Message Font: Serif | Sans-Serif
 
No. of Recommendations: 0
Can anyone please help.

I post for on behalf of someone who owns some US shares -now at a large loss.

He is currently resident in the UK, but is coming to work in the US in mid Jan--probably for a couple of years. If he sells his shares now he would realise a capital loss which he could carry forward against any gains in the UK for up to seven years. No tax is deducted on disposal in the UK. He would then buy them back in the US as he expects the shares to recover.

If he sells in the US he believes that witholding tax of 31% is deducted on the proceeds immediately irrespecive of gain or loss and he then has the hassle and delay of claiming back. Is this so?

Also he doesnt know whether or not a capital loss in the UK can be set aginst any gain in the US rather than using it in the UK when (or if) he returns.

Many thanks

chrisonseax
Print the post Back To Top
No. of Recommendations: 0
If he sells his shares now he would realise a capital loss which he could carry forward against any gains in the UK for up to seven years.

Remember there are significant CGT exemptions in the U.K. - you only get taxed on gains exceeding #10,000 per annum, so it could be a long while before he gets to offset the loss anyway.

If he sells in the US he believes that witholding tax of 31% is deducted on the proceeds immediately irrespecive of gain or loss and he then has the hassle and delay of claiming back. Is this so?

No; at least not in my experience. My proceeds from trading are all gross.

Also he doesnt know whether or not a capital loss in the UK can be set aginst any gain in the US rather than using it in the UK when (or if) he returns.

I think he can set his loss in the UK against any U.S. gains as long as he makes the trades in the same residency period. I don't think he can take the loss if he is UK resident when he sells, and US resident when he makes gains. However, you/he would really have to consult tax code as this area is fairly complex.

If I were him, I'd take the loss when I was a US resident and offset against US income. The CGT provisions in the UK are far more generous than the US ones, and I think he'll definitely get more benefit offsetting the loss against income.



Print the post Back To Top
No. of Recommendations: 0
Shoot!

My previous answer assumed these gains were short-term. If long term, then my answer may change. Long term gains and losses are treated differently in the U.S. than short term. I haven't been here long enough to have long term gains/losses so my answer only applies to short term.
Print the post Back To Top
No. of Recommendations: 0
Thanks WeeBeastie for your detailed reply.

However I am still confused about the witholding tax.
The effective purchase price of his shares was approx $17,500, but they are now worth less than $4,500. Would he have 31% of the $4,500 sale proceeds withheld immediately, or does he, as in this country have until the end of the tax year to work out any taxable gain and pay the tax , or alternatively claim a loss.

Also in the UK there is a flexible tax shelter vehicle called an ISA. It is not aimed simply at retirement as the common US tax shelters seem to be. Is there anything like this in the US?

Also is it possible, as here, to sell shares outside a tax shelter and thereby crystallize a gain/loss, and then buy back inside an ISA tax shelter without involving any 30 day 'tax wash' rules.

I take it from what you wrote that there is no specific tax exeption for capital gains (like the $10.000 pa allowance in the UK). But $3.000 can effectively be ignored by setting it against income tax.

Thanks for any help you can give.

chrisonseax




Print the post Back To Top
No. of Recommendations: 0
Answers (and my apology for not checking in for a couple of days):
1)Would he have 31% of the $4,500 sale proceeds withheld immediately, or does he, as in this country have until the end of the tax year to work out any taxable gain and pay the tax , or alternatively claim a loss.

I do not have any withholding taken on my proceeds. The tax system in the US is nowhere near as efficient as in the U.K. Even employment taxes are a crap-shoot. However, although I don't have withholding taken from my proceeds, it doesn't mean that other brokerages won't withhold. Yes, I settle up at year end when I submit my tax return.

2)Also in the UK there is a flexible tax shelter vehicle called an ISA. It is not aimed simply at retirement as the common US tax shelters seem to be. Is there anything like this in the US?

There are no tax efficient savings vehicles in the U.S. with the exeption of retirement accounts. Even those are really stingy. Hey, this is the US! We want people to spend, spend, spend!! You can't be encouraging saving, y'know! Every single cent earned in interest, dividends and capital gains is taxed. Even worse, there is no cost indexing so they'll even tax inflation!

3)Also is it possible, as here, to sell shares outside a tax shelter and thereby crystallize a gain/loss, and then buy back inside an ISA tax shelter without involving any 30 day 'tax wash' rules.

Doesn't apply - there are no tax efficient vehicles.

4) is no specific tax exeption for capital gains (like the $10.000 pa allowance in the UK). But $3.000 can effectively be ignored by setting it against income tax.

$3,000 of the loss can only be ignored here because it will be set against current year income. This is only available in the year of sale. If carried forward, the remainder of the loss will be netted against capital gains only. It's not the same as getting tax-free gains every year. There are no tax-free gains here :(

And as a P.S.: let your friend know that s/he will likely pay more tax here than in the U.K. despite what popular opinion may be. People here state the highest tax rate of 39% and the average of 31%. It is....for Federal tax only. Then there's State Tax and FICA and Medicare and Social Security and State Disability. Just a wee FYI. I got a big surprise when I realized what my net was!

Best of luck to your buddy.
Beastie.
Print the post Back To Top
Advertisement