Page 1 of Anyone here an accountant or know how capital gains tax works?

I know someone who has been paying into an SAYE scheme at work, due to mature in August 2007. At maturity he will have bought around 1600 shares at £2.17 each. If the current share value is around £8 per share this would make a theoretical value of £12800 on the £3600 paid in.

Now, if he chose to sell at the point of flotation, or maturity, and wanted to sell the lot, how much would he be charged for Capital Gains?

Can someone give me a working example of how this can be calculated?

You may settle an argument at work. Ta



You will Rue the day..........Go on then.....start rueing!!!!!

I was in the customs website anyway


http://www.hmrc.gov.uk/leaflets/cgt1.htm

Annual allowance per person is £4895 so he could realise up to that amount without incurring a tax bill.

I think if he rolls the money over into another scheme it would also be exempt but am rather rusty on that...

If he transfers the shares to his wife and she sells them she also gets an annual allowance of £4895 but I`m not sure you can do that with a SAYE scheme.

"How much CGT you pay depends on your overall income. Your total taxable gains are added to your taxable income for the year and treated as the top part of that total. The gains are then charged to CGT at the following rates (2005-2006 tax year):

* 10 per cent where they fall below the starting rate limit for Income Tax (£2,090)
* 20 per cent where they fall between the starting rate and basic rate limits for Income Tax (£2,091 to £32,400)
* 40 per cent where they fall above the basic rate limit for Income Tax (£32,401 and above)"

Whoops forgot to say that the original cost is a factor in the calculation of gain.

Hope this helps and he gets to spend it on lots of shiny things.

Sue Davies

This item was edited on Tuesday, 28th February 2006, 18:37

Matt,

From memory you can have £8500 of captital gains before tax hits home. You can also carry any losses from shares etc over from the previous year

Cheers

Simple rules (may be a little too simple)

Proceeds - Original cost = Profit

Profit - CGT annual exmeption limit (£8500 for 2005/06) = Taxable income

This income then gets added on to all your other income and tax is calcualted at the effective tax rate (based on the levels setout in the earlier post)

Transferring shares to a spouse may not double the limits as the revenuew treat any transfer between partners as taking place with no capital gain (effectively its treated as though they got it at the original cost). This may be benefical is one person is a non tax payer and the other pays at 40% but knowing the Revnue they may view it as a deliberate tax avoidance scheme.

Mike J T

Not sure if there are any further exemptions for SAYE schemes (eg: exemptions if held for certain time etc)

As MikeJT point out, in simple terms the capital gain you would need to declare would be
12800 minus
3600 minus
8500 equals
700.
This figure may well be further reduced by `taper relief` ie a reduction in the chargable gain based on the number of whole years the asset has been held - in the case of an SAYE the shares may be classed as a business asset and as such the proportion of gain remaining chargable reduces to 25% after two years of ownership.
Ignoring the taper relief, and other allowable expenses that may further reduce the capital gains liability, if we use the figure of 700, the tax payable would be at whatever rate of tax you pay at your main income source eg if your total wages for that year were between 6985 and 32,400p.a. then you are in the 22% tax bracket and the tax on 700 would be 700x0.20=£140 (capital gains in this bracket are actually taxed at 20%)
If your income is below the 4895 personal allowance unfortunately you cannot use any of the unused personal allowance to further offset the amount of capital gain that is taxable.
For more detailed info I`d get a number for your tax office and ask to speak to a capital gains technician - much cheaper than an accountant.

ps when declaring the capital gain try and avoid getting sucked into self assessment - a letter informing the tax office of the amount your friend wishes to pay tax on should be sufficient.

This item was edited on Thursday, 2nd March 2006, 17:48