CGT spreadbetting offset

Thoughts on trying to mitigate my impending CGT bill

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Hello,

I am in the fortunate position that I have just incurred a ~£77k CGT bill on an investment. Had planned to cash out and buy a house in France, but various articles including the following link are dissuading me! https://www.accountingweb.co.uk/tax/personal-tax/brace-for-brexit-20-tax...

I have until April to offset my gain against any losses, (un?)fortunately I do not have any losses so far. I also have a healthy, profitable spreadbetting account, which as it is classed as gambling and is not my primary source of income is not subject to CGT on gains - circa £40k so far this year.

I plan to buy a risky, speculative share that is either going to 10x or be worth almost nothing (e.g. AMC entertainment) before April. If it did fall I would try and size it so that it would be near to a £77k. loss I was planning to put a counter spreadbed short on the same share through my spreadbetting account (which would not be taxable) so that the fall in the share would be offset by a spreadbetting profit - many people including myself use spreadbetting to hedge their stocks and prevent CGT chargeable events. 

Clearly there are risks here, in that should the shares I buy rise, then I would lose all of the balance on the spreadbetting size and this would not help my CGT position, but should I be right, and it fall, I could sell pre-April and offset this loss against my gain and then keep the profit on the spreadbetting side. 

Clearly there are several factors here, e.g. cost of funding a short position over a 3 month period, finding a stock that will fall by £77k etc etc but I wondered whether the HMRC would like deal it efficient tax planning or tax evasion. I would find it hard to argue the latter since it is by no means guaranteed, and is all perfectly within the law, and there is a risk of generating even more CGT for the govt - of course if the share were profitable I would not have to sell immediately and could then spread it out over years...

Interested to hear peoples thoughts on the matter! 

Replies (17)

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By Tax Dragon
21st Jan 2021 06:34

Is the tax due in circa 30 days or on 31 Jan 2022? If the former, I think you need to pay it (notwithstanding that it may later be recoverable); either way, I'm not seeing tax evasion. Mind you, I'm not seeing what I would call tax planning either, so maybe the issue is with me.

I'm not allowed to give financial advice in a professional context. However, there's no requirement to bring professional... standards? restrictions? to this forum (as you may have spotted). So I'll add: you say "if the share were profitable I would not have to sell immediately and could then spread it out over years", but you of course would have to fund your matching bet. If you kept the bet in place, this would cost far in excess of the tax (the tax you didn't save and the extra tax you would be incurring on no overall profit). If the share price bumped, you shed the bet but not the shares and then the share price slumped, you'd be losing every which way. That's a gamble.

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By Matrix
21st Jan 2021 07:03

A person is able to organise their tax affairs to minimise the tax payable. I don’t see how this could be (successfully) challenged since you are bearing risk.

(This is just my personal view, if you are concerned then get written advice from a tax advisor.)

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By paul.benny
21st Jan 2021 08:59

Let me get this straight:
- you want to offset a chunky tax bill by betting on something that *might* have an upside?

Given that to offset the tax you would have to lose almost your entire gain. Not sure I see the point - or have I misunderstood something?

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Replying to paul.benny:
ALISK
By atleastisoundknowledgable...
21st Jan 2021 09:05

I might have misunderstood, but isn’t the OP saying that if there was a CGT taxable loss, then there would be an equal gain in the tax free spreadbetting account?

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Replying to paul.benny:
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By Taxesdeathmoretaxes
21st Jan 2021 10:09

no the idea is the bet would be roughly even as it would be cancelled out by the spreadbet whichever way it goes, but if the share price falls that would be doubly profitable because you could offset the loss against tax

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Replying to Taxesdeathmoretaxes:
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By paul.benny
21st Jan 2021 11:28

Deleted as cross-posted with others making similar points

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By Taxesdeathmoretaxes
21st Jan 2021 10:08

So the tax is due Jan 2022 (for tax year 2020-2021), yes you are right. only really works one way, so is a gamble, albeit it is disproportionally profitable one way in view of the tax saving

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Replying to Taxesdeathmoretaxes:
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By Tax Dragon
21st Jan 2021 10:36

To get the tax saving, it has to be a genuine gamble. (Otherwise the plan does contain elements that HMRC would not like.) The tax saving is capped - at the tax that's due Jan '22 (not being tax on a residential property gain). The tax cost if it goes the other way is uncapped. I'm not sure which way would be fairly described as disproportionate.

