Full Transcript
Dr James:
Hey everybody, welcome back to the Denys Humifest podcast. This is on every dentist’s favourite subject. That seems to be tax, tax efficiency and specifically, specifically, specifically, the changes to CGT capital gains tax which are coming in this year, actually. So I so I next tax year and then also the tax year after that. Right, mike?
Mike:
This tax year and next tax year Just to clarify this tax year.
Dr James:
what we mean is April 2024 to 25, and then also 20. Oh, it’s already in play.
Mike:
Oh man, yeah it’s reduced at the moment and it gets reduced again from April 24. So there’s some planning opportunity there for anyone with some what we call un-crystallized capital gains.
Dr James:
Cool cool, cool, cool. All right, well, I didn’t know that, so I’ve learned something today as well. I actually thought it was coming in prospectively. Okay, cool, well, listen anyway, thank you for that, Mike. So it’s been a while since you’ve been on the podcast. Mike, might be nice to do a little bit of a refresher about yourself, a little bit of a bio.
Mike:
Yeah, absolutely. Thanks, james. Yeah, so Mike, mike Bryan from Humphrey Co. Chartered Accountants. We dental specialists. We act for 2000-odd dentists across the nation. We’re general accountants and tax advisors as well. So we don’t just act for dentists, we do everything. If it’s got tax in the name, we’ll be able to assist with it.
Dr James:
Sweet to the beat. Okay, well listen. Thank you for that bio just then, mike, and let’s move on to what we’re supposed to be talking about today, which is the CGT changes. Do you know what it might be nice to do to give everybody a little bit of context and just establish what CGT was in terms of how that looked in the UK prior to any of the changes that have come in, just so that we can, as I say, give everybody some context and then develop that further by demonstrating how they’ve changed.
Mike:
Yeah, absolutely so. Capital gains tax has been around for as long as I can remember. It’s a tax when you sell something. It’s the fundamental thing. If you don’t sell something, you don’t pay capital gains tax and therefore some, especially labor. But some government bodies have labeled it a wealth tax because generally the wealthier people will pay capital gains tax throughout their life, whereas less wealthier people may not. Classically, if you’ve got a rental property and you sell that rental property, that’s where you’re going to pay capital gains tax. It’s on the increasing value. Okay, so you bought a property for 50 grand 10 years ago. You sold it for 75 grand. Now you’ve made a 25 grand gain and that’s what you pay capital gains tax on. For quite a while the annual allowance has been $12,300. Okay, that means that if your gain was under $12,300, you don’t pay any capital gains tax separate from the income tax personal allowance, but very similar to that. So income tax personal allowance is $12,570, capital gains tax allowance last year was $12,300. And not because of crypto. But I think one of the reasons that the government made these decisions is because more people were making more regular but lower amounts of gains. So again, it could be shares. If you buy shares in a company and then you sell shares in a company for a different amount. That’s also capital gains tax, so long as it’s outside an ISA or a SIP, because they’re tax wrappers. So if you have investments in a tax wrapper it’s outside the scope of UK tax.
Dr James:
Or a limited company, just to be clear, because it’s a personal tax right.
Mike:
Yeah, this is all personal. So if you do things in a limited company, then different rules apply. It is subject to tax. It’s just subject to corporation tax and there’s no cattle allowance in limited companies. They’re taxed on any gain. So what the changes are that in the current tax year your annual allowance is £6,000. So it’s been halved. And from next tax year, from April 24, it will be £3,000. So it’s getting halved again and it’s expected that it will remain at £3,000. But the impact is generally obvious If you make a gain now of over £6,000, you’re going to pay capital gains tax on that gain, and next year, if you make a gain over £3,000, you’ll pay capital gains tax on that. So it’s deliberate. It’s bringing more people into tax on their investments. Capital gains tax rates excluding UK residential property, which is a different way. Is it UK? The thing is all residential property. It’s 10% or 20% and if you’re a UK dentist working as a sole trader, it’s likely going to be 20%, because you’re probably earning over 50 grand elsewhere from your dentistry. So you need to do the work, or your accountant needs to do the work. You need to ascertain what your gains are when gains generally property that you don’t live in. So if you live in your house, you get principal primary residence relief, so it’s outside the scope of CGT. But rental properties, stocks and shares not in an ice or a pension and probably and quite fundamentally to this group, cryptocurrency investments as well, which is much coming into play. Are we in another bull run, james?
