Finance

Have Finance Questions? Ask a Financial Expert Online.

Ask an Expert,
Get an Answer ASAP!

Finance
This answer was rated:

I have a portfolio of equities which yields gross dividends

of about £30,000 per year...
I have a portfolio of equities which yields gross dividends of about £30,000 per year. I currently execute about 10-20 share trades per year on this portfolio and expect this level of trades to continue at this level for the foreseeable future.

I also receive interest income of about £15,000. As a result, I already receive income at a level which takes me to the 40% band and this is likely to be the case for the next five years.

I plan to open a new investment account (ie separate from the account which I currently use for my share portfolio) in order to carry out the buying and selling of shares, share options and currencies. I anticipate a level of trades of about 200 transactions per annum.

I am expecting to generate mainly capital gains from this more active trading of £20,000 per annum as well as £5,000 of dividend income.

1) In view of the higher level of activity which I plan for my active investment account, how likely is it that HMRC will seek to deem it trading for tax purposes and treat the capital gains arising on these transactions as income which is subject to income tax, rather than CGT?

2) If HMRC do deem the capital gain arising on my active investment account as income, would this affect the tax treatment of the capital gains on my “passive” share portfolio?

3) What would be the advantages of setting up a limited company to hold my active investment account? I would expect to take dividends from the limited company in future years when the income from my passive portfolio of shares and interest income is below the 40% band.
Show More
Show Less
Ask Your Own Finance Question
Answered in 6 hours by:
4/29/2013
Lindie-mod
Category: Finance
Satisfied Customers: 5
Verified

Hi,
I'm a moderator for this topic. I've been working hard to find a professional to assist you with your UK Tax, but sometimes finding the right professional can take a little longer than expected.
I wonder whether you're ok with continuing to wait for an answer. If you are, please let me know and I will continue my search. If not, feel free to let me know and I will cancel this question for you.

Thank you!
Lindie
Ask Your Own Finance Question
Customer reply replied 4 years ago

Hi, I am ok to wait.


 


Regards


 


Steve

Hi Steve

Thank you for your continued patience. We will continue the search for a professional for you.

Lindie
Ask Your Own Finance Question
TonyTax
TonyTax, Tax Consultant
Category: Finance
Satisfied Customers: 15,956
Experience: Inc Tax, CGT, Corp Tax, IHT, VAT.
Verified
Hi.

Can you tell me what trading platform you will be using for your more active dealing in shares etc please. What level of profit do you anticipate making? Do you have any other sources of income other than those you mentioned, eg pension?
Ask Your Own Finance Question
Customer reply replied 4 years ago

Hi,


 


I will be using Interactive Brokers for the more active dealing.


 


I anticipate capital gains of £20,000 per year, largely from premiums from the sale of options with some gains on the buying and selling of shares and from foreign currency transactions. I am estimating dividend income of £5,000 per year.


 


I have no other sources of income other than those mentioned. I will be entitled to draw about £20,000 per year from a defined benefit plan in five years time although I could defer taking the pension.

Thanks.

Leave this with me while I draft my answer.
Ask Your Own Finance Question

Hi again.

My own experience of this from talking to people I've worked with in tax is that HMRC has some way to go in formulating its policy before a definitive answer can be given as to the tax status of someone like yourself and at the moment at least, you can pretty much choose how to be taxed simply by choosing which pages in your tax return to disclose the gains/profits you make either as capital gains/losses or trading profits/losses. Take a look here for the leading tax case on this subject which dates back to 1965. Clearly, the internet has changed the landscape around investment and share dealing since 1965 but, as I said earlier, the law has some way to go in catching up.

Capital gains are taxed at 18%, 28% or a combination of the two rates depending on the level of your income in the same tax year. Income Tax is charged at 20%, 40% and 45%. Class 4 NIC is charged at 9% on annual profits between £7,755 and £41,450 and at 2% on the excess.

1 The only cases I know of from friends and former colleagues where profits made by daytraders for want of a better word are taxed as income as opposed to as capital gains are where the individual has registered as self-employed because the daytrading is their main source of income and they fear an HMRC enquiry, the result of which is a backdating of their tax status with the resulting tax bill.

