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  • FIRST POST
    • C_Mababejive
    • By C_Mababejive 10th Mar 17, 9:05 PM
    • 10,251Posts
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    C_Mababejive
    CGT and the 30 day rule
    • #1
    • 10th Mar 17, 9:05 PM
    CGT and the 30 day rule 10th Mar 17 at 9:05 PM
    Hi all,

    just checking i have this right..

    I own some shares in Amalgamated Amalgamations in a share dealing account outside of an ISA wrapper.

    I sell them up to my annual CGT allowance.

    I understand i have to wait 30 days before i repurchase the same share.

    Why? surely i have sold, used up my CGT allowance and should therefore be free to buy?

    If i sell my shares in AA which are held outside an ISA wrapper and then repurchase them the next day (Bed and ISA) and i correct in that the 30 day rule is not applicable?

    Thanks
    Feudal Britain needs land reform. 70% of the land is "owned" by 1 % of the population and at least 50% is unregistered (inherited by landed gentry). Thats why your slave box costs so much..
Page 1
    • HappyHarry
    • By HappyHarry 10th Mar 17, 9:43 PM
    • 400 Posts
    • 475 Thanks
    HappyHarry
    • #2
    • 10th Mar 17, 9:43 PM
    • #2
    • 10th Mar 17, 9:43 PM
    Hi all,

    just checking i have this right..

    I own some shares in Amalgamated Amalgamations in a share dealing account outside of an ISA wrapper.

    I sell them up to my annual CGT allowance.

    I understand i have to wait 30 days before i repurchase the same share.

    Why? surely i have sold, used up my CGT allowance and should therefore be free to buy?

    If i sell my shares in AA which are held outside an ISA wrapper and then repurchase them the next day (Bed and ISA) and i correct in that the 30 day rule is not applicable?

    Thanks
    Originally posted by C_Mababejive
    The thirty day rule does not apply to Bed and ISA, as the new shares purchased are inside an ISA and therefore exempt from CGT.

    Why does the 30 day rule exist? To stop people selling and repurchasing the same shares each year, using their annual CGT allowance to reduce tax on long-term holdings. It was the Inland Revenue's way of bringing in more tax.

    See here: https://www.oldmutualwealth.co.uk/Adviser/literature-and-support/knowledge-direct/individual-taxation/capital-gains-tax/30-day-bed-and-breakfast-rules-and-cgt/
    Last edited by HappyHarry; 10-03-2017 at 9:44 PM. Reason: Link added
    I am an Independent Financial Adviser. Any comments I make here are intended for information / discussion only. Nothing I post here should be construed as advice. If you are looking for individual financial advice, please contact a local Independent Financial Adviser.
    • TBC15
    • By TBC15 11th Mar 17, 9:29 AM
    • 180 Posts
    • 47 Thanks
    TBC15
    • #3
    • 11th Mar 17, 9:29 AM
    • #3
    • 11th Mar 17, 9:29 AM
    For CGT when you sell shares or units some of which were purchased at separate times what order are they assumed to be disposed of?
    • ColdIron
    • By ColdIron 11th Mar 17, 9:38 AM
    • 3,378 Posts
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    ColdIron
    • #4
    • 11th Mar 17, 9:38 AM
    • #4
    • 11th Mar 17, 9:38 AM
    1. First Shares acquired on the same day as the disposal (the ‘same day’ rule).
    2. Second Shares acquired in the 30 days following the day of disposal (the ‘bed and breakfasting’ rule) provided the person making the disposal was resident in the United Kingdom at the time of the acquisition if the relevant acquisition was on or after 22 March 2007.
    3. Third Shares in the Section 104 holding.

    https://www.gov.uk/government/publications/shares-and-capital-gains-tax-hs284-self-assessment-helpsheet/hs-shares-and-capital-gains-tax-2015
    • TBC15
    • By TBC15 11th Mar 17, 11:42 AM
    • 180 Posts
    • 47 Thanks
    TBC15
    • #5
    • 11th Mar 17, 11:42 AM
    • #5
    • 11th Mar 17, 11:42 AM
    If I bought 1000 shares in the year 2000, 1000 shares in the year 2005, 1000 shares in in the year 2010 and 1000 shares yesterday and if I sold 2000 shares today what from a CGT perspective would be the shares I had actually sold?

