How panic-y have you got ?

bowlhead99

Pincher wrote: »

So, buy at £16.80, sell at £18.09, but if I buy back today at £17.14, i.e. within 30 days, my understanding is that they treat it as if I hadn't sold at £18.09, due to the anti-bed and breakfast rule. When I do sell again, the acquisition cost is £16.80.

Even if the matching thing doesn't work like how I think it works, the capital gains is within the £11,100 allowance. 10% tax on capital gains if I do go over £11,100 subsequently.

Basically, i think you're right that the matching thing doesn't work like how you think it works

Essentially HMRC don't want people to cash in a nice big gain to use up all their free exemption, only to immediately buy back the exact same shares, because it allows easy scope to cheat the system and catch all your allowances with things that aren't genuine disposals.

So what they say is, if you sell 1000 shares today and buy back 1000 shares next week, we won't match today's sale proceeds with the cost from last year, we'll match it with the cost from next week. So the old shares from last year are considered unsold - you still own them at their old cost and might end up with a taxable gain when you eventually sell them somewhere down the line.

The way you were writing, it sounds like this has you thinking great, as long as I buy back that same number of shares pretty soon, I won't be treated as having sold any of those old £16.80 shares and made a gain selling them at £18.09, whoopee, no tax because I still own the £16.80 shares, treated as never sold, my slate is "wiped clean".

But what it sounds like you're missing is the fact that the only reason you are not treated as having sold the £16.80 Old Shares for £18ish is because you're instead treated as having sold the New Shares for £18ish... Those ones you bought for £17 today or maybe £15 next week.

So, your tax liability doesn't magically disappear - it's simply replaced with a different one. If you decide to buy them back at £15 you now crystallise a gain of £18ish less the 'matching rules' cost of £15, instead of what you were going to have which was a gain of £18ish less real original cost of £16.80. You have almost tripled the taxable gain.

So, while it might be nice to buy in cheaply at £15 if RDSB is still going to come good in the end, you should be careful that the tripling of your gains (without actually having cold hard cash in the bank to show for it, because it's all tied up in shares) doesn't take you over the annual exemption if you're desperate to avoid CGT or going into higher rate band.

With relatively modest purchases it might not -and in any case, paying a bit of tax is fine if you can afford it out of your lovely gains - but it pays to understand this stuff to avoid those nasty £2k surprise bills a year later.

Pincher

I think I get it, if I sell the 1,000 shares on 1st September 2016, for £19.00, it will be matched to the £16.80 Buy.

The anti-bed and breakfast action is to short circuit the short term Buy and Sell, because you still end up paying the capital gains between £16.80 and £19.

This does beg the question as to how day traders can keep track of their buying and selling.


If you trade on volatility,

Day 1 Buy £2.00,
Day 3 Sell £2.20,
Day 7 Buy £2.05,
Day 10 Sell £2.30


Linearly, you think you made 45p this way
= (2.20 - 2.00) + (2.30 - 2.05)

But HMRC sees (2.20 - 2.05) + (2.30 - 2.00) = 45p !! The same !!


So is the matching actually a bad thing for the RDSB trade?

Using Matching:
(£18.09 - £15) + (£19 - £16.80) = £5.29

No Matching:
(£18.09 - £16.80) + (£19 - £15) = £5.29

Ultimately the capital gains is the same, but the crystalised gain is an unexpected amount, like you said.

It is much simpler to have the pairing £18.09 - £16.80 done and dusted for this tax year. If I did buy RDSB at £15 and kept it for ten years for the dividend, it will be a nightmare when I sell it. How am I supposed to remember the Buy was at £16.80, and not £15? Ten years later! :eek: