How to transfer trading profits to a spreadbetting account to eliminate CGT?

[aeburton]

Anyone solved this problem?

I have some US options trading profits that I am going to need to pay UK Capital Gains Tax on. I hate paying tax so I am thinking about a way of legitimately moving the gain to a spreadbetting account to legally avoid the tax.

I figure that if bought in my trading account, an instrument that was very likely going to reduce in value (such as a short dated option) and sold the same instrument in my spreadbetting account, then once the anticipated reduction had occured, I would have achieved the goal and avoided the tax. My trading account would now no longer show a profit, so no tax would be due. My spreadbetting account would contain the trading profit.

If the anticipated reduction didn't happen, then I would potentially be liable for more CGT and might have a cashflow challege for the spreadbet. But I could always try again...​

So some questions:

Anyone done this?

Any suggestions which instrument to use? It has to be something that is very likely to reduce in value and it needs to be something that doesn't need huge margin for the short in the spreadbetting account​

All ideas welcome...

 

[TheBramble]

It's unlikely your trading account and spreadbet option values will move in harmony (SB side is likely to slew considerably) which will be a potential additional exposure for you.

This is a variation of the old Bed & Breakfast and while I understand your lack of excitement in paying up on your taxes due, I'd take heart in the fact that you're one of the few who are in that 'unfortunate' position. I never found it useful in the past, in the long run, trying to be too cute with the forces of darkness.

Alternatively, (andno good to you whatsoever right now as the deed is done) you could in future base yourself in a geoplitical situation where such matters are less of a problem...

 

[lurkerlurker]

Anyone solved this problem?

I have some US options trading profits that I am going to need to pay UK Capital Gains Tax on. I hate paying tax so I am thinking about a way of legitimately moving the gain to a spreadbetting account to legally avoid the tax.

I figure that if bought in my trading account, an instrument that was very likely going to reduce in value (such as a short dated option) and sold the same instrument in my spreadbetting account, then once the anticipated reduction had occured, I would have achieved the goal and avoided the tax. My trading account would now no longer show a profit, so no tax would be due. My spreadbetting account would contain the trading profit.

If the anticipated reduction didn't happen, then I would potentially be liable for more CGT and might have a cashflow challege for the spreadbet. But I could always try again...​

So some questions:

Anyone done this?

Any suggestions which instrument to use? It has to be something that is very likely to reduce in value and it needs to be something that doesn't need huge margin for the short in the spreadbetting account​

All ideas welcome...

The other way to do this would be to take something with a tiny SB spread, like FTSE futures, and take a massive position you expect to lose in your futures account and hedge it in SB. However, whatever way you do this you expose yourself to additional risk, and you'll end up with around 80 cents on the dollar. Just pay the damn tax already. It is most unfortunate, but these things happen. What Bramble suggests is the best idea - change your tax jurisdiction or put future trades through an offshore limited. Sorry mate, but it looks like you'll have to stump it up to Gordon!

Speaking of spreadbetting - what do you think would happen if you try to get a price for £1000pp on the FTSE, £500pp on the ES, or £2000pp on a short dated option with a bucket shop? I'm assuming you have a > £50k account to reduce to zero, trying to put equivalent gains through on SB.

 

[aeburton]

Thank you for the suggestions. I am hoping for something less radical than selling up and moving to Monaco/Channel Islands/Isle of Man! I really do hate paying tax -- its way my biggest cost. It seems to me that making a bet, even with a small cost, is better than the certainty of a large cost (tax bill).

So, as I'm not ready yet to up sticks and move, I've set up a small experiment to see what works (see http://www.trade2win.com/boards/showthread.php?p=357051#post357051). Seems I'm not the only one who wants to solve this problem! Can the combined wisdom of this board ferret out a better solution?


Alan

 

[Trader333]

I really do hate paying tax -- its way my biggest cost

I think everyone is in the same position here but trying to offset it is never that easy.


Paul

 

[TheBramble]

It is my understanding that if you are domiciled in the UK you do not pay tax on investments in foreign companies that provide neither income nor capital growth.

