Shares - CGT

twenty8

Hi - I am hoping someone can help me here.

I invested in some shares a number of years ago and they have appreciated quite considerably (400%). I will have to sell them in approx 12 months time.

I presume that I am going to be liable to quite a large CGT bill whenever I do sell them.

With this in mind I am trying to see what I should do between now and then.

Just say that I will owe €5k in CGT. Could / should I invest eg €3k now in an aggressive share portfolio knowing that I have a 'free' bet. ie I can offset any losses against the profits of the previous investment and any profits will help pay for the CGT.

Obviously I am aware that the value of my initial shares can drop and therefore reduce the CGT bil. But putting that aside - any recommendations or comments would be welcome..

Tks

alb

I've a pile of unrealised gains too and I came to the same conclusion and YOLO'd on some risky stocks

thegolfer

twenty8 wrote: »

Hi - I am hoping someone can help me here.

I invested in some shares a number of years ago and they have appreciated quite considerably (400%). I will have to sell them in approx 12 months time.

I presume that I am going to be liable to quite a large CGT bill whenever I do sell them.

With this in mind I am trying to see what I should do between now and then.

Just say that I will owe €5k in CGT. Could / should I invest eg €3k now in an aggressive share portfolio knowing that I have a 'free' bet. ie I can offset any losses against the profits of the previous investment and any profits will help pay for the CGT.

Obviously I am aware that the value of my initial shares can drop and therefore reduce the CGT bil. But putting that aside - any recommendations or comments would be welcome..

Tks

Fair play for spotting a good stock to acquire, nice increase 400%..

Firstly losses forward are only allowed which have realised, ie prior losses on shares, those shares would have to have been sold, not just fallen to relatively low value.

The proposed €3,000 would only yield 33% of a saving, thus approx € 1000.

In short no I would not recommend this, simply throwing money away.

Are you married, does your wife/husband have losses available?
If so this loss can be used to reduce your gains.

You will have the annual exemption of €1270 available against the gains which helps a bit.

Are you originally Irish, born in Ireland?
Are the shares located outside the state?

If not, ie resident here and non domiciled and shares are outside Ireland, then you would only be liable to CGT in Ireland on any remitted gains to the state.

You would however be liable to CGT in your home country.

Chances are probably not, but threw it in there..

alb

thegolfer wrote: »

The proposed €3,000 would only yield 33% of a saving, thus approx € 1000.

In short no I would not recommend this, simply throwing money away.

EDIT: THE BELOW IS WRONG, IGNORE IT

Lets take an example. Lets say he's already locked in 15k of a profit on a sale this year so will owe 5k cap gains.

Case 1: He does nothing, so he pays 5k (minus 1270 exemption) cap gains from his 15k balance and is left with 11,270 total profit.

Case 2: He invests 3k in a highly risky stock which tanks to 0. He has 12k balance and he pays 5k (minus the 3k loss and minus the 1270 exemption). He is left with 11,270 profit.

Case 3: He invests 3k in a highly risky stock which doubles to 6k. He has an 18k balance and pays 5k + 2k (minus 1270 expemption). He has a is left with 12,270


Case 2 is the worst case scenario for taking the 3k gamble and it comes out no worse than Case 1, but it gives you a chance at Case 3. I can see no reason not to do it if you've already locked in the gains. Am I missing something?

kenyard

alb wrote: »

Huh, I don't understand what you're saying here?

Lets take an example. Lets say he's already locked in 15k of a profit on a sale this year so will owe 5k cap gains.

Case 1: He does nothing, so he pays 5k (minus 1270 exemption) cap gains from his 15k balance and is left with 11,270 total profit.

Case 2: He invests 3k in a highly risky stock which tanks to 0. He has 12k balance and he pays 5k (minus the 3k loss and minus the 1270 exemption). He is left with 11,270 profit.

Case 3: He invests 3k in a highly risky stock which doubles to 6k. He has an 18k balance and pays 5k + 2k (minus 1270 expemption). He has a is left with 12,270


Case 2 is the worst case scenario for taking the 3k gamble and it comes out no worse than Case 1, but it gives you a chance at Case 3. I can see no reason not to do it if you've already locked in the gains. Am I missing something?

Is case two actually valid? For the year do you not have 12k gains so tax should be 4000 - 1270.
Surely it's not on a per share basis or you can constantly gamble 33% of your profits and pay no tax and keep 66% tax free.

Peregrinus

Deliberately seeking to incur losses in order to minimise your CGT liability is not a rational strategy; it makes you poorer. It's like stopping work in order to reduce your income tax bill.

karltimber

Hi,

one way to minimise cgt would be to sell half in 2017 and the rest in 2018 - a bit of a saving.

Question - seeing as the UK have a larger cgt allowance of stg11,300, would it be possible to become a Uk resident to avail of this.
the same way the Irish property developers became Uk residents all of a sudden get a 1 year bankrupt's turn-around

kenyard

Peregrinus wrote: »

Deliberately seeking to incur losses in order to minimise your CGT liability is not a rational strategy; it makes you poorer. It's like stopping work in order to reduce your income tax bill.

