Do I lose my CGT allowance ?

[canoehq]

Fully understand that if I start a small business professionally trading equities from home (which would be my only source of income) then I would be taxed on an income tax basis rather than a capital gains tax basis.............but does that mean I would lose my own annual CGT personal allowance completely and not be able to use any of it at all ?

Grateful if someone could perhaps advise please ?

Many thanks for all or any replies.

 

[malaguti]

Fully understand that if I start a small business professionally trading equities from home (which would be my only source of income) then I would be taxed on an income tax basis rather than a capital gains tax basis.............but does that mean I would lose my own annual CGT personal allowance completely and not be able to use any of it at all ?

Grateful if someone could perhaps advise please ?

Many thanks for all or any replies.

you and you're business are separate entities
salomon vs salomon 1897
how you're business is taxed is separate from your own allowances

 

[canoehq]

That's really kind of you to reply.

So, if I set up as a sole trader (not a limited company), how does the tax man decide which trades I will be allowed to shelter within my annual personal CGT allowance and which ones will be classed as 'trading' and so subject to income tax ?

Surely the tax man will just lump them all into income tax..............so I can't see how I could still use my CGT allowance. I'm hoping I'm wrong and you're right though.

 

[malaguti]

That's really kind of you to reply.

So, if I set up as a sole trader (not a limited company), how does the tax man decide which trades I will be allowed to shelter within my annual personal CGT allowance and which ones will be classed as 'trading' and so subject to income tax ?

Surely the tax man will just lump them all into income tax..............so I can't see how I could still use my CGT allowance. I'm hoping I'm wrong and you're right though.

I should have emphasised that the case of salomon was in relation to incorporated companies, not a "trading as". I wouldn't know sole trader but would imagine they would all classify you as the same thing..one person
for a few extra quid, register yourself as a limited company and it only takes a few minutes if you really wanted to set up as a company.
Can't think of any reason to however, you can have your own ISA, your own SIPP, allowances against CGT. What was your rationale for thinking a company anyway?

 

[canoehq]

You're a terrific help here, thank you.

Are you saying that it is just far cleaner and transparent for me to set up as a one-man limited company to trade and so be taxed on my share trading via normal income tax, but that with a company being a separate legal person from myself, I can also do some trades in my own name alongside and so be able to set these own name trades against my personal CGT annual allowance ?

That sounds a good idea if that's what you mean.

 

[malaguti]

You're a terrific help here, thank you.

Are you saying that it is just far cleaner and transparent for me to set up as a one-man limited company to trade and so be taxed on my share trading via normal income tax, but that with a company being a separate legal person from myself, I can also do some trades in my own name alongside and so be able to set these own name trades against my personal CGT annual allowance ?

That sounds a good idea if that's what you mean.

not quite what I said..I'll try and spell it out as I might just be assuming certain knowledge.
Firstly, there is a caveat here as I don't know why you may want to use a company in the first place so I can't necessarily advise as to what's cleaner as you may well find you needn't have set up a business.
That aside..if you set up as a limited company (limited by shares) and you are the sole director you would be able to buy and sell shares just as you would as a person. This is subject to corporation tax. How this is taxed will depend on whether this limited company's sole revenue is that of share trading or whether this is mixed. Certain costs are allowable against Corp tax, some aren't

You as a person have another trading account, possibly with the same broker and any gains is subject to CGT. You personally get an allowance, regardless of how much the company has made. You can set up tax free investments such as ISAs and SIPPs which your limited company cannot.

Now, at the end of the tax year, your company has to pay corporation tax. After having paid corporation tax, its not your money. Its the company's money. In order to take that money out, you will need to do this in the form of a dividend. This is subject to tax. A lower rate than income tax, but its tax nonetheless (brackets and allowances notwithstanding of course).
So in order to have your shares traded via the company you pay corporation tax, then personally to get it out again.

Contrast that with your personal account..an ISA is tax free, its all yours. The only problem is there is a limit to how much you can invest in one year.

So, in answer to your question, is the tax seperate. Yes. you and your business are taxed differently. However, I would argue why you may want to do this via a company..that I can't say and you have your own reasons.
I hope this helps..pm me if you need anything else

 

[canoehq]

That's all perfectly clear and I can only record my gratitude to you for your very kind help with this.

All the best.

 

[wells]

Malaguti has covered it. I would add that if you have a limited company you have to file accounts at Companies House every year. So you need an accountant. Also depending which markets you trade,exchanges generally have higher data charges for companies as you are treated as a professional trader.
If you're serious about trading for a living for several years I would say limited company is worth the initial hassle and extra running costs.