    Edit. Just found out what a section 104 holding is, share price on acquisition for CGT is total acquisition price for all shares divided by number of shares held.
    Last edited by TBC15; 11-03-2017 at 11:58 AM. Reason: Answered own question.
    • bowlhead99
    • By bowlhead99 11th Mar 17, 12:32 PM
    • 6,692 Posts
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    bowlhead99
    • #6
    • 11th Mar 17, 12:32 PM
    • #6
    • 11th Mar 17, 12:32 PM
    If I bought 1000 shares in the year 2000, 1000 shares in the year 2005, 1000 shares in in the year 2010 and 1000 shares yesterday and if I sold 2000 shares today what from a CGT perspective would be the shares I had actually sold?
    Originally posted by TBC15
    You would have sold 2000 of your 4000 shares which is half of all your shares. So the relevant costs of those shares are half the costs you spent buying all those shares.

    Compare that to the proceeds and see if you made a profit or not.
    • TBC15
    • By TBC15 11th Mar 17, 1:31 PM
    • 180 Posts
    • 47 Thanks
    TBC15
    • #7
    • 11th Mar 17, 1:31 PM
    • #7
    • 11th Mar 17, 1:31 PM
    Would a non-resident selling up his holdings before return to UK have to wait 30 days before repurchasing?
    • talexuser
    • By talexuser 11th Mar 17, 4:10 PM
    • 2,253 Posts
    • 1,725 Thanks
    talexuser
    • #8
    • 11th Mar 17, 4:10 PM
    • #8
    • 11th Mar 17, 4:10 PM
    If you reinvest dividends throughout the tax year and thus increase the number of shares...

    eg buy 1000 shares in April at price A, have 4 dividends through the year total 40 extra shares.

    Sell 500 shares of 1040 total next March at price B to use up allowance.

    Is gain simply 500 x (price A - price B) minus costs?

    540 shares left.

    Next year you so the same at the end of the tax year. Presumably the 500 sold are calculated from price A.

    You now have 80 shares left from 2 years of dividends.

    What is the calculation for their starting price, the average from price A to current?
    • EnglishMohican
    • By EnglishMohican 11th Mar 17, 4:32 PM
    • 164 Posts
    • 85 Thanks
    EnglishMohican
    • #9
    • 11th Mar 17, 4:32 PM
    • #9
    • 11th Mar 17, 4:32 PM
    My question is very hypothetical to make the maths simple for me but the basic situation must be possible if I have understood what has been said so far.

    In Year 1, I buy 5140 shares at £40.57 each. In year two, I buy 2860 more of the same shares at £52.37 each. The section 104 average cost is £44.79.
    In year 3 I sell 2860 shares unfortunately for exactly the price I paid for them (£52.37) and make an apparent capital gain of £21690.17 (2860 *( 52.37-44.79) ) on which I pay tax.
    In year 4 I sell the remaining 5140 shares and the stock market has collapsed so I sell them for £40.57 each - the original price I paid for them. Now I make an apparent capital loss of 21690.17 (5140*(40.57-44.79)).

    Have I understood the process correctly and done the sums correctly and in year 4, can I go to HMRC and ask for the tax that I paid in Year 3 back - as in fact I have made £0 gain overall.

    I believe I can count the loss in year 4 against any gain I made in the same (and subsequent) years but if they were my only shares ever, can I have (effectively) the tax back as cash.
    • bowlhead99
    • By bowlhead99 11th Mar 17, 6:03 PM
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    bowlhead99
    Would a non-resident selling up his holdings before return to UK have to wait 30 days before repurchasing?
    Originally posted by TBC15
    If he wants the proceeds of that 'selling up' disposal to be matched with the purchase of the shares he previously owned, and not with the purchase of the shares that he is just re-buying, then that would seem to be right.
    Last edited by bowlhead99; 11-03-2017 at 6:06 PM.
    • bowlhead99
    • By bowlhead99 11th Mar 17, 6:06 PM
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    bowlhead99
    If you reinvest dividends throughout the tax year and thus increase the number of shares...

    eg buy 1000 shares in April at price A, have 4 dividends through the year total 40 extra shares.