Dr James:
If the prophecies are true, mike, if the prophecies are true, if the historical patterns continue to play out as they did before, then yes, and certainly that’s what everybody’s getting hyped about it depends on your time horizon, you know, doesn’t it? You know, if your time horizon is near a term in crypto, then one to two years what we would expect to happen is for there to be the bull run inverted commas, and that’s probably the explainer as to what that is probably a podcast for another day, 20, 30 minute explainer itself. The bull run basically means this euphoric phase of buying in which the price of crypto traditionally shoots way up and hits a peak and then crashes. But, as I said, actually that’s a good idea for a podcast to explain that in more detail. And if the prophecies hold true, as I was saying earlier, that would be expected to happen over the next one to two year timeframe. If your time horizon is longer in crypto four years or more well, the historic patterns would say that you’ve actually never, ever lost money, because if you project forward four years every single time, then you’ll be able to see that the price of Bitcoin is at least a party or more at that level, but, like I say certainly not financial advice, not. The crypto is a regular product. What we want to do is inform ourselves on how crypto works and then make educated decisions off the back of that. That’s my answer to is it a bull run? Not the Twitter answer. Yeah, let’s go to the moon.
Mike:
That’s my answer. So with CGT, there’s still planning opportunities. There always has been that, there is still. It’s just a lower amount. So to give an example, if you bought let’s use easy numbers if you bought 10 grand worth of Bitcoin and they’re now worth 15 grand in this current tax year, you can sell all your Bitcoin for 15 grand. Crystallize a gain of five grand. 15 grand let’s your purchase price of 10 grand, because that’s within your capital gains allowance. You won’t pay any CGT on that and then so long you wait 30 days you have to wait 30 days and then buy that Bitcoin back. You’ve now got Bitcoin worth 15,000 pounds that you paid no tax on. So you can use your annual allowance every year to increase the cost of your cryptocurrency or our assets and not pay any tax. It’s just that the opportunity’s got lower.
Dr James:
I’ve got a million, billion, trillion questions on what you’re saying, mike, and I want to hear you talk about that even more because there’s lots of more things to say on that specific topic. But I need to ask this question while it’s in my head because I know I’m going to forget, and it’s really valuable. Here’s the thing about most people’s relationship with crypto and probably my relationship is represented here as well, from being honest. So here’s the thing. Whenever you bought the crypto personally, I look back on my first four years in the crypto I didn’t even think about tax. I was just like let me buy some crypto, leave me with me. So some of these investments are from like 2017, 2018, they’ve been in there for ages. I’m certain I didn’t even declare them at the time. Leave me with my accountants. So let’s say that let’s use a 10 grand example. So let’s say someone bought 10 grand in crypto in 2017, and now it’s worth. Let’s go 15 grand, Because if we would have declared that, then it would be within the six grand threshold. So let’s say, all of a sudden, 15 grand just appears in your bank account and they haven’t declared that investment way back in the day. How would that work? What would happen?
Mike:
Have you traded in this example? Because it makes a difference to trading or holding.
Dr James:
Brilliant question. Let’s just say I’ve bought and held the whole time.
Mike:
Keep it simple, yeah, fine. So capital gains tax is a selling tax. So if you don’t sell something, you don’t pay any tax. So I could have bought 10 grand worth of Bitcoin 10 years ago. If I’ve just sat on it, you’ve got nothing to declare, nothing to report, no worries at all. When you sell it, you then look at the sales value less the purchase value and that’s the figure that goes on your tax return.
