CGT Bed & Breakfasting Rule

cardsharps

Hi, I sold my entire portfolio of shares a few days ago and used up this tax years entire Capital Gains Tax allowance of £10,100 in the process. The thing is I want to buy back (in the next week or so) shares in some of the companies which I have just sold.

I know that there's some rule against doing this (see link below) but to be honest I don't quite understand it. In layman's terms can anyone tell me how this rule may affect me? Thanks in advance

http://www.hmrc.gov.uk/budget2006/bn27.htm

CLAPTON

basically it says

lets suppose you buy 10,000 shares at £2 for £20,000 of shares in jan 2009

then you sell the 10,000 of shares for say £35,000 of shares (i.e. at £3.5 per share) on 3 May 2010 so making a profit of 15,000
so you would normalaly be liable for cgt on 15,000 -10,100 i.e. 4,900 assuming you haven't used your cgt allowance

however if you now buy 20,000 shares within 30 days of the 3 may 2010 the cgt calcaluation above is disregarded and you are deemed not to have sold them at all... so no cgt is payable but equally you are deemed to hold 10,000 at a price of £2 per share

cgt will be calaculated when you subsequently sell them

Mikeyorks

cardsharps wrote: »

In layman's terms can anyone tell me how this rule may affect me?

In very simple terms ...... you will be considered to have merely re-acquired the shares just disposed of. So there will be no capital gain to offset against your allowance.

With CGT very likely to increase back to marginal rates ..... it's a position to consider carefully. Either waiting out the 30 days ...... or doing the re-acquisition in your ISA if the value of shares / your allowance permits that? As that (bed and ISA) gets you round the 30 day rule.

Biggles

CLAPTON wrote: »

however if you now buy 20,000 shares within 30 days of the 3 may 2010 the cgt calcaluation above is disregarded and you are deemed not to have sold them at all... so no cgt is payable but equally you are deemed to hold 10,000 at a price of £2 per share

Not exactly. You are still deemed to have sold them on 3 May but you are also deemed to have bought those shares at the price you re-bought them at, if inside 30 days.

So there must still be a CGT calculation, though there may not, in most circumstances, be a very great difference between the (re)buying and the selling price. However, there could still be a capital gain or loss, however small.

And you do still, in theory, hold those shares at the original price (£2 in this example).

property.advert

So it is now bed, derivative, breakfast ?

cardsharps

Biggles wrote: »

Not exactly. You are still deemed to have sold them on 3 May but you are also deemed to have bought those shares at the price you re-bought them at, if inside 30 days.

So there must still be a CGT calculation, though there may not, in most circumstances, be a very great difference between the (re)buying and the selling price. However, there could still be a capital gain or loss, however small.

And you do still, in theory, hold those shares at the original price (£2 in this example).

Hi, I understand Clapton's response but yours has left me a little confused to be honest. Thanks, I'll try reading it a few more times and see if I can get it.

p.s. although I have made a gain of £10K overall, most of the shares that I want to buy back have actually fallen in price since I originally bought them. So this bed and breakasting rule would work to my advantage as I would be deemed to have bought them, for CGT purposes, at a higher price than I actually had. But then the shares I have actually made a gain on and may not buy back would push me over the £10,100 CGT allowance in this tax year so I'd have tax to pay which I obviously don't want.

I'm really confused now. I'll either have to get a tax accountant or maybe wait 30 days to play it safe. The HMRC sure know how to complicate things. Thanks one and all.

RayWolfe

cardsharps wrote: »

The HMRC sure know how to complicate things. Thanks one and all.

Like most complications to tax law - just like other law - they are made to stop people who have found loopholes in the original law! Give an inch and people take a mile. But hey! That's what lawyers thrive on.

Biggles

cardsharps wrote: »

I'm really confused now. I'll either have to get a tax accountant or maybe wait 30 days to play it safe. The HMRC sure know how to complicate things. Thanks one and all.

A tax accountant would take up a lot of your gains.

This calculator is free, there are one or two similar around but this seemed the best when I compared a few years ago, and they keep it up to date with the new rules http://cgtcalculator.com/default.htm.

You can put in your chosen dates of sale and repurchase and see what it tells you. Then you can try several different scenarios and see which works out best for you.