Don’t forget reportable gains rule which might apply. Have a read of this capital gains turnover post from Monevator.
To add to the bad news, your gains are ‘effectively realised’ at the moment you sell the stock; whether you withdraw cash to your bank account or not is not relevant at all. Sorry that you’re finding yourself in this situation!
If you sold any at a loss ( heaven forbid ) you can subtract these loses from your gains.
So to that point, ideally you should realise the loss on any trade before the tax year end to offset any gains for the same tax year. That way you can minimise the realised gain for that year. Also you can carry forward losses. So it’s best to track these too and I think you have four years to report them.
Sounds like it’s going to be messy
I already opened and maxed out an ISA on vanguard this year, then I thought about trying Freetrade out but since it’s so easy to make transactions I got carried away… oh well
But hold on a moment!
I’ve started using Freetrade only this year. If I have to subtract any losses from my gains for this tax year, as long as the final profit is below £12.300 then I don’t have to report anything. I don’t see why I should make the effort of tracking every transaction if the final count is the same.
On this topic, it would definitely be helpful to have an exportable CSV (or even PDF) which lists all tax eligible bought/sold positions for a given period of time (e.g. along with the monthly statement). The activity feed is handy as a reference, but over the course of a year it becomes unmanageable.
Also, since the target demographic is (mostly) those who are newbies, some simple in-app guidance on tax reporting – or at least information on where to find it – might be helpful too.
How are gains on U S shares treated for tax?
Possibly a great new feature for plus here - automatic tax calculations and export of transactions on a GIA account.
I don’t think FT should provide tax calculations, but transactional data could be more digestible and you should be able to export it. Scrolling through a long list of buys and sells isn’t conducive to doing your own accounting – and hoping it’s error-free.
In agreement with @Ardrich87 here. It would be nice for Freetrade to be able to add such magic, but there are so many factors which affect tax liabilities that this will add substantial complexity.
Not to shoot it down entirely. It definitely seems like something that may be worth exploring a few years down the line.
Let’s KISS and request an exportable CSV/PDF for now, which should be possible without major retooling due to the data already being wrapped up for display in the app by the Freetrade API.
Yup, an Excel/CSV/JSON option would be awesome. Not just for tax purposes but for analysis too
I agree an export is a good first step, CSV would be better as PDF is not a friendly format for calculations or accountants. I think it should also include dividends (or report them on a separate csv) as those can cause tax liability esp. with the new lower limits. Perhaps a download is enough, it would certainly be a good place to start.
I do think a screen with a simple statement of dividends, gains and losses for a given year and the CGT limit for that year would be useful for many people as a guide, including things like the 30 day rule matching shares (the sort of simple and annoying rule software is very good at and humans are terrible at). It could avoid giving tax advice and simply state the total figures to let people make their own decisions. The app can’t replace an accountant of course because of other CGT liabilities, previous years, etc etc but it can helpfully lay out the gains/losses for a given year within freetrade, which for many would be enough.
Hoping that exports will be coming soon, it feels like an absolute essential first step (unless of course you have all of your transaction in a handy format already ) in helping you with your tax questions - Account Statements & Data Exporting - What formats would you want to see?
Tax is obviously not a simple subject and changes all the time…wondering if FreeTrade would ever partner with an accountanting company to give this community tax advice.
There’s potentially 1000s of exports they could process for members and provide tax advice on, which I guess FreeTrade could earn money on for this referal of business.
Absolutely in favour of as many data exports as we can get, even PDFs in case anyone wants to keep records like you would a bank statement.
I don’t think tax calculations would be practical since Freetrade don’t know what you’ve done with other brokers or other assets that you own. E.g. with the 30 day rule you might have sold a stock with FT then bought it back with another broker so any calculation that FT gives for it would be misleading.
Same as UK shares. You don’t pay tax on gains to the US but you do pay tax on those shares in your own country, and it’s the GBP value that matters.
Have a read of the article in @saf’s post.
If the total amount of all of the shares and assets that you’ve sold in the financial year is more than 4 times the capital gains allowance then you need to report it regardless of how much you gain or lose.
4 times the allowance is £49,200. You could easily have surpassed that if you’ve made hundreds of transactions.
It’s worth contacting support in-app. They may be able to give you a CSV of your transactions so you don’t need to transcribe them all from the activity list.
Unfortunately capital gains tax is not as simple if you’ve made hundreds of transactions outside of your general account. - I do to and I have a google spreadsheet tracking everything up!
Note that this is general advice and I’m just doing some illustrations to show the complexities of apply the rules. You should get independent tax advice if you need to!
1. ISA is non-taxable
As you’ve said, your investments is in a general account (i.e. Non-ISA), because any profits / dividends is tax free within the ISA (Although if you do make a loss then you won’t get tax relief either).
2. No Sale = No Gain
Your account balance reflects the total value of your portfolio. So unfortunately the gain is not as simple as your closing balance less your opening balance, as you’ve said in one of the threads.