Dr James:
Brilliant. So, just and just to be hyper specific on that, where I was really focusing in on just then with that question is would I have had to have let my accountant know at the time that I put that 10 grand in the crypto world? Oh, brilliant, oh, thank God, you don’t need to report when you make an investment.
Mike:
You need to report when you sell an investment.
Dr James:
I mean, isn’t that okay? Then we’ll be ready to wait.
Mike:
Let’s take that just a step further in the remember if you trade between coins Bitcoin to Ethereum, bitcoin to any other coin, any other coin to any other coin that is a sale. You are selling one coin and buying a different coin. So it’s not when you convert back to fiat that you need to think about capital gains tax. It’s when you sell any coin and buy any other currency coin, whatever it is. So a lot of people, especially historically, this is all very new as well to HMRC and to everyone. But historically what some people thought is that right, I’m going to buy some crypto, I’m going to trade between crypto coins and then only when I take the money out and bring it back into fiat, into my bank account, would I need to report that. That’s not true. It’s whenever you sell a coin and buy different coins. So I’ve got clients that done very well from cryptocurrency. They spend days trying to work out how much money they’ve generated each year and they’re using cryptocurrency software Coinly, recapio, various other platforms are available With them. You need to put good data in to get good data out. If you put crap data in, you’re going to get something that’s completely wrong out and you can’t rely on that and report it to HMRC. So yeah, if you’ve got a lot of money in crypto, you’re going to spend a lot of time working out your gains or paying someone to work out your gains, even if you’re using software, unless you’re on the ball and making sure that you’re recording it as you go and making sure everything’s in there.
Dr James:
Yeah, it’s worth mentioning. It gets real messy real fast if you’re moving lots of things around. It really does, and it’s really hard to follow. And I like Recapio for that exact purposes. My understanding of Recapio is it only really works terribly well when you have a centralized exchange, as in one that has KYC as a know your customer, and what that means is that obviously the exchange has a record of who you are for the exact purposes, and then when you start to move it to decentralized exchange, it just gets messy as hell. So, yeah, you’re right, it keeps some sort of record. Is it like 100% foolproof? Probably not. I’ve seen that like first time myself. There’s numbers just flying everywhere. It’s a right thing on the backside, but anyway, I was going to say one thing on that. Oh, it’s going totally out of my head. I can’t remember what it was. Yeah, no, what you were saying. Yeah, super important to know that, like if to BTC, that’s a transaction, or if to a random altcoin, that’s also a transaction. Are you with me? Yeah, but anyway let’s we’ll come back to crypto. Let’s take a step back from crypto for just a second, is it didn’t mean to suck? Oh, I was just about to take a step back for crypto and then I remembered my question, which is about crypto. So let’s, do that, and then we’re officially going to move on from crypto for now. And now, what did you guys think of ETFíz?
Mike:
In what regard? Are you buying them or you get generating income from them? What would you?
Dr James:
Let’s. Let’s say, let’s say that you buy an NFT will leave the income side of things for the moment, because, you’re right, that is a separate, that is another fast set to it. Really, let’s just say you buy the NFT for ten thousand and you sell the NFT for thirty thousand and you do it this tax year. Would that be treated with that? We treat it as capital gains, or yeah.
Mike:
Generally, most things in crypto will be capital gains, with the exception of staking and or airdrops or Anything that is generating income. So it NFTs most likely capital gains if you so staking, for example, advice, advice, state some coins and then they gave me Some money back for it, for staking, staking it, that is income and that’s taxed on your tax return in the miscellaneous income pages, so in income tax. So the difference being income tax, twenty, twenty, forty or forty five percent, where’s capital gains taxes, ten or twenty percent?
Dr James:
Sweet man, because I know that when you trade or when you sell conventional art that’s considered a, is it a chastle, is it?