For however short a time that investment may be placed.

This is especially so with countries having no taxation agreements with the UK and which allow foreign owners of local companies to operate with no to minimal tax intereference and very low administrative overheads.

You will need to check with a tax professional in your country of residence to confirm your specific situation and circumstances and review the various possibilities open to you worldwide.

As it it always very specific and individually tailored there is no point asking me.

edit: You must at all times take full responsibility for staying on the right side of tax law in both your country of residence and any other countries in which you have a financial base. You must not treat this as a 'fire and forget' one-off type operation as it requires YOUR constant review and vigilance. Both from the legal perspective and from a political one...

 

[ian]

I really do hate paying tax -- its way my biggest cost.

The more tax you pay means the more money you must be earning - pay the ****ing tax you miserable *******!!!

I have been self-employed now for nearly thirty years and I have done ok for myself but it never bothered me having to pay the tax (or vat) bill when it was due. In fact a few years ago I had three seperate businesses running at the same time and each was taxed as a seperate entity - so what!

It's free money anyway so just ante up.

 

[grantx]

Aeburton,

Gains made so far in your tax year will be taxed, regardless of subsequent manipulations.

This is how I see the problem (figures hypothetical).

Current situation:
Trading a/c = £1000, taxed at 25% = £750 net

Your solution:
Trading a/c = -£1000, thus no tax
SB a/c = £1000,
net = £0
Pointless.

Possible risk:
Trading a/c = £1000, taxed at 25% = £750 net
SB a/c = -£1000,
net = -£250.
Hit twice.

Maybe there are other suggestions.

Re anything offshore. You will be liable for tax if gains are bought back into the country.

Grant (tax lawyer).

 

[aeburton]

Aeburton,

Gains made so far in your tax year will be taxed, regardless of subsequent manipulations.

This is how I see the problem (figures hypothetical).

Current situation:
Trading a/c = £1000, taxed at 25% = £750 net

Your solution:
Trading a/c = -£1000, thus no tax
SB a/c = £1000,
net = £0
Pointless.

Possible risk:
Trading a/c = £1000, taxed at 25% = £750 net
SB a/c = -£1000,
net = -£250.
Hit twice.

Maybe there are other suggestions.

Re anything offshore. You will be liable for tax if gains are bought back into the country.

Grant (tax lawyer).

Grant,

If I've understood Revenue and Customs CG55536, then whenever I buy an Out Of the Money option and let it lapse Out Of the Money, then I create a "Capital loss equal to cost of premium", so the hypothetical figures should work like this:

Trading a/c = £1000, taxed at 25% = £750 net

Buy £1000 Options in Trading a/c
Trading a/c = £1000, less £1000 Capital loss, no gain, no tax

Sell Same £1000 Options in SB a/c
SB a/c = £1000,

net = £0 and no tax

Surely as long as all this happens in the same tax year, then there is no tax liability? And its all legal and above board?


Alan

 

[grantx]

Alan,

I agree with the capital loss tax implication but surely it reduces to the same thing, ie no gain, no tax? I’m sure the best option is to maintain your current arrangement and pay tax on the gains.

This is speculation. One possibility may be to exercise the options; the initial position will not be a “sell to close” trade, hence no gain. You’ll then be long the underlying.

To avoid the risk of the long position you could initiate a sell on the underlying simultaneously with the exercise (if allowed). However, it may be deemed to have become profitable insofar as the price paid for the stock is below the market price, eg 100 strike exercised on stock at 110. Interesting.

Let’s see if anyone can come up with something creative, while avoiding Enron-like off-shore, off-balance sheet, out-of-sight, out-of-mind, out-of-reach, time-bombs (I wonder if that’s the record for compounds in one sentence?).

If I may, Alan, I’d like to share your misery, but not your tax bill. OK, I’ll go 50/50.

I’d prefer to be paying 50% rather than 25% tax. The implications are obvious.

Good luck (Gordon Brown will only squander it propping up the UK Olympics).

Grant.