they had paid an outstanding bill of one penny!!!!

Best wishes,

Sean

 

[Achilles]

Hi Sean,

I'm not using IB yet, but plan to do so shortly. As far as I can tell, assuming you select your base currency to be GBP, then you wire the money in GBP to IB's account at Citibank in London. I think it then remains this side of the Atlantic.

This is therefore fairly safe in that IB are regulated by the FSA, so will be covered by the Financial Services Compensation Scheme should IB become insolvent. The maximum level of compensation you can receive from the Scheme for a deposit claim is £31,700 (100% of £2,000 and 90% of the next £33,000).

If your money does happen to be in the US, it has even greater cover due to the financial failure of a broker-dealer. More details are available on the IB site, but basically the Securities Investor Protection Corporation (SIPC) covers $500,000 of which $100,000 can be cash, and Travelers Casualty and Surety Company of America (Travelers) provides the remaining protection of $9.5 million. Most investments are protected by SIPC. In general, SIPC covers notes, stocks, bonds, mutual fund and other investment company shares, and other registered securities. It does not cover instruments such as unregistered investment contracts, or interests in gold, silver, or other commodity futures contracts or commodity options.

I too have heard about IB claiming not to have received wired money, but in almost all cases it seems to be as a result of not carefully following their deposit instuctions which are quite precise. It might be an idea to first send through a smaller amount , but at least the initial deposit minimum of £1450, and then providing everything works well, wire the rest.

HTH,
Akhil

 

[Trader333]

Sean,

Whilst IB do sometimes have what I would say are "Admin" issues, they are one of the most stable brokers in the world. As said by Achilles, if you open your account in the UK then you wont be wiring anything to the US. I would urge you to open your account in GBP as it is just much easier to manage. I know that there were some issues with one member trying to withdraw money but I think this is now resolved. I have spoken to thier help desk in both Europe and the US and they have always been great. Of course there are always exceptions to this but personally I have not had a reason to be unduly concerned.

Cheers


Paul

 

[JTrader]

I spoke to somebody from the inland revenue the other day and they said that if a person made an income from trading, it could be classed as a business. He said something along the lines of - if I had needed to buy a new computer, this could be offset against my profits/earnings for tax purposes. Presumably the same could be done with charting, L2, and internet subscriptions. This seems logical to me, regardless of whether you are offering some kind of service to the public or intend to advertise, as may be the case with most conventional businesses.

There's always the chance that this man was mistaken.

What do other people do or what have you been told by the inland revenue?

Cheers.

 

[wysinawyg]

<i>I spoke to somebody from the inland revenue the other day and they said that if a person made an income from trading, it could be classed as a business. He said something along the lines of - if I had needed to buy a new computer, this could be offset against my profits/earnings for tax purposes. Presumably the same could be done with charting, L2, and internet subscriptions. This seems logical to me, regardless of whether you are offering some kind of service to the public or intend to advertise, as may be the case with most conventional businesses.

There's always the chance that this man was mistaken.

What do other people do or what have you been told by the inland revenue?</i>

AFAIK it is fairly widely accepted that there is a point at which buying and selling shares moves from investing (i.e. capital gains) to trading (i.e. income tax which is when you start getting expense deductions etc.). The problem is I don't think there are any rules to say when it does this!

wysi

 

[sidinuk]

Jamest,

this is a difficult area of tax and is not that clear. Trading profits can either be classed as capital gains or as a proper business. A trader would rather be classed as a business so that costs such as computer equipment, exchange fees etc could be deductible. But the revenue would rather class trading profits as capital gains so that expenses are not deductible (except commission).

It really depends on a individuals circumstances and the local tax offices point of view. My advice would be to write to your tax office and explain exactly what you trade, how often you trade, how much you expect to make and whether you have any other income and ask for their advice in writing.

