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Investment and Retirement Planning
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I'm expecting to get several thousand pounds when my mutual society demutualises later this year. Do I have to pay tax?
The answer depends on exactly how much you will receive, and whether you have made any capital gains or losses in the current tax year.
Assuming that you have not made any other disposals giving rise to a gain or loss in the current tax year, you will only have to pay tax if you receive more than £8,200.
If you have made gains or losses, these will be aggregated with your demutualisation, and there will be tax to pay only if the total exceeds £8,200.
In addition, you may have losses on disposals in previous years, available to offset against 2004/05 gains. Again, this could reduce your total below the taxable threshold.
Finally, if you are going to have to pay tax, you might consider taking loan notes instead (if they are offered as an alternative). This could allow you to spread your gain out over two or more tax years - deferring payment of the tax, and perhaps enabling you to avoid tax altogether by using several years' annual CGT exemptions, or offsetting losses in the future.
For the record, if you do pay tax, it will be at the savings income rate - taxing your gains as if they were your top slice of income, at rates of 10%, 20% and/or 40% as applicable.
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