3. Report Threshold
As @rivorson said, you will have to report capital gains for the tax year if one of these are true:
a. Realised gains (profit) exceed the annual allowance £12,300 for 20/21.
b. The total sale proceeds (i.e. all the “Sell transactions” £ amounts added up) adds up to more than 4x the annual allowance.
c. You want to report any capital losses to be carried forward to future tax years.
4. How gains are calculated
Whenever you sell any shares:
i) you sell the shares that you acquired at the same day first.
ii) then you sell the shares you’ve acquired within 30 days on a first in first out basis,
iii) anything else is left in the general pool of shares you’ve acquired.
As an illustrative example, say someone made the following transactions within the tax year:
01-May, Purchased 600 shares at £10 each. (Total £6,000)
02-May, Purchased 400 shares at £11 each (Total £4,400)
15-May AM, Purchased 500 shares at £9 each (Total £4,500)
15-May PM, Sold 50 shares at £10 each (Total £500) - holding 1,450 shares
03-Jun, Sold 500 shares at £12 each (Total sale proceeds £6,000) - holding 1,000 shares
14-Jun, Sold 250 shares at £9 each (Total Sale proceeds £2,250) - holding 750 shares
15-Jun, Bought 1,250 shares at £11 each (Total £13,750) - holding 2,000 shares
July, Bought 2,000 shares at £15 each (Total £30,000) - Holding 4,000 shares
October - Sold all 4,000 shares at £14 each (Total sale proceeds £56,000) - Nil Shares left
Gain made on:
15-May, This lot is counted against the purchases we’ve made in the morning, so the gain is (£10 - £9) * 50 shares = £50. Note that if the sale was in the morning and purchase was at the evening, then the gain would be zero. (look back 30 days, 01-May & 02-May, First in First out, therefore look at 01-May first… (£10-£10) * 50 shares = 0)
No shares purchased on that day, so you go back 30 days and find the latest acquisition, which was on 15-May. There are 450 of the 15-May AM shares left, so you count against them first. No other shares purchased 30 days prior to the sale, so look at general pool for the remaining 50 shares…
First the 450 shares at a cost of £9 each = £4,050.
Then look for the remaining 50 shares from the general pool, (£6,000 + £4,400) / 1000 shares = £10.40 per share…
£10.40 * 50 shares = £520.
Total cost of shares = £4,570.
Sale Proceeds = £6,000.
Therefore Gain = £1,430.
Simply take the 250 shares from the general pool
Cost = £10.40 * 250 shares = £2,600
Sale Proceeds = £2,250
Loss of = (350)
Now we are just selling all of our shares, so the cost is:
750 shares in General pool (as calculated above) = 750 * £10.40 = £7,800
1,250 shares bought on 15-Jun = £13,750
2,000 shares bought in July = £30,000
Total Cost = £51,550
Sale Proceeds = £56,000
Gain of: £4,450
So therefore, just by looking at shares of company A, assuming the person have not made other asset disposals subject to capital gains tax, then
In the period, we’ve disposed shares with value of £64,250, which is over £49,200, so we will have to fill in a tax return.
The total gain is £5,530, which is below the £12,300 annual allowance limit, and therefore no CGT is payable.
Obviously things get more complicated if there’s stock splits etc!
Therefore depending on your circumstances, you might have to get some professional advice if you don’t know what you’re doing!
You can find out about the rules at: https://www.gov.uk/capital-gains-tax
Hope this helps
I made about £15,500 this tax year outside of ISA so that’s about £3200 over my tax free allowance so I assume as it stands I owe HMRC about £320.
I also made about £7,000 last tax year, among that would have been a few losses but since last tax year was also a net gain I assume I can’t carry over any losses into this tax year? As it was low enough no self assessment was filed last year.
Hi @James101, I just saw your post while typing a really long reply so here’s something that might be useful…
The key is that the £15,500 gain you’ve made is for the shares you’ve actually sold. If you haven’t sold them, then there’s no taxable gain until you sell them.
You must offset your current year gains with current year losses first, before applying the annual allowance. i.e. your losses last year must offset your profits last year first.
For current year allowances, you either use it or lose it, so you cannot carry the unused allowance of £12,000 (19/20) less the £7,000 gain you’ve made from last year = £5,000 allowance is lost!
For carried forward losses (Prior years), you can chose whether to use it or not. But if you do use the losses, then you must use it before applying the annual allowance. So if the gains made this year is smaller than the allowance, it might not be wise to use up your losses.
Sorry for replying very late but I marked your answer as solution. I hope this will help other people to seriously consider using an ISA, even for very very small accounts, because the rules are just too complicated. Imagine having just 1000£ and, given how easy is to buy and sell (without commissions) you could make a buy/sell/buy/sell everything 100 times in one day, racking up 100.000£ of “asset disposal” thing.
Fantastic! Glad it’s been helpful
I personally have maxed out my ISA so have a really large spreadsheet keep track of things!