Sure but its not gambling your money in case 2.
Earnings on shares 21,000. Profit 14,000. CGT is 7,000.
He said instead of paying 7k CGT. to invest this.
if you lose it its considered a loss and the person said you dont pay it as tax.
If you gain more, you only pay on additional earnings.
Why not invest in a 50/50 penny stock if this is the case?

My understanding is you still have 14k profit whic is liable as tax.

alb

If anyone is claiming I'm wrong can you please show the figures that prove me wrong, as I I've already posted figures backing up my case.

EDIT: was writing off losses against tax due, not against gains so number were wrong.

Peregrinus

On your figures:

Option 1 - do not make speculative investment: Gain on disposal of Share A of 14k; pay CGT of 7k; after-tax gain is 7k.

Option 2 - make speculative investment and it goes badly: Gain on disposal of Share A is 14k; invest 7k in in Share B and lose it all; Gains less losses equal 7 k; pay CGT of 3.5k; after-tax gain is 3.5k. You're worse off.

Option 3 - make speculative investment and it goes well: Gain on disposal of Share A is 14k; invest 7k in in Share B and double it (and sell share B for gain of 7k; Aggregage gains equal 21k; pay CGT of 10.5k; after-tax gain is 10.5k. You're better off.

Option 4 - make speculative investment and it is neutral : Gain on disposal of Share A is 14k; invest 7k in in Share B and it neither rises nor falls (and sell share B for no gain or loss); Aggregate gains equal 14k; pay CGT of 7k; after-tax gain is 7k. You're in exactly the position you would be in if you hadn't invested in share B at all.

What does all this teach us? The desirability of investing in Share B depends entirely on whether Share B is going to go up, go down or remain stable. But, hey, isn't this always true? Yes, it is. The potential gain or loss from investing in an asset does not depend at all on the soruce of the funds with which you make the investment.

The only circumstance in which investing in Share B will reduce the OP's CGT bill is if he invests in share B and loses money on it. To reduce his CGT bill by one euro, he'll need to lose two euros on Share B. He'll be worse off he he does that.

alb

Thanks, apologies you're right I'm wrong. The mistake I was making was deducting the loss from the tax due instead of from the gain before calculating the tax due.

thegolfer

alb wrote: »

Huh, I don't understand what you're saying here?

Lets take an example. Lets say he's already locked in 15k of a profit on a sale this year so will owe 5k cap gains.

Case 1: He does nothing, so he pays 5k (minus 1270 exemption) cap gains from his 15k balance and is left with 11,270 total profit.

Case 2: He invests 3k in a highly risky stock which tanks to 0. He has 12k balance and he pays 5k (minus the 3k loss and minus the 1270 exemption). He is left with 11,270 profit.

Case 3: He invests 3k in a highly risky stock which doubles to 6k. He has an 18k balance and pays 5k + 2k (minus 1270 expemption). He has a is left with 12,270


Case 2 is the worst case scenario for taking the 3k gamble and it comes out no worse than Case 1, but it gives you a chance at Case 3. I can see no reason not to do it if you've already locked in the gains. Am I missing something?

You are getting confused with gains and cash in the hand.

Purchase for € 3,000, sell for € 6,000 is a gain of € 3,000.

Case 1 Case 2 Case 3
Gain 12,573 12,573 12,573
Loss € 0k - € 3k (3,000)
Gain € 6k- €3k 3,000
Net Gain 12,573 9,573 15,573
Annual Exemption (1,270) (1,270) (1,270)
Chargeable Gain 11,303 8,303 14,303
CGT @ 33% 3,730 2,740 4,720

Gain 12,573 9,573 15,573
Less CGT (3,730) (2,740) (4,720)
Additional In pocket 8,843 6,833 10,853

A € 3,000 loss will give a € 990 tax saving.
ie € 3000 X 33% = €990.
However you are also out € 3,000, having lost it.

Its simple....
More gain\profit more money in the pocket.
Less gain/profit less in the pocket.

Best scenario is Case 3, where he gets more gains, and more money
Worst is Case 2, where he gives money away for nothing.
Expected is Case 1.

twenty8

Thanks for all the contributions. It makes absolute sense when spelled out clearly. Like ALB I was reducing the loss against the CGT instead of the capital amount.

While there is still a basis for investing further as I have reduced the % that I would have to pay compared to the risk (ie I am only risking 66% of my total additional capital invested compared to 100%) - I hadn't factored that it wasn't a 'free bet'!

Thanks again.

wordofwarning

One option is selling shares today to the tune of a profit of €1,270 or less. You will capitalise the gain tax free. Then in 2018, sell the remainder which will have a gain of €3,730. Again you will have an annual allowance of €1,270. So you will be liable for a gain on the remaining €2,460 which will mean CGT of around €810.