The tax office doesn't appear to query an individual registered as a self-employed daytrader because they may secure a higher tax yield notwithstanding the fact that the daytrader will be able to claim other expenses over and above dealings costs and pay pension contributions on their "earnings". One wonders what the tax office attitude would be if a daytrader made losses and claimed tax relief against other sources of income on a regular basis. The prospect of many daytraders claiming losses is the reason I believe that HMRC is reluctant to challenge the declaration of gains from daytrading as capital gains. Where they are disclosed as gains/losses, the losses can generally only be used against capital gains.

2 I would say the possibility of that happening is unlikely. The analogy I would draw to your situation is that of a property developer. If such an individual builds a house and sells it shortly after, they will be taxed as a sole trader on the profit and pay income tax and national insurance contributions. If the same builder builds a house and lets it for a year or two before selling it, any profit will be taxed as a gain and subjected to CGT. The property developer can be both a sole trader and an investor.

3 If you traded through a limited company, profits up to £300,000 would be taxed at 20%. If you drew money out as dividends, given your current income level, you would likely have to pay higher rate tax on them at 22.5% (32.5% - 10% tax credit). You would, however, be able to offset some expenses against the company income over and above your dealing costs. If your income from all sources kept you within the basic rate tax band, there would be no further tax to pay on dividends.

You may have discovered the website here already. I know a few traders who use it but they all tell me there is no definitive answer in the members' area as to the tax status of UK daytraders. All of those I know personally disclose their profits/losses as capital gains/losses because of the lower tax rates and the fact that their overhead expenses are not significant.

I hope this helps but let me know if you have any further questions.

TonyTax
TonyTax, Tax Consultant
Category: Finance
Satisfied Customers: 15,956
Experience: Inc Tax, CGT, Corp Tax, IHT, VAT.
Verified
TonyTax and 87 other Finance Specialists are ready to help you
Ask your own question now
Ask TonyTax Your Own Question
TonyTax
TonyTax
TonyTax, Tax Consultant
Category: Finance
Satisfied Customers: 15,956
15,956 Satisfied Customers
Experience: Inc Tax, CGT, Corp Tax, IHT, VAT.

TonyTax is online now

A new question is answered every 9 seconds

How JustAnswer works:

  • Ask an ExpertExperts are full of valuable knowledge and are ready to help with any question. Credentials confirmed by a Fortune 500 verification firm.
  • Get a Professional AnswerVia email, text message, or notification as you wait on our site. Ask follow up questions if you need to.
  • 100% Satisfaction GuaranteeRate the answer you receive.

JustAnswer in the News:

Ask-a-doc Web sites: If you've got a quick question, you can try to get an answer from sites that say they have various specialists on hand to give quick answers... Justanswer.com.
JustAnswer.com...has seen a spike since October in legal questions from readers about layoffs, unemployment and severance.
Web sites like justanswer.com/legal
...leave nothing to chance.
Traffic on JustAnswer rose 14 percent...and had nearly 400,000 page views in 30 days...inquiries related to stress, high blood pressure, drinking and heart pain jumped 33 percent.
Tory Johnson, GMA Workplace Contributor, discusses work-from-home jobs, such as JustAnswer in which verified Experts answer people’s questions.
I will tell you that...the things you have to go through to be an Expert are quite rigorous.

What Customers are Saying:

I really was impressed with the prompt response. Your expert was not only a tax expert, but a people expert!!! Her genuine and caring attitude came across in her response...

T.G.WMatteson, IL

I WON!!! I just wanted you to know that your original answer gave me the courage and confidence to go into yesterday's audit ready to fight.

BonnieChesnee, SC

Great service. Answered my complex tax question in detail and provided a lot of additional useful information for my specific situation.

JohnMinneapolis, MN

Excellent information, very quick reply. The experts really take the time to address your questions, it is well worth the fee, for the peace of mind they can provide you with.

OrvilleHesperia, California

Wonderful service, prompt, efficient, and accurate. Couldn't have asked for more. I cannot thank you enough for your help.

Mary C.Freshfield, Liverpool, UK

This expert is wonderful. They truly know what they are talking about, and they actually care about you. They really helped put my nerves at ease. Thank you so much!!!!