Mike:
when it comes to tax, wasting shadow, yeah, yeah, what is that term? A chattel Shack? Shadow is a French word, I believe. Yeah, it’s a thing. It essentially means object. You know that, yes, and yeah, and you know this. Different assets have different CGT rules. So whiskey, for example, should be CGT free. Yeah, yeah, classic cars, cg cars, in general, cgt free. So there’s definitely some assets out there that you can invest in and that you won’t pay capital gains tax on. Watches, for example, it’s a wasting shadow, so it’s outside the scope.
Dr James:
So physical art is considered a shadow. Digital art is an.
Mike:
Nfts is not considered a shadow yeah, mainly because you can’t touch it.
Dr James:
it’s not an object okay, you know, I heard just as a quick aside. I went to where was it? It’s called, like the, the Balne Hinge whiskey Call distillery, something like that. So it’s a local whiskey company that’s opened quite close to where presently reside, which is in Northern Ireland, and they were saying, apparently this is a relic from like the flippin eighteen hundred. Right in their distillery you have to have some representative of the MRC who’s there at all times, right? Apparently this thing I don’t know if you’ve heard of this is there at all times, and the reason why is this is because they have to be there when the whiskey comes out of the cask. Okay, to measure the quality of the whiskey, right, because what everybody does is they’ll take the whiskey, it’s it’s taxed on the percentage of alcohol per night and tell me if I’m talking BS or not. But this is how I understood it, right, when I was at the factory tour. So they tax on the percentage of alcohol. So obviously, if you’ve got fifty barrels of whiskey, you take a sample from one of the MRC, you’re going to put some water in there, right, and see if yourself potentially some money on the tax fund. Have you heard that?
Mike:
I have. No, I must admit I know what you’re talking about. You got bonded warehouses which essentially you can see you can transfer, transport whiskey and other assets around the country. So I’m going to bonded warehouse. You don’t pay any tax on it. But as soon as you take the whiskey out of the warehouse, the bonded warehouse, that’s when it becomes taxable, not capital gains tax, it’s tax. It’s I believe it’s alcohol duty tax. It’s a different tax, not something that I get involved in. And, yeah, can be very expensive, which is why you can get some decent deals on casks of whiskey and people think this is great. And then you know they look at the bottling price of the same whiskey and assuming it’s going to be as good quality in twenty years from now or better, and they go well, I can make a buck ton of money here, but I don’t realize that in order to get into a bottle we’ve got to pay tax getting out of the car and into the bottle.
Dr James:
Okay, so that that does slightly corroborate what I’m saying by the signs of it but anyway, listen, here was listening, don’t quote me on that. I heard it. My mind might have just kind of danced that up a little bit into a cool story. I’m pretty sure that’s what I took from that experience. Anyway, something to research. Anyway, let’s pull it back to capital gains tax. All right, cool. So this is something you touched upon just a second ago. So traditionally, my understanding capital gains tax, yes, it’s only when you crystallize the asset. It’s the tax. You crystallize the asset as it is, and then what that would mean is to traditionally, as in prior to this present tax year, anything over twelve thousand three hundred pounds is ten percent, and that’s providing that your total taxable income doesn’t exceed fifty K, in which case it becomes twenty percent, or that’s right? Yeah, so tell me this right, we’ve got the six K. Now everything over six K is ten percent. When we hit the fifty K, is it still twenty percent? Is that how it works?
Mike:
He, brought the. Yes, it’s a bit more technical than that, but you’ve got. You got your capital allowance free, which is six K this year. You then got to look at what your other incomes doing and, broadly, if you’re a basic rate tax payer because your total income from other sources is under fifty K, then you’ll pay twenty percent, that’s right. Ten percent on the game, until your income is over into the higher rate threshold, which sits at fifty thousand two hundred quid, assuming you got a personal allowance. So where your income tax would go to forty percent, your capital gains tax goes to twenty percent.
Dr James:
Yeah, okay, cool, and then. So there’s no other changes of foot other than the threshold is half and the threshold will half again in next, or anything else we should know about.
