personal finance

How much CGT will we pay on our Diageo shares?


My wife and I bought shares in Grand Metropolitan, now Diageo, for £1,000 in 1973. We have had the dividends reinvested since that date. The shares are now valued at £137,000. If we decide to sell them will capital gains tax (CGT) be applied and how do we calculate it? Second, can we at this late stage opt to put the shares in a stocks and shares Isa?

Richard Jameson, private wealth partner at Saffery Champness, says the starting point is that you and your wife would each need to calculate the capital gain arising on your respective shareholdings in Diageo. This is broadly calculated as the difference between the proceeds you receive for the shares and their original cost, or “base cost”.

If you have received dividends in the form of shares, you will have been taxed at the prevailing rate of income tax for dividends on either the cash dividend alternative, or the market value of the shares if this is 15 per cent or more than the cash dividend alternative. For CGT purposes, your base cost in the newly acquired shares will be equal to the cash dividend alternative or the market value as set out above.

Richard Jameson, partner at Saffery Champness

However, assets owned before March 1982 are rebased to the market value as at March 31 1982. Therefore, it would be necessary to identify the number of shares you held at this date, and then the March 1982 market value for each share.

You should then add the dividends reinvested after March 31 1982 to the March 1982 value in order to calculate your current base cost in your shares. You may also add any costs of acquisition to your base cost, for example, stamp duty.

In 1997, Grand Metropolitan and Guinness merged to form Diageo. Assuming you exchanged all of your shares in Grand Metropolitan for new shares in Diageo, your base cost in your old shares was rolled over. This means the new Diageo shares are treated for CGT purposes as “standing in the shoes” of the old shares.

In calculating the capital gain on a future sale, you may deduct the costs of sale such as the transaction fees from the gross sales proceeds to calculate the net sales proceeds, from which your base cost would be deducted. You would each deduct your respective CGT annual exemptions (£12,300 for 2021-22) to arrive at your taxable gain.

This gain would be taxed at 10 per cent CGT to the extent any gain falls within your available basic rate band for income tax, and at 20 per cent for any gain above that threshold.

You could transfer your Diageo shares into an Isa. This involves selling the shares, transferring the cash proceeds into an Isa, and then repurchasing them (often known as a “bed and Isa” arrangement). You would be liable to CGT on any gain arising on the sale, as the “share matching” rules for CGT do not apply in this scenario, and you would pay stamp duty on the reacquisition of the shares within the Isa.

An individual’s Isa limit is £20,000 per tax year, so you and your wife could put a combined total of £40,000 worth of shares into your Isas each year (assuming you have not already subscribed for an Isa). You could repeat the bed and Isa arrangement each tax year until your entire shareholding is held within an Isa. Dividend income or future capital gains realised on the shares within the Isa are not taxable.

Will I get a stamp duty bill if we get married?

In September last year my partner and I decided to move in together. I already owned a flat and my partner had never owned property before. We structured a house purchase under a “joint borrower sole proprietor” arrangement, with her being the sole proprietor to avoid me paying the 3 per cent surcharge on additional properties. Will I face any stamp duty land tax liability if we decide to get married? Or is the calculation only relevant at the time of purchase?

Rachel Nutt, senior tax partner at MHA MacIntyre Hudson, says this area of the stamp duty land tax (SDLT) legislation is complex and causes many uncertainties. The joint borrower sole proprietor (JBSP) arrangement is recognised as a way to mitigate the 3 per cent charge in such situations.

The good news is that there will be no further SDLT charge on that property if you now decide to get married. The test is “a moment in time” when you purchase the property and there are currently no anti-avoidance measures that could catch up with you later.

Rachel Nutt, senior tax partner at MHA MacIntyre Hudson

You will however need to be a little more careful when planning further purchases. Once married, you will both be considered to be joint owners of all the properties you own for the purposes of the additional dwelling supplement, regardless of whether you have an actual interest in the property or not. If a legal interest in either of the properties is gifted between you after you are married, the transfers will be exempt from SDLT.

Assuming you are both UK resident and domiciled there will also be no capital gains tax or inheritance tax consequences of a future gift of an interest in properties between you.

You might like to consider buying any future investment properties through a corporate structure. While there is no magic answer here to the SDLT position — there would be a 3 per cent SDLT surcharge in England and Northern Ireland — it may allow you to grow your property investment portfolio in a more tax efficient manner.

Holding property in your own name will mean that post tax rents accumulated for reinvestment will only “roll up” net of 45 per cent income tax, in the worst case, versus in a company structure which only pays corporate tax rates of 19 per cent tax.

Rishi Sunak, the chancellor, announced that corporate tax rates will increase to 25 per cent by April 2023. However, on the basis a corporate landlord can deduct all of their interest costs from their income, and the private owner of property can only deduct a 20 per cent credit for the interest, this would still mean in 10 years, you would likely have a much more significant return than holding the property personally.

The profits or value are in the company so you will need to extract that either via dividend or salary with the associated tax costs at the time.

However, if the portfolio is for retirement planning, and you are both shareholders at the time, this can prove very tax efficient. Some clients even involve adult children as shareholders, paying them dividends to cover university fees.

Mortgage companies are very used to lending to corporate buy-to-let portfolios and you should be able to obtain some competitive rates. Just take care how you transfer properties into the limited company and that properties are not for your personal occupation.

The opinions in this column are intended for general information purposes only and should not be used as a substitute for professional advice. The Financial Times Ltd and the authors are not responsible for any direct or indirect result arising from any reliance placed on replies, including any loss, and exclude liability to the full extent.

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Do you have a financial dilemma that you’d like FT Money’s team of professional experts to look into? Email your problem in confidence to money@ft.com.



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