I live in the Uk and the rules here are that if I sell any shares I have, I am allowed to make a profit of 6000 pounds in one year without being taxed. After the first 6000 I get taxed at 40%. It makes no difference that I bought the shares 3years ago and have made no other share related profit in the interim. Is there any way that I can get round paying tax or do I have to declare it at all? Is an account in the Caymen Islands any help?
Well, if the UK is anything like the states, your profits have been reported to the tax agencies already, and they’re notoriously humorless about tax evasion. I seriously wouldn’t recomend trying to screw them out of their money.
Never take tax advice from yahoos like me on the internet. See an accountant or lawyer with the relevant professional certification and qualification.
The same goes for any legal or medical advice.
By “dodge taxes,” I hope you mean “legally avoid paying” (a la Paul McCartney’s recent trust finagling to avoid paying the Brit 40% death tax on Linda’s $200 million estate).
Discussing methods or practices whereby criminal activity may be accomplished is verboten here.
Nickrz
GQ ModEchoing Nickrz’s thoughts, we are dealing here with LEGAL tax avoidance, rather than illegal tax evasion.
And remember that any comments made here are only generalizations (in the UK: generalisations), in a fairly complex area. You should seek advice from a tax-planner… although it’s probably too late.
Assumptions:
- that your are UK resident (physically present in the UK for more than 183 days) and domiciled (essentially, owning or renting property)
- that the shares are shares in a UK-registered company (not necessarily a UK parent company)
- that these are shares you purchased, rather than shares granted to you by your employer under a Share Option Plan or Savings-Related Share Option Plan
OK, as resident and domiciled in the UK, you are liable for income tax on your worldwide income. Period.
Capital gains are taxed separately from ordinary income. Tax on all of an individual’s capital gains is subject to a GBP 7,100 annual exemption (for the April 6, 1999 to April 5, 2000 tax year); remember that the capital gain is the earnings, the difference between what you received and what your paid for the shares. An individual may transfer shares to his/her spouse, and the spouse is entitled to the benefit of a separate, full capital gains exemption.
Above the exemption, the gains are taxed at the individual’s highest income tax rate (40% is the highest marginal rate, for taxable income over GBP 27,100.)
What can you do about it? Not much, not as long as the assumptions I’ve outlined above are valid. If you lived outside the UK, for instance, if you moved to the Cayman Islands for the year in which you received the capital gains, you might avoid UK tax as no longer resident. Again, you’d better get very sound individual advice from a reputable tax-planner before you make any decisions on this.
Other than being resident there, the use of an offshore location such as the Cayman Islands is not going to save taxes for you, assuming that the money is reported. (Failure to report the money would be illegal.) The time to use an offshore tax haven is when you want money to accumulate, to avoid tax during the time of accumulation. For instance, if you set up a trust fund for your children, but they cannot access the money until age 21, and you can’t get the money back (simplified example for sake of illustration), then the annual earnings on the fund will not be taxed (since the tax haven is specifically selected to have no income tax.) When the beneficiary of the trust receives the money, the earnings will likely be taxed (depending on how it was set up etc). However, there is a major financial advantage to having money accumulate on a tax-deferred basis.
That’s nutshell version.
And where else but the SDMB can you get an answer like that for free?
Thanks for the replies. Sorry about the wording, I was looking for ways to minimise the tax I pay and it looks like I got a way. I’m now looking into the transferance of shares to my wife. I am a law abiding citisen and wouldn’t risk anything for a few measly pounds (my portfolio is not that big) Thanks again.
Yeah, no kidding, Nickrz. If I were giving this advice to a client, my firm would be charging several hundred dollars. Of course, they would get a really nifty report that would have lots more details.
Again, Sharkboy, do NOT rely on my comments, which are based on general statements. Consult with a tax professional who can review your particular situation. I am glad to hear that you didn’t intend to imply illegal activities; unfortunately, offshore trusts have a bad reputation along those lines.
Sharkboy, sometimes it pays to simply procrastinate. The tax rules in the UK are about to change (it was announced last week), so that there will only be a 10% tax on capital gains if you have held the shares for four years (I may have details wrong, this only just came across my desk.)
Profits, per se, are not reported to the IRS. Sale price is reported, but the IRS has no way of knowing how much you paid for the shares.
>> the IRS has no way of knowing how much you paid for the shares.
can you say “audit”?