Mike:
No, it’s expected to remain at three thousand pounds. I think if labor get into power they may play around with it. They’ve always been against what? Against capital gains tax, ie the fact that it’s lower tax at lower rates and income tax. So there’s always a chance a different government would align that ten and twenty percent to twenty and forty percent to bring it into line with income tax. Don’t know, touries Don’t necessarily mind capital gains tax, which is why they have a lower rate. Reason being, I am if you tax something so much when you sell it, people don’t sell it and they just pass it on through generations in their family. And so it’s it’s. It will be played with, without a shadow of doubt, but at this moment in time there’s no other changes on the horizon.
Dr James:
Am I right in saying that traditionally, the UK has been quite favorable when it comes to capital gains tax relative to other countries? And the reason I say that is this. I heard the reason I this is just one resource. It can’t pretend like research. This low is that? I was. I was looking at Dutch capital gains tax and yeah, apparently it’s really high, like it’s like 30, 40%, whereas the UK 10, 20%. You know, as tax goes. That’s like a merit, basically, you know, and they’re all about their low tax, right there.
Mike:
Yeah, yeah, and I don’t simple answer. I don’t know. I don’t know much about foreign tax legislation and the percentages that other countries pay. I don’t imagine much of less than 10 or 20%. Because 10 or 20% is low, it’s probably fair or maybe too fair in some people’s eyes.
Dr James:
But this is the thing, though, right, like government, like recently, a lot of government policy is like a little bit austere and it seems to be tightening up. You know, over the decades, right, and to me the capital gains tax was a flipping gimme. You know what I mean. I’m surprised no one plundered that sooner, to be honest with you, because it’s really quite reasonable.
Mike:
It is nice and ISIS in the UK as well. There’s not many countries that have similar legislations to ISIS where you can get money into an investment and it’s outside of tax completely, and I know lots of people that still aren’t utilising their ISIS where I’m not an independent financial advisor so I can’t advise. But you know, I utilise my ISIS where I see it’s a very beneficial thing because you don’t pay any tax on any gains in them.
Dr James:
You know, let me just touch on that and then let’s move on to tax planning, because we should 100% cover that in this podcast. There’s one thing you said to me once. It always stuck with me, right, and I don’t even know if you remember saying it right, but it really it made me think, and I actually tell people about this sometimes. So obviously you’re an accountant and I think it’s fair to say that accountants they’re very good with numbers, but they don’t actually learn how to invest a bit like dentists, right, like that’s not really taught. Now, what people presume is oh, you know about numbers, you know about finances. Well, actually, they’re kind of two separate things, right. So accountants are really good at maximising how much money you can save, but maybe not even familiar with processes like compounding, right. So I’ve heard people come to me and they’re like oh, james, you know my, my outgoings are 30 grand a year and I want to take 50 grand out of my limited company to be able to pay that, right, you know. And then there’s a little bit left for tax and what have you? I haven’t pretended we’ve done precise numbers there, but in and around that, that’s enough to pay those outgoings and then also have some money left over for tax. And then they’re like my accountant told me not to touch every single other penny in the limited company, right? They said don’t do that, like don’t even put it in your ISA, right? And I asked you this question once, right, because you are a fair with both sides of things. And you said James, I’m totally happy to take 100K out of a limited company where it means I can max out my ISA.