AlexLos Angeles, CA

Thank you for all your help. It is nice to know that this service is here for people like myself, who need answers fast and are not sure who to consult.

GPHesperia, CA

< Previous | Next >

Meet the Experts:

Rakhi Vasavada

Rakhi Vasavada

Financial and Legal Consultant

2,608 satisfied customers

Graduated in law with Emphasis on Finance and have have been working in financial sector for over 12 Years

Megan C

Megan C

Certified Public Accountant (CPA)

2,218 satisfied customers

Licensed CPA, CFE, CMA, CGMA who teaches accounting courses at Master's Level

Manal Elkhoshkhany

Manal Elkhoshkhany

Tutor

1,920 satisfied customers

More than 5000 online tutoring sessions.

JKCPA

JKCPA

CPA

844 satisfied customers

Bachelors degree and CPA with Accounting experience.

Eric

Eric

Financial Manager

559 satisfied customers

Loan servicing, counseling and real estate expert. Foreclosure Expert and Financial Planner.

R. Klein, EA

R. Klein, EA

Accountant

480 satisfied customers

TurboTax Expert. QuickBooks Certified Pro Advisor

Dimitry K., Esq.

Dimitry K., Esq.

Attorney

332 satisfied customers

NASD Licensed Rep, 1997-2001, Business Attorney

< Previous | Next >

Related Finance Questions
Am I able to deduct the income from my capital gain.........
Am I able to deduct the income from my capital gain......... for expenses on my personal losses, like an attorney fees, expert witness etc?… read more
NPVAdvisor
NPVAdvisor
CFP Licensee and Practitioner
Master's Degree
180 satisfied customers
I have a question related to how my taxes will be calculated
Hello. I have a question related to how my taxes will be calculated for my job overseas. For 2017, I don't qualify for the physical presence test as I was home for six weeks (42 days). Given this fact… read more
taxmanrog
taxmanrog
Master\u0027s Degree
772 satisfied customers
My employer has closed the defined benefits offered at our
My employer has closed the defined benefits offered at our company and offered to roll over to IRA and my current employer. They setup an IRA account that I could deposit the funds into. I have since … read more
LEV
LEV
Retired
Bachelor's Degree
14,896 satisfied customers
I want to pay on my amazon prime account and I can't get to
I want to pay on my amazon prime account and I can't get to the account. … read more
Manal Elkhoshkhany
Manal Elkhoshkhany
Tutor
1,920 satisfied customers
I had a dental appt on Dec 29th and wrote a check from my
I had a dental appt on Dec 29th and wrote a check from my HSA acct for $2000. Yesterday I received a 1099-sa from the bank. It does not reflect the $2000 check of course. is there anything I can do to… read more
Mark Taylor
Mark Taylor
Certified Public Accountant
Masters
2,275 satisfied customers
Ethereum deposit question, I transferred some ethereum from
Ethereum deposit question, I transferred some ethereum from one exchange to erherdelta. Then I deposited the fund by putting the amount in the white deposit box and pressed blue deposit button. I forg… read more
Specialist Sean S.
Specialist Sean S.
Computer Support Technician
819 satisfied customers
Robin, question on filing taxes. My father in law passed
Robin, question on filing taxes. My father in law passed away about 4 years ago. He and his sister had a farm, and his 1/2 was willed to his 3 children one of which is my wife. My wife and I have take… read more
TaxRobin
TaxRobin
Vocational, Technical or Trade School
1 satisfied customers
I started a partnership llc in Dec. 2016, I did my 1040
Hi, I started a partnership llc in Dec. 2016, I did my 1040 taxes for that year since it was only that one month. I need to file 1065 now, so my question is I only have one months worth of income for … read more
PDtax
PDtax
Owner
Master\u0027s Degree
1 satisfied customers
I am a tax preparer ,but I have a PTIN only (so i am not an
Hello, I am a tax preparer ,but I have a PTIN only (so i am not an accountant or an Enrolled Agent). Can I apply for an EFIN (to be able to e-file returns)? In case I qualify for an EFIN,would this me… read more
Barbara
Barbara
Enrolled Agent, Paralegal
3,785 satisfied customers
I need to understand how to navigate the affordable care act
I need to understand how to navigate the affordable care act if I have little to no taxable income. My children receive SS payments from their retired father. I work part-time. My part time income for… read more
