Any accountants/tax experts? - CGT query

[Dropdeadfred]

Hi
Now that the government has changed Capital gains tax to a flat rate of 18% is there any instance where selling an asset could be taxed as 40% ie classed as income?

If you had a 9-5 job but regularly bought and sold shares (or any other asset) and made a large profit would/could this be taxed in any other way rather than 18% CGT?

If you are "trading" what would otherwise be capital assets, and are doing so with a view to making profit, then an individual would have the profit taxed at 40% rather than 18%. The new flat rate doesn't particularly change this - there have often been differences between capital and income tax rates.

Thank you Lady Muck

But in that case why aren't buy-to-letters or people who regularly by and sell shares charged at 40%.

If you saw something that you thought could sell for a profit, did so and quickly bought a few more to sell - but this wasn't a business just a fortuitous discovery, how does the taxman decide how to tax you?

Well, buy to let-ers aren't usually deemed to be trading in houses. Each property is an investment in itself (with the rental income being taxed as income).

People who buy properties to renovate them and sell on can end up being taxed at 40%. Usually their accountant will advise them to rent out the property for a while before selling or live in it for a while in order to show that it isn't just a trading asset. But of course where builders develop older buildings into flats etc, this is seen as a trading activity.

Similary shares are usually seen as assets with the dividend being the taxable income. Share traders who set out with the intention of making profits by buying and selling shares (rather than by holding them for the longer term) will usually be taxed on the profits they make as if it was income rather than capital gains.

In terms of the short term opportunity, in theory if you acquire an item with a view to selling it for a profit (rather than holding it as an investment), then you could be seen as trading and be liable for tax. Strictly it is up to you to declare your income to the taxman. They have various powers to acquire information, but clearly they would be less likely to discover profits from a one-off transaction than profits made regularly.

ladymuck has some good points esp her last one about how you declare to the taxman. Obviously the law is only just about to come in but given the difference in rates I can't help but think that they may well be looking at obvious income into gain type issues (like people who seem to deal in property or shares) a lot more carefully so I'd give it some thought when you put in your tax return.

Ladymuck has explained it already - in determining whether someone was undertaking trading or investment activities the Revenue would look at the fact pattern of each individual case. There are several 'badges of trade' which have been established over the years - I suggest you look these up on the HMRC website and get a feel for how your proposed undertaking checks out in the context of these.

Thank you all, don't worry I have no plans to withold any info from the taxman - the deed(s) has been done and the taxman will get his 40%. I just ddn't understand the difference between holding something of value for a year then selling and paying 18% or selling it straight away and paying 40%...does seem a little unexplained on the tax website.

I think if say you set up to do day trading in shares and are buying and selling within the day or sooner even that might be trading (40% tax plus NI) but if you buy them and hold them 20 years at the other extreme CGT at 18%. It certainly makes making something a capital gain much more attractive.

I don't know enough about it but what about say an art dealer - presumably if he sells pictures he's taxed at 40% plus NI whereas if he just bought one painting for his home and held it for 10 years that would be 18% CGT.

I think if you are doing out it regularly then it would be classed as 'income' and as such you would be have to pay the 40% tax. I think CGT is only really charged if it is a 'one-off'kind of thing. I am sure the Inland Revenue webshite may be able to help you....

If you want to get into badges of trade then here is a summary. But it does depend on the exact facts of the case, but there is definitely room for a degree of ambiguity.

Thank you Lady Muck...that information gave me exactly the answers I was searching for. Unfortunately it also means we will be paying 40% rather than 18% tax, but c'est la vie.