Mike:
You’ve got to pay tax at some point in your life and you know there’s a lot of people especially dentists, but a lot of other people in different industries as well that trade is limited company and they live on four grand a month because four times 12 is 50 grand and therefore they are really tax efficient because their personal tax is so low. You’ll pay about three, four grand a year in personal tax. If you take 50 grand out of your limited company, okay, it’s really really cheap. And then they come to me at the end of the year and they go. Mike, I’m depressed. I want to go on holiday, I want to go on the better, I want to buy the better car to drive, I want my kids to go into private school and I have absolutely no personal savings whatsoever. But I’ve got 200 grand in my limited company. Can I take it? The answer to that is absolutely yes, and what people don’t do is they don’t plan when they need their cash. So in a career, you’re going to need cash, you need to buy a house, you need to put your kids in nursery, potentially private schools, you need to go on holidays and enjoy life. There’s no point working like a dog and not enjoying the finer things in life. So for me and it’s massively opinionated for me if I could live on four grand a month, I would still be taking seven grand a month out of my company, paying a bit more tax now. Yes, it gets more expensive when you start going into those higher rates again, but filling up my ISA, because in four years from now I’m going to have 80 grand in my ISA and at that point I might go to my accountant at the time. I want to buy this house. It’s my dream house for the family. If I step back four years ago, I had two choices One, have 100 grand in my limited company now and pay less tax now than for the next four years. Or two, have 80 grand in my ISA and when you get to that fourth year in this example, you go well, okay, you want the house. You’re going to need to take the money. You take 100 grand from your company now. You’ll pay 50 grand in tax. You’ve got 50 grand left. If you had done and topped up your ISA, you would have 80 grand in your ISA and therefore, by smoothing it out over the career, you’ve got more cash that you can spend. Yes, you’ve paid more money at the higher rates. But I can guarantee there’s very few dentists out there that generally are going to be earning 80, 90, 100, 120 grand a year. That will get through their career living on four grand a month.
Dr James:
Bro, that came from here. Man, that was passion right there. That was awesome. I’m so glad I asked you, bro.
Mike:
Well, it’s true, life’s too short to be perfect from a tax perspective. You’ve got to enjoy life. You only get one life To be perfect from. Tax isn’t going to mean you’re going to enjoy everything in your life that you probably should enjoy when you’re earning a higher amount.
Dr James:
To paraphrase one of a really nice way that I heard. I had someone articulate. What you were explaining just there to me was this they said, james, the numbers are only one dimension. Yeah, and it’s so true. You literally look at the piece of paper in front of you and think to yourself okay, how can I maximize how much money it’s in the bank account here? It’s so one dimensional, it’s so one dimensional. There’s so much more to life than that. And yes, for living as well, you literally have only one option on this earth, and that’s a big thing that I preach as well. Investing is brilliant. I think investing is really great. Investing is more for future James and future Mike. What about the hearing? Now there’s, you can have the best plan in the whole wide world. You could literally be gone from this earth to one. So you want to have, you want to have consideration for both sides. How can I have some fun now, live the life that I want, however that looks, and also make suitable plans for the future, also make suitable considerations for the future. At least that’s my philosophy. And then it’s suitable provisions for the future. Let’s develop that further. Let’s talk about tax planning, bearing in mind the new CGT rules.
Mike:
Yeah, fine. So with the CGT rules, again, it’s about utilizing your annual allowances still. So if you’re in crypto or shares outside of an ISO, make sure that you are, year on year, crystallizing sufficient to not pay any tax or pay a very little amount of CGT, and then read that to reinvest it. You can reinvest it or go and spend it. Other things at this time of year that you know, as an accountant, we think about is your pensions as well. So, very Again, a very important thing for dentists to be thinking about is what’s going with your pensions. Nhs pensions is a very complex pension, so let’s assume you don’t have an NHS pension just for ease of conversation. If you do, you need to take an advice from an IFA and or accountant. You still get tax relief on pensions so you can put money into a pension and by doing that you will save tax. So if you’re a dentist earning 120 grand a year, 10 grand a month, you’ve got very minimal dental expenses. You could be thinking about putting 20 grand gross into a pension right now and what that will do is save. You Do the maths, should be able to do it in my head 12 grand, 60% in tax. Broadly, it works. Because of the grossing up thing, it works slightly differently, but you can save tax by putting money into a pension, and it’s something that a lot of dentists are good at ignoring and not.
Dr James:
I thought you were going to go the opposite way with that.