LEV
LEV
Retired
Bachelor's Degree
14,896 satisfied customers
How to show in accounting books for checks written to
How to show in accounting books for checks written to oneself who an officer of the company does not run pay toll but take K1 at the year end of his own S corporation… read more
Fred Rook
Fred Rook
Corporate Controller
BSBA
64 satisfied customers
I have a PTIN only (so i am not an accountant or an Enrolled
Hi! I have a PTIN only (so i am not an accountant or an Enrolled Agent). Question:Can I prepare unlimited tax returns per year?or there is a limit in my case(higher designations are needes to be able … read more
Chad EA, CFP ®
Chad EA, CFP ®
IRS Enrolled Agent, CFP(R),
Master\u0027s Degree
1,068 satisfied customers
I would like to know what the value would now be of an
I would like to know what the value would now be of an annuity account that was opened in 2008 with an initial deposit of $78,835.00 and the only withdrawals from this account were the mandatory semi-… read more
PDtax
PDtax
Owner
Master\u0027s Degree
1 satisfied customers
Have some questions about my business for the coming tax
Have some questions about my business for the coming tax year as far as payroll vs. no payroll (because of the new LLC 20% tax rate) and retirement … read more
Carter McBride
Carter McBride
LLM
239 satisfied customers
I am single, divorced and own my home. 2017 my daughter and
I am single, divorced and own my home. 2017 my daughter and her family, 2 adults 3 children have lived with me while they build their home. They are custom home builders and file their own taxes. My q… read more
Chad EA, CFP ®
Chad EA, CFP ®
IRS Enrolled Agent, CFP(R),
Master\u0027s Degree
1,068 satisfied customers
I run a Delaware single owner LLC operating out of Arizona.
I run a Delaware single owner LLC operating out of Arizona. We earn hundreds of thousands annually. Given the recent reform in tax code, would we save a lot of money converting to an S Corp?… read more
Chad EA, CFP ®
Chad EA, CFP ®
IRS Enrolled Agent, CFP(R),
Master\u0027s Degree
1,068 satisfied customers
Is the following link a Trustworthy app to invest in mutual
Is the following link a Trustworthy app to invest in mutual funds? https://robinhood.com/referral/ethanc123/?gclid=Cj0KCQiA-ebSBRC8ARIsAGuxJIrZH4jkVfJSxc_GvpqlOszZq2FrCQErIQv7hqqZLO1MuuQCFpH3fvAaAhB2E… read more
Carter McBride
Carter McBride
LLM
239 satisfied customers
I own 2 homes in Hammond in. Free and clear worth around
I own 2 homes in Hammond in. Free and clear worth around 150k, total. Right now they net around 24k - expenses (8k) year, haven't filed income taxes in while on them or ref job (lost 2 years ago) cred… read more
taxmanrog
taxmanrog
Master\u0027s Degree
772 satisfied customers
Disclaimer: Information in questions, answers, and other posts on this site ("Posts") comes from individual users, not JustAnswer; JustAnswer is not responsible for Posts. Posts are for general information, are not intended to substitute for informed professional advice (medical, legal, veterinary, financial, etc.), or to establish a professional-client relationship. The site and services are provided "as is" with no warranty or representations by JustAnswer regarding the qualifications of Experts. To see what credentials have been verified by a third-party service, please click on the "Verified" symbol in some Experts' profiles. JustAnswer is not intended or designed for EMERGENCY questions which should be directed immediately by telephone or in-person to qualified professionals.

Disclaimer: Information in questions, answers, and other posts on this site ("Posts") comes from individual users, not JustAnswer; JustAnswer is not responsible for Posts. Posts are for general information, are not intended to substitute for informed professional advice (medical, legal, veterinary, financial, etc.), or to establish a professional-client relationship. The site and services are provided "as is" with no warranty or representations by JustAnswer regarding the qualifications of Experts. To see what credentials have been verified by a third-party service, please click on the "Verified" symbol in some Experts' profiles. JustAnswer is not intended or designed for EMERGENCY questions which should be directed immediately by telephone or in-person to qualified professionals.

Show MoreShow Less

Ask Your Question

x