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By kdbr
21st Jan 2021 10:43

Tax of £77k will not be saved by a loss in that same amount. Loss offset against gain, presumably charged at 28%. So presumably still around £200k of gain to be taxed.

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By Taxesdeathmoretaxes
21st Jan 2021 10:53

Thanks for your comments.

The CGT charge was due to sale of a stock that had done well (not tesla) for ~£390,000 profit. So at 20%, CGT charge of £78,000. This would be due to be paid in April 2021.

In theory, if I bought £150k of a stock I thought had a reasonable chance of halving in the next 3 months (there are plenty), held it in my trading investment account, owning the asset.

As a hedge, I would setup a short position at £1 per pound on the same asset in a spread betting account.

If the asset falls 50%, I could sell before April, crystallise £75k of loss, and therefore only incur a CGT charge of £3k. My spreadbet account would be up £75k, less fees.

If the asset rises 50%, I would be unable to realise this gain without incurring more CGT charge, and would therefore lose access to the funds in the spread betting account but before tax were taken I would be in a neutral position (presuming I did not need access to the liquidity).

Seems to make sense to me, as there is a significant upside. Presuming there is a 50:50 chance of the stock either plunging or doing well, it seems that there are reasonable odds in terms of a tax saving to me, provided I am happy to stomach the long-term consequences of it rising and having to hold on to it and spread the gain over multiple years.

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Replying to Taxesdeathmoretaxes:
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By Tax Dragon
21st Jan 2021 11:23

You think HM Gov should cover your loss pound for pound? Your spreadbetting is making you delusional.

See kdbr @10:43. I thought that point too obvious to say.

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Replying to Tax Dragon:
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By Taxesdeathmoretaxes
21st Jan 2021 11:33

They charge plenty of tax on spread betting spreads/profits etc. That's why they have deemed it non-CGT chargeable - most people also make a loss so would not benefit them net to close that loophole.

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By Taxesdeathmoretaxes
21st Jan 2021 11:36

perhaps you are suggesting it is illegal to hedge a stock you own with a spread bet for tax purposes? may be you should write to CMC and IG, and make sure you cc the HMRC.

https://www.cmcmarkets.com/en-gb/trading-guides/pairs-trading

https://www.ig.com/uk/trading-strategies/beginners-guide-to-hedging-stra...

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Replying to Taxesdeathmoretaxes:
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By Tax Dragon
21st Jan 2021 11:39

No, we are suggesting that, if the tax rate is 20% on gains, then tax relief for losses is also at 20%.

I'll leave it to someone else to explain if you still don't get it.

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By alialdabawi
21st Jan 2021 11:58

As others have alluded to, the tax offset will be at the same rate as the tax charge.

Anyway, from my viewpoint, you seem to have spent a whole lot of time (over?)thinking methods which will result in you not paying tax, rather than: 1 - enjoying your post-tax gains, 2 - (over?)thinking the next hustle which will land you further gains

I see a lot of people happy to earn mountains, and utterly downtrodden by the - proportional, higher/additional - taxes payable which indicate a social responsibility attached to the privilege(?) of higher income bands. Two sides of the same coin, if you will, each only available with the other.

Higher rates/amounts of tax payable mean your earnings are high, your contribute more toward roads, schools, NHS, etc, and indicate you are doing something -or multiple things - right! Keep doing them, take the tax remaining payable (after legitimate avoidance) on the chin, and see the positives within your situation!

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Replying to alialdabawi:
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By Taxesdeathmoretaxes
21st Jan 2021 13:01

yes, I see what you mean, so it would need to be a £390k loss I suppose. Investing is not my private income and I pay >50% of my regular income in taxation which is a fair contribution for the services I use and will use in the future. It is perfectly reasonable to offset investing losses against gains but I agree, the risk of allowing the tax strategy to determine investment choices is the only worrying aspect of the plan.

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Red Leader
By Red Leader
21st Jan 2021 12:04

I haven't spent the time analysing in detail what you propose. As a general point, beware of the tax tail wagging the investment dog.

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