Mike:
I thought you were going to go with other pensions. Again, it’s the classic, it’s the balance, it’s the tipping scale. Do I want to lock my money away in a pension for a very long time? You know it will be a long time for young dentists. Do I need the cash in my back pocket now? Generally, if you’re in that really expensive bracket between 100K and 125K, generally the scales will wade towards putting money into a pension, because you can put a reasonably modest amount into a pension and save so much in tax that actually when you go well, if I put 10 grand now into a pension, I’m going to pay 4 or 5 grand less to HMRC when I come to pay my tax. I might as well find that cash and inject it into a pension.
Dr James:
I’m 32 and I’ve never contributed to a pension.
Mike:
Here’s some advice for you. Do it. Open one now, even if you put 20 quid in it. I put something in it because you have these things called annual allowances and you only allow to utilize annual allowances if you’ve got a pension. Okay. So if you don’t have a UK pension, you can’t carry forward unused allowances. So by opening a pension now and putting 20 quid into it, in a year, two year, three year, four years from now, if you then decide to put money into a pension, you can put a lot more into a pension because you’ve recoup generated this annual allowance.
Dr James:
Oh, you know what You’re actually spot on, and for some reason I never even put two and two in my head together and thought I should probably do that because you can roll it back like a few years. The contributions in one year can be included on paper for the contributions for like three years before, right?
Mike:
In other words, yeah, you’re allowed 60 grand a year to put into a pension. That’s your limit at this moment in time. If you’ve got an old pension or any pension NHS pension is fine then you’re allowed to carry forward your unused allowances from the previous three years. Which means that if in four years from now you decided you wanted to put 200 grand into a pension, if you’d done that and you didn’t have a pension, you would be paying annual pension tax charges, whereas if you put 20 quid now, four years later, you can put four times 60 grand 240 grand into a pension and get tax relief on that. So just by making that small trade change now you’re going to make your life easier in the future. But assuming in four years you want to put a lot of money into a pension who knows?
Dr James:
Well, the door’s open and it’s beautiful and listen. That’s really, really, really great. So thank you, and I’m sure that might have helped some people who are listening as well.
Mike:
Okay, one quick side step on CGT, because something that I’m seeing quite regularly at the moment is there’s a reporting requirement for anyone that does a tax return and it’s going to get more common because of the reduced annual allowances. So what it is is if you make a gain, that’s within the annual allowance. So let’s say you make a five grand gain this year it’s within the six grand that you’re allowed, most people. Well, you don’t need to put that on your tax return. So within the allowance, you don’t need to put it in the tax return unless your proceeds are over four times the annual allowance. So last year, 12,300 quid times four meant you needed to sell 49 grand £49,200 worth of assets to have to report it. I’m sorry, let me explain this a bit better.
Dr James:
No, no, no, I’ve got it. I’m just. I believe I’ve got it right. So what you’re saying is that, like, say you invested if I’ve understood this correctly, correct me if I’m wrong right, say you invested 50K back in the day, right 2017, and then you sold. You sold that same collection of assets for 53K. You would make four grand profit, which is under the sixth grand, but you still have to declare it because it’s four times the allowance right, exactly exactly that.
Mike:
So it’s a reporting requirement. You don’t pay any tax on it, but because you have to be filing a tax return. So if you’re not filing a tax return, you’re an employee. This doesn’t. This isn’t appropriate for you. But if you’re filing a tax return and you sell assets for four times the annual allowance, even if you make a gain within the annual allowance, you still need to report it. So there’s a lot of missed obligations, a lot of people missing that because and with the three grand, because it’s gonna be three grand from April four times three grand’s 12 grand. So if you’re selling anything for over 12 grand, you need to be putting it on your tax return, even if you don’t have any CGT to pay.
Dr James:
Of course, and that’s prior to the changes. Well, 12 grand, you wouldn’t even blink, it wasn’t a consideration, and 12 grand now is like, obviously that’s pertinent, okay, interesting, good to know. As well as that, it’s important. We declare losses, right, so we can write off the future gains against it, right? Yeah, yeah, yeah, yeah.