    Sell 500 shares of 1040 total next March at price B to use up allowance.

    Is gain simply 500 x (price A - price B) minus costs?
    Originally posted by talexuser
    No, it is basically 500/1040ths of the purchase price of all the 1040 shares. The purchase cost of all the 1040 shares includes the cost of the first 1000 which were acquired at price 'A' per share, and the cost of the next 10 and the next 10 and the next 10 and the next 10 which were bought with dividend proceeds and acquired for prices 'W', 'X', 'Y', 'Z' at the time of spending the dividend proceeds on them.

    From knowing the total cost of ALL the 1040 shares (which is greater than what you paid for just the first 1000, because it includes what you paid for the last 40 too), you can divide the total cost by 1040 and see the price per share. Say that's 101p a share. It might be more than the 100p or whatever that was Price A. Forget Price A. You are looking at what did you pay, on average, for ALL the shares. Which includes the shares that were purchased out of dividend proceeds.

    When you sell 500 shares, you are selling shares that cost £505 so you take the £505 and the £10 sale costs off the proceeds you got for selling the 500 shares (maybe £600) and you make your £85 profit.

    540 shares left.
    OK, in the example above, the 540 shares had an average cost of 101p each or £545.40.

    Over the course of the year you will be buying 10 more shares with your first dividend proceeds at price R, then another 10 a few months later at price S, then another 10 at price T, then another 10 at price U. So in total the cost of your pool of 580 shares will be £545.40+ (10xR) + (10xS) + (10xT) + (10xU).

    Maybe all those shares R, S, T, U were acquired with an average cost of 105p per share. So the 40 extra shares cost £42 on top of the 540 shares you had at the beginning of the year which cost £545.40, so your total pile of 580 shares cost £587.40, which is 101.276p each, and you will use that cost per share when selling the next slice.
    Next year you so the same at the end of the tax year. Presumably the 500 sold are calculated from price A.
    No, we forgot price A quite early on because it is no longer relevant. You are holding 580 shares which cost £587.40, which is 101.276p a share.

    If you choose to sell 500 of them: the cost of the shares sold, at 101.276p each is £506.38. Or another way of looking at it is that you are selling 500/580ths of something that cost £587.40 which is £506.38.

    You now have 80 shares left from 2 years of dividends.

    What is the calculation for their starting price, the average from price A to current?
    As you just calculated, you had 580 shares costing £587.40, and if you sold 500 of them with a cost of £506.38, the 80 you have left must have cost £81.02.

    Which would make sense given we know they cost £101.276p each because we have been tracking the overall average price of the pool as we add cost when buying and remove cost when selling.
    Last edited by bowlhead99; 11-03-2017 at 6:09 PM.
    • bowlhead99
    • By bowlhead99 11th Mar 17, 6:07 PM
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    bowlhead99
    My question is very hypothetical to make the maths simple for me but the basic situation must be possible if I have understood what has been said so far.

    In Year 1, I buy 5140 shares at £40.57 each. In year two, I buy 2860 more of the same shares at £52.37 each. The section 104 average cost is £44.79.
    Originally posted by EnglishMohican
    OK, agreed. If you sell any shares now, without buying any more, each share you has will be considered to have cost you £44.79 each. Because all the 8000 shares are indistinguishable from each other, they are just sitting in a big bucket called 's104 holding'.

    When you sell one share you will pick it at random from the bucket and know that it cost £44.79. It is impossible to tell whether the specific share you are selling might have originally cost £40.57 or £52.37, because - just like having a bucket of 8000 paperclips that was constantly refilled from 2 or more purchased batches - you don't know or care what what an individual one cost, so you say they all cost, on average, £44.79

    In year 3 I sell 2860 shares unfortunately for exactly the price I paid for them (£52.37) and make an apparent capital gain of £21690.17 (2860 *( 52.37-44.79) ) on which I pay tax.
    OK, makes sense, you are selling a pile of shares which cost on average 44.79 each, for more than 44.79 each, so there's a gain. You have it right so far.

