Are dividend tax credits offsetable against CGT?

[minstrel]

I'm doing my personal tax return. The plan was to use VCT tax relief to offset CGT gains.

However, I'm doing it online and what happens is that the CGT calculations appear outside the income tax calculations.

My CGT liability is £x.

Income tax minus VCT allowance and 10% tax credits comes to £x credit which I was intending to use to offset my £x CGT liability.

However, because the 10% tax credit is "not repayable" the online calculator makes my income tax liability (excluding CGT) £0 rather than £x credit. This is before it starts looking at CGT.

It's therefore telling me that I owe £x in CGT when I think this should have been offset against the 10% tax credit.

Does anyone know if this is correct? It effectively means tax credits can't be used to offset CGT. I know the CGT part of the online return is new so I guess it might be a problem with the calculator.

I checked with my accountant last year and he said that what I was planning was fine and VCT and tax credits could be used to offset CGT.

[Hex]

I don't know about VCT reliefs, but the 10% tax credit on dividends is a credit you can use against dividend income received.

Capital Gains Tax is payable on capital gains and the 10% tax credit on dividends received is not relevant when calculating the tax payable on capital gains.

[minstrel]

Capital Gains Tax is payable on capital gains and the 10% tax credit on dividends received is not relevant when calculating the tax payable on capital gains.

It's relevant to me! Hector is saying I can't use 10% credit to offset against CGT. How is the tax owed on CGT any different to tax owed on a salary (which can be offset by 10% tax credit)?

Surely, I have a bunch of tax liabilities and a bunch of tax credits/reliefs and I should be able to offset any liabilities against any reliefs?

[DaveB]

It's relevant to me! Hector is saying I can't use 10% credit to offset against CGT. How is the tax owed on CGT any different to tax owed on a salary (which can be offset by 10% tax credit)?

Surely, I have a bunch of tax liabilities and a bunch of tax credits/reliefs and I should be able to offset any liabilities against any reliefs?

No.

Dividend tax credits apply to dividend payments. Dividend payments do not fall under the rules for Capital Gains Tax. Dividends are not a capital gain.

Also, dividends are not salary. Treating them as such will get you an IR35 failure.

VCT tax relief only applies to shares in specific companies that are retained for more than 5 years.

You can't just pick a tax relief and apply it where ever you want.

[minstrel]

No.

Dividend tax credits apply to dividend payments. Dividend payments do not fall under the rules for Capital Gains Tax. Dividends are not a capital gain.

Also, dividends are not salary. Treating them as such will get you an IR35 failure.

VCT tax relief only applies to shares in specific companies that are retained for more than 5 years.

You can't just pick a tax relief and apply it where ever you want.

I'm not mixing up salary and dividends - I know the difference.

OK - let's forget the dividend stuff completely. I'll use my dividend tax credit to offset against my dividend income.

Then the question becomes why can't VCT relief be used against CGT liabilities?

[DaveB]

I'm not mixing up salary and dividends - I know the difference.

OK - let's forget the dividend stuff completely. I'll use my dividend tax credit to offset against my dividend income.

Which is what you are supposed to do and is the only way you can use the dividend tax credit. The hint is in the name.

Then the question becomes why can't VCT relief be used against CGT liabilities?

Because VCT relief only applies to personal income tax and is calculated against the value of shares bought in Venture Capital Trusts, the clue is in the name again.

It has nothing to do with CGT and cannot be used to offset CGT. In fact investments in VCT's are actually exempt from CGT in the first place.

As I said before, you cannot arbitrarily apply tax relief to tax liabilities unless the two are actually connected.

[minstrel]

Thanks Dave.

I think the problem is I thought CGT was a kind of income tax.

It appears that is not the case. Salary, Dividends, Expenses, Bank Interest etc all count as income. CGT is a completely different unconnected tax it just happens that you pay it at the same time as income tax.

It would have been good if my accountant knew as much about CGT as you do.

OK - so where do I stand now with my accountant? I gave him all the figures and he agreed that VCT relief could be used to offset CGT. If that is not the case I've lost money as a direct result of his advice.

Can I make a claim against him or do I just go around with a baseball bat?