Bed and Breakfasting rule. Do you understand?

lotsadogs

Ok. Im sorry to be a pain,.... again :rolleyes:

I have now waded through a lot of documentation in search of the facts behind the bed and breakfast rule, which it seems I am going to be subject to. I would be greatful if someone could confirm wether my understanding of this is right for CGT purposes......

I am really enjoying learning about all this stuff

I have say 5000 shares in company x and then sell 4000 of them later at a profit. Then, within 30 days, I go onto to buy back another 3000 of those same shares, the same company........

Question is..... Is it that gains made on 3000 (from within the origianl 4000 sale deal) of the originally sold shares are exempt from being included in capiutal gains acccounting?

Or is it that......... gains made on sales of the origianal 4000 are required for inclusion, but gains made on any subsequent sale of 3000 shares are not included becasue the CGT has already been considered within the origianl 4000 share sale?

In other words, which sale of 3000 shares do I account for, the one that was part of the oriiginal 4000 one, or the later, sale of the 3000 sale..

The HMRC website is a bit innocuous methinks, as is much of the other stuff ive read. In fact its about as well written as a badly written bad writing competition. :rolleyes:

Reaper

I think you may be confusing yourself. You certainly confused me!

Capital gains are incurred for tax purposes when a "chargeable gain" takes place. The most common chargeable gain is selling. So when you sold your 4,000 shares you compare the price you bought them with the price you sold them to see what gain (ie profit) has been made. Then you check your allowances to see if you need to pay any tax on it.

It doesn't matter in the slightest if you rebought 3,000 shares. You can ignore that until you come to sell them at which point you do the same exercise again.

thumshie

Is it not if you re-purchase within 30 days you have the effect of never actually selling the shares so no gain/loss to be recorded until you re-sell them, at which point the original buy value is used??

Reaper

Apologies. Yes if you re-buy the same type of shares from the same company within 30 days then they don't count that. It was specifically introduced to prevent "bed and breakfasting" which I should have clicked was what the OP was asking about since that was the name of the thread!

Idiophreak

So you sell 4000, buy 3000 within 30 days, do you pay CGT on the other 1000?

Do you pay it on 100% (ie so all the gains made over the whole original 4000) or 25% (ie that related to the 1000 that were "sold") of the profit?

dunstonh

you could potentially buy the shares inside an ISA within the 30 days. Technically, you are not rebuying the shares. You are buying the ISA. The ISA manager is buying the shares so avoids the 30 day rule. That is why you often see references to "bed and ISA" nowadays.

lotsadogs

dunstonh wrote: »

you could potentially buy the shares inside an ISA within the 30 days. Technically, you are not rebuying the shares. You are buying the ISA. The ISA manager is buying the shares so avoids the 30 day rule. That is why you often see references to "bed and ISA" nowadays.

Thank you for all your help so far, people - very much appreciated.

And yes Reaper the clue was int he title

Yes its the 30 day thing I was asking about and outsiode of an ISA. SO i have to consider the bed and breakfast and CGT.

See Im new to this and have bought and sold enough shares in the last 8 weeks to go over the CGT allowance. Ive since been advised that becasue of the 30 day rule, some of my sales might not count for CGT purposes.

Basically I sold 5000 shares one day, at a big profit, and then bought back 4500 the following day after they had fallen 10 %. If I account for the CGT on the 5000 share sale, do I later, when I sell the 4500 have to account for it again or not - according to the b&B rule? That was what I was trying to establish.

The B&B rule seems particularly poorly defined.

Dave101t

also, what iff you make 10,000 pound losses on share x, but make 10,000 profit on share y, can you argue there is no CGT to pay as they balance out?

lotsadogs

Your not supposed to answer a questions with "Isn't it.....? ":D

That means its being treated like a guessing game

I dont think the inland revenue will be pleased if i "guess" the proper process....

cheerfulcat

lotsadogs wrote: »

See Im new to this and have bought and sold enough shares in the last 8 weeks to go over the CGT allowance. Ive since been advised that becasue of the 30 day rule, some of my sales might not count for CGT purposes.

It's the purchase price, not the sale proceeds, which will be affected by the 30-day rule. The share matching rules require you to identify the shares sold on a last in, first out ( LIFO ) basis; in this case you are deemed to have sold the shares you purchased the second time. So the base cost for 4500 of the 5000 shares you sold will be the 10% cheaper one.

If I account for the CGT on the 5000 share sale, do I later, when I sell the 4500 have to account for it again or not - according to the b&B rule? That was what I was trying to establish.

The second sale will be matched to the first purchase.

This is where ISAs come into their own...

ETA: There is an excellent post on TMF explaining in more detail how the CGT calculations work. Sorry, can't do a link but go to the TMF Taxes board and look for message number
21305.

mrposhman

cheerfulcat wrote: »

It's the purchase price, not the sale proceeds, which will be affected by the 30-day rule. The share matching rules require you to identify the shares sold on a last in, first out ( LIFO ) basis; in this case you are deemed to have sold the shares you purchased the second time. So the base cost for 4500 of the 5000 shares you sold will be the 10% cheaper one.

The second sale will be matched to the first purchase.

This is where ISAs come into their own...

ETA: There is an excellent post on TMF explaining in more detail how the CGT calculations work. Sorry, can't do a link but go to the TMF Taxes board and look for message number
21305.

Ok I thought I got this rule (this is my first year of stating CGT) but you've just confused me. The way that I read it was if you sell and then buy the same share back within a 30 day period these will be caught under "bed and breakfasting" but if you then go over the 30 day period then the average of all your shares is taken as the price per share? You seem to be suggesting that the first set of shares you bought have to be used for CGT first though this isn't what I understood from hmrc.gov.uk.

This is how I thought it works and how I've worked out my capital gain for 0809 and am doing for 0910.

I buy 5000 shares at £1. 15 days later I then sell 2500 of these for £1.25.

25 days after this I then buy the same share back and buy another 2000 shares for £1.

After another 2 months I then sell the lot for £1.50.

I would work out the gain as follows.

I sell 2500 shares at £1.25 for £3125 but then have bought 2000 of these back at £2000. Therefore I have sold 500 shares which had a cost of £500 but received income of £1125 for these shares and will therefore pay capital gains on £625.

I have then got a net cost for the remaining 4500 of £4500. I then sell these for £1.50 and make another capital gain of £2250.

Have I got this right or just confusing things?