    In year 4 I sell the remaining 5140 shares and the stock market has collapsed so I sell them for £40.57 each - the original price I paid for them. Now I make an apparent capital loss of 21690.17 (5140*(40.57-44.79)).
    OK, so now you are selling shares that, on average, had cost 44.79 each, and you are only getting 40.57 for them. Clearly a loss has been made.
    Have I understood the process correctly and done the sums correctly
    I didn't put them all in calculator to double check but yes the method was correct.
    and in year 4, can I go to HMRC and ask for the tax that I paid in Year 3 back - as in fact I have made £0 gain overall.
    No you can't. You made profits on selling some of your shares at over £50 each when on average you had paid under £50 for the shares. So, a profit was made and tax was due because HMRC wants to tax profits. Although of course they are nice people and gave you an annual exemption in year 3 against your total profits, and don't charge you as high a rate on capital gains as they charge you on earned income, because they want to encourage investment.

    Now you are saying you held on to the rest of your shares until the market fell heavily. That's not HMRC's fault. You have made some losses. You can't go back and say "Oh but I paid tax in the past, can't I get it back". The answer is No. You can carry the loss forward and knock it off gains you make in the future.

    It's a bit like if I earn £60k one year from my job and pay high 40% tax on some of it, and then the next year I only earn £20k, I can't go back and say "ooh but on average I only earned 40k a year which is below high rate tax band so can I have the high rate tax back please.". Answer is no.

    I believe I can count the loss in year 4 against any gain I made in the same (and subsequent) years
    Yes, you can.
    but if they were my only shares ever, can I have (effectively) the tax back as cash.
    No.
    • talexuser
    • By talexuser 11th Mar 17, 7:36 PM
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    talexuser
    we have been tracking the overall average price of the pool as we add cost when buying and remove cost when selling.
    Originally posted by bowlhead99
    Thank you for the clear explanation. So we add up the total cost of the shares over a tax year (minus costs) and divide by the total number of shares to arrive at the average price.

    And that figure is then the start figure in the next tax year for any remaining shares.
    • ColdIron
    • By ColdIron 11th Mar 17, 7:52 PM
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    ColdIron
    The tax year has nothing to do with it, the cost is the cost regardless of when they were acquired
    • bowlhead99
    • By bowlhead99 11th Mar 17, 8:24 PM
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    bowlhead99
    The tax year has nothing to do with it, the cost is the cost regardless of when they were acquired
    Originally posted by ColdIron
    Yes, although Talexuser gave the details year by year, in reality you could/should update your total costs of the 'pool' of shares every time you add shares into the pool, to ensure that if you were to sell any of the shares tomorrow you would already know exactly what the total pile of shares cost and therefore what each individual share must cost on average, for purposes of the disposal calc.

    If you get two or three or four purchases in a row with no sales, you can of course wait until those four events have happened before updating your overall cost / overall average cost calculation right before doing the next sale. But as that exercise will involve pulling out the documentation with details of all the three or four purchases on the various dates, it can be easier to just do it in real time every time there's a purchase (including a dividend reinvestment) so that your info is always up to date.
    • talexuser
    • By talexuser 11th Mar 17, 9:16 PM
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    talexuser
    The tax year has nothing to do with it, the cost is the cost regardless of when they were acquired
    Originally posted by ColdIron
    Understood, thanks. My assumption was using up as much as the CTG limit each year on gains as you can, so eventually you can cash in as much as you like with the minimum CTG owing.
    • ColdIron
    • By ColdIron 11th Mar 17, 9:27 PM
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    ColdIron
    Ah I see. To be clear you are not using your annual £11,100 CGT allowance when you buy your shares even if you buy them over many years. It can only be used in the tax year that you sell them. Then you have the interesting problem of what to do with the sale proceeds to avoid running foul of the 30 day rule unless you are happy to stay out of the market
    • talexuser
    • By talexuser 11th Mar 17, 9:58 PM
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    talexuser
    Yes, thanks, I decided in the end to buy an equivalent fund for 31 days, or just keep it instead, depending on feelings about performance etc.
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