 

[JTrader]

I would presume that the average spreadbet trader would not be too concerned about the issue of tax deductable equipment and subscriptions as they do not have to pay tax on profits made and so would view these issues as irrelevant?

 

[sidinuk]

Spreadbetting is completely exempt from tax. If you manage to make a profit then you don't need to declare it on your tax return. Equally if you make a loss you cannot offset them against other capital gains or trading profits.

Spreadbetting is not a business it is gambling* so no you cannot claim the cost of computer equipment etc as there is nothing to claim it against as profits are tax free anyway.

*in the eyes of the law.



Bookies pay a gross margin tax which replaced betting duty a couple of years ago. Effectively they carry the tax burden rather than the punter. This tax burden on the spreadbetting firms is reflected in the spreads that they charge.

 

[wysinawyg]

<i>Spreadbetting is not a business it is gambling</i>

Although given that profits from playing cards have been found to be a business (and hence taxable) I wouldn't like to bet on this in all cases...

(please see endless argument on another thread that you can search for as it probably doesn't need dredging up again)

wysi

 

[The Beyonder]

As wysi said there is another thread that dealt with the tax issue but for sidinuk to say "Spreadbetting is completely exempt from tax." is not quite the whole story. When I was doing SB I rang the IR to ask about the tax issue.
Unfortunately he couldn't give me a definitive answer and he suggested I write to the IR with all my details for a better clarification.
But the gist of what he said was that if you have a normal 9 - 5 job and SB for a bit in the evening then it's tax free, if however you SB for a living and that is your only (or at worst main) source of income then you'd probably be liable for taxes.
Whether it's Income Tax, Capital Gains or you can set up as a business is another issue completely.

Regards

 

[seancass]

Achilles and Trader 333

Many thanks for all this useful advice. I am much reassured over the issue of depositing $30K with IB. Thank you for that.

I know that the whole matter of tax and the issue of self-employment has arisen elsewhere on the board, but it is useful to keep these important matters within the spotlight as knowledge is acquired and experience shared.

Best wishes,
Sean

 

[sidinuk]

The beyonder,

Your right, if you are concerned about SB profits being taxable then write to the Revenue and get their opinion in writing. If they claim that you have to pay tax on any profits then make sure they also agree that any losses can be offset against capital gains or income tax as well. That should ensure that they change their mind quickly enough.

The point is that SBing is not tax free. You pay a larger spread because the SB firm itself must pay a gross margin tax as a bookmaker. That way the Revenue gets it's tax whether an individual punter wins or losses. They won't start taxing individuals as well as it would be counter productive, as generally punters are net losers.

Gambling from playing cards may well be taxed as a business if it is between individuals and is shown to be operated as a business, ie no bookie involved. But if there is a bookie taking a cut then the bookie is taxed as with other organised gambling, eg William Hill Poker etc. not the individual punters.

In the end the SB firm will make a profit and the traders will be net losers. If you are the revenue who are you going to want to tax? They can't just pick and choose to only tax the winners without giving relief to the losers.

 

[seancass]

Interesting points raised, Sidinuk.

This issue of tax and the status of the sole trader is an important one and it is useful for it to be kept under constant revue.

Wasn't it said that there are two things in life of which you may be absolutely certain... taxes and death!!

Thank God I have a meeting arranged with my accountant soon. There is, however, no dount that to consult the revenue directly is a sensible course of action.

Best wishes,
Sean

 

[bonsai]

"There is, however, no dount that to consult the revenue directly is a sensible course of action."

Sean, as long as you don't personally do it. Leave it to your accountant.

 

[Dirty Steve]

Does anyone know a link to a thread or web page explaining when and how you have to pay CGT on profits made from shares. I understand spread betting is tax free but dont know the exact rules for proper share dealing profits. I understand the limit might be £7900 a year tax free. Is this true. Is then all above that 40% even if you dont already pay higher rate tax for example??? How could the IR even know you've made such profits?? Is it all down to honesty.

Thanks.