Return of Capital from shares - CGT

[TooSlowAgain]

Apologies if this is a silly question, but if something is listed on my account as a "Return of Capital", how do I report this for tax?

[Parky]

Apologies if this is a silly question, but if something is listed on my account as a "Return of Capital", how do I report this for tax?

My understanding is you do nothing until you sell the shares, then subtract the return of capital from the purchase price and pay the CGT at that point.
(But it may be more complicated than that if the amount is large compared to the share price).

[TooSlowAgain]

Thank you - the Return of Capital turns up as cash into the account, not as additional shares - that is why I assumed it would need to be declared somehow?

[Alaric]

Thank you - the Return of Capital turns up as cash into the account, not as additional shares - that is why I assumed it would need to be declared somehow?

You have to treat it either as a part disposal or subtract it from the original purchase price. Unless you do a lot of selling for gain, the annual CGT limit is high enough that occasional disposals or returns of capital are within it. In many cases, you don't even have the disclose the gains to HMRC, a statement that they are within the limits suffices.

From memory, the limits are that the total gains without offsetting losses are within the annual CGT exempt amount and that the total proceeds from sales don't exceed four times the amount.

If it's a part disposal, the Company's website ought to give you the apportionment factors.

[PinkDalek]

Brief reply only but it may assist if you name the company concerned and the date of the cash receipt - as we may have discussed this particular situation in the past and be able to provide further information for your situation.

Apologies if this is a silly question, but if something is listed on my account as a "Return of Capital", how do I report this for tax?

1. In order to calculate your Capital Gains Tax (CGT) figures and as others have intimated, depending on the amounts involved, you either go through the rigmarole of treating the sum as a part disposal (using an A/A+B formula, which can be expanded on in more detail if required) or deduct the entirety from your section 104 pool. That would be applicable broadly if the proceeds were less than £3,000 (or an amount less than 5% of the value of your shares in the company, valued just before the return ex date) but you are not permitted to reduce your section 104 pool base cost to less than zero, should that deduction suit your affairs.

Rather than reinvent the wheel on the latter, Gengulphus went into considerable detail on the latter option, 'small capital distribution', back in December 2018 as part this topic here on Taxes:

viewtopic.php?p=184898#p184898

2. The reporting requirements depend on a number of other factors.

If you already receive a Tax return for completion have a look at https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/829400/SA100.pdf which is for the Tax year 6 April 2018 to 5 April 2019.

That includes Capital gains summary

If you sold or disposed of any assets (for example, stocks, shares, land and property, a business), or had any chargeable gains, read the notes to decide if you have to fill in the ‘Capital gains summary’ page. If you do, you must also provide separate computations. Do you need to fill in the ‘Capital gains summary’ page and provide computations?

The Tax Return notes are here https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/787630/SA150_2019.pdf and include:

Capital gains summary

Fill in the ‘Capital gains summary’ pages and attach your computations if:

• you sold or disposed of chargeable assets which were worth more than £46,800
• your chargeable gains before taking off any losses were more than £11,700 etc. ***

If you don't receive a Tax Return and the return of capital and any other chargeable gains in the tax year do not result in you having any CGT to pay, then you normally would not need to report anything to HMRC (unless, for instance, you wish to claim capital losses to carry forward) but you my still wish to adjust your base cost as per 1. above for future use.

*** Those figures are for the Tax year 6 April 2018 to 5 April 2019. If your return of capital (and any other gains) is in the Tax year 6 April 2019 to 5 April 2020 the respective numbers would be £48,000 and £12,000.

E&OE

[TooSlowAgain]

Thank you for the replies, and the links to previous threads - this has given me some directions so I will take the time to have a good read up about it now. Thank you.