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Sam
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Category: Tax
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I'm sorry this is going to be quite a complicated question.

Resolved Question:

I'm sorry this is going to be quite a complicated question. In September 2008 I invested some money with a wealth management company. £72,000 was invested in a Bond and £3,600 in the Stock Market under an ISA Wrapper. This question relates to the £72k. The £72k was wrongly invested by a representative of the company resulting in a loss and I complained this year which has just been upheld. The company are reimbursing my loss by assuming that the money should have been invested in "a one-year fixed rate bond compounded annually". The amount I am receiving from the company exceeds the CGT limit for 2015/2016. My question is: is CGT payable on this amount, or as it's "technically" a yearly bond reinvested can this amount be absorbed over the last 8 years and no CGT is liable? Thank you.
Submitted: 1 year ago.
Category: Tax
Expert:  Sam replied 1 year ago.
Hi
Thanks for your question
May I ask the difference between th £72,000 invested and what you actually got back and the amount of money you actually got paid out -
And of that amount that was paid out, how much of it compensated you for the "Loss" and how much reflected the interest that would have been due.
Finally the award should have seen tax suffered (under PAYE/Schedule E) or you would have been provided with a chargeable gain position - can you clarify this.
Thanks
Sam
Customer: replied 1 year ago.

Thanks for your prompt reply. Second part first, there is no mention in the letter about tax whatsoever and in case it's relevant, I'm self employed.

The breakdown is:

Investment £72,000

Assumed amount at fixed rate bond £83,828.15

Surrender value received £62,783.37

Total loss £21,044.78

They are offering £373.62 ex-gratia payment in lieu of interest at 8% simple interest from 12th June to 1 September

Which gives £21,418.40 and they are rounding this up to £21,450 as a gesture of goodwill.

Jane

Customer: replied 1 year ago.

I need to go out for an hour, I will log back in when I return. Thank you for this.

Jane

Expert:  Sam replied 1 year ago.
HI Jane
You are very welcome for the prompt reply.
Of the loss paid - £9216.73 just brings you back equal to your original investment so this will NOT be subject to capital gains- just the additional amount (so £21044.78 minus £9216.73) which amounts to £11828.05 less the exemption amount for the year £11,100 - which will leave £728.05 liable
I certainly would suggest you argue this with HMRC and ask them if top slicing relief applies - as HAD these amounts been earned at the relevant time, then there would not have been any charge arising. Write a letter to the Technical Team HMRC (let me know if you need an address - but should be on any correspondence you have received)
I will advise its a long shot, but I do feel you have scope to argue this as were it not for the wrong investment being made this situation would not have arisen.
But if they say no - worse case scenario (if you are a 40% taxpayer) is the liable amount of £728.05 at 28% (capital gain rate) = £203.85 and if a basic rate taxpayer then this is charged at 18% = £131.05
Then you also have the interest awarded that will be liable to Income Tax - and as you were awarded £373.62 (and note ex gratia does not mean tax free!) this is liable at 40%/45% is a higher rate taxpayer or just 20% if a basic rate taxpayer -
SO worst scenario
45% £168.13
40% £149.45
20% £ 74.72
Less any tax charges you will have suffered on this payment as appropriate deductions SHOULD have been made
Let me know if I can be of any further assistance with this matter
Thanks
Sam
Customer: replied 1 year ago.

Thanks Sam, I'd forgotten about restoring it to the original amount before GCT so you've saved me there. Can you let me have an address, or should I write to the Tax Office that does my self-employment assessment? As of this year people don't pay tax on savings income up to £5000 and I would assume that the "interest" they're paying can be counted in this. This year I was just under the amount to pay tax (ie under the £10,000 personal allowance) and my interest income is only in the hundreds, so there shouldn't be any other tax implications. Am I right in these assumptions?

Jane

Expert:  Sam replied 1 year ago.
Hi Jane
You are welcome ! Thats the beauty of using this site we are able to apply all the applicable tax reliefs, as well as allowable deductions - and in this instance the difference to compensate for to the genuine loss.
Tax free savings applies if your income is less than £15600 which you had not indicated was the case - if it is then you still have to declare the interest and HMRC will know whether they can disregard it (although by the time the 2015/2016 tax returns have been produced - the entry on the tax return MAY state if your income is less than £15600 then no need to declare) But until those returns exist (after 05/04/2016) I cannot say for sure.
But as your income clearly is less than this limit - then you are correct no tax will be due on the interest.
If you have the self assessment address then use that - but it changed again during 2014/2015 I have provided the latest postal address here
Self Assessment
HM Revenue and Customs
BX9 1AS
United Kingdom
Let me know if I can assist further - but it would be appreciated if you could rate the level of service I have provided so Just Answer credit me for my time
Thanks
Sam
Sam, Accountant
Category: Tax
Satisfied Customers: 13776
Experience: 26 HMRC expertise, PAYE, Self Assessment ,Residency, Rental Income, Capital Gains, CIS ask for Sam Tax
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Customer: replied 1 year ago.

Thank again Sam. I'm about to rate you - you've been brilliant.

Jane

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