Mike:
So if you make a loss, you need to report it, put on your tax return. You carry it forward until the point where you make a gain. When you make that gain, you can offset your previous loss. So very important, especially in the dire days of crypto losing money. Lots of people made losses and people just go. I don’t need to do anything with that, do I? No, you need to report it to HMRC so you can then offset it in the future.
Dr James:
Hell yeah, man, the better market right when everybody loses money. Basically. Yeah, so if that happens, so good to declare it, because you can actually make money. Well, you can save yourself tax from that in the future. Okay, listen, mike, flipping wealth of knowledge and bro, we can’t leave it so long until you get back on the Dennis.
Mike:
M podcast. It’s been like a year.
Dr James:
That’s wacky bro.
Mike:
Yeah, it might be longer, I don’t know. Can’t remember long time Mental mental.
Dr James:
Anyway, just before we round up, obviously we’ve covered the majority of the ins and outs of capital gains tax and the changes that are in place and also incoming. Anything else we need to know?
Mike:
Yeah, one thing that I wanted to bring up is HMRC are looking at cryptocurrency investors and they’re asking the big platforms to provide information to them on the users of their platforms. And I think in 2027, all certainly centralized platforms will be required to give information to HMRC, which means if you’re not declaring your cryptocurrency gains, you need to do something about it, because there’s been. I mean, if you go back quite a while, there’s a thing called let property campaign, where HMRC just went to the land registry office and said who owns multiple properties? Let’s look at their tax returns and see if they’re declaring any rental income. And then, more recently, there’s been the Worldwide Disclosure Facility, where HMRC have gone to other big pretty much every country not every big country where all the world have signed up to this and they’ve gone. Who’s got foreign bank accounts in foreign countries? Let’s see if they’re putting any foreign interest on their tax returns and, if not, sending letters out to let people know they’re looking into them and they should correct their tax returns. The next one’s crypto. Okay, hmrc will be writing to people that are using cryptocurrency platforms and saying we’ve looked at your tax return. We’re not sure you’ve reported everything in your tax return that you should have. Is there anything that you want to disclose now? And if you do it now, we’ll lower the penalty that we’re going to impose onto you. They’re bringing out it’s not out yet, but it’s coming out. I don’t think it’s out yet. Anyway, it’s coming out very, very soon a cryptocurrency disclosure facility where people can go yeah, look, guys, I’ve got cryptocurrency, I haven’t reported it. I’m going to report it now and by going through that process you’ll get a lower penalty. You’ll probably get a 0% penalty. They’ll probably say look, give me the tax you owe. We’re going to charge you some interest, but we’re not going to penalize you If HMRC come and target you and inquire into you and you don’t openly say, yeah, I’ve made an error with my taxes, they can charge you up to 100% penalty. Yeah, so double tax basically. So, to end on a high, if you have got cryptocurrency and you haven’t been reporting it, the advice very much is to go through that disclosure report. It make sure you’re going forward. It’s on your tax returns and if it was 22, 23, the tax deadline was yesterday you can amend that tax return for the next 12 months anyway, and so you can just go and amend that tax return if there’s something in there that you meant.
Dr James:
It’s like an arms amnesty kind of think about it. Yeah, there you go. Okay, listen, good to know. And you might have said this but what’s that scheme called?
Mike:
What the cryptocurrency?
Dr James:
Yeah, the cryptocurrency amnesty thing. Is there an input? I?
Mike:
assume it will be the cryptocurrency disclosure facility. I’m not entirely sure, but if you Googled it HMRC, cryptocurrency disclosure it will come up. Like I said, I don’t think it’s out quite yet, but it’s coming out very, very soon.
Dr James:
Awesome man. Mike, thank you so much for your time today. We covered a lot of ground and you know what we said. We stick to CGT, but there was a little extra 20, 30% in there of other cool stuff, which is always awesome. So more bang for your buck on the Dennis Hume Best podcast. Mike, let’s not be strangers. Let’s get you back on the podcast very, very, very soon. Much love, my friend, and I hope you have a good fashion Thursday.
Mike:
Thanks.
Dr James:
Mike.