Capital Gain on Shares

Robster88

Hello,

I am getting a bit flummoxed regarding how to work out the capital gain when selling shares, particularly working out the average cost price.

I understand the basics, and the advise from gov.uk (https://www.gov.uk/tax-sell-shares/same-company) but not sure how that would work in practice when working out the average cost of shares over a long time with lots of buying/selling in-between.

(For the examples I'm forgetting about tax free allowances etc and just imagining that I'd have to pay tax on any gain, however small, to make things simpler.)

Lets say in 2005 I bought 500 shares in ABC Ltd for £1 each. Then in 2010 I bought 500 more for £1.50. I understand that the average cost price would then be £1.25 per share.

What if then in 2011 I sold 200 shares at £2 a share, and then bought 500 more in 2012 for £2.50. How would one work out the average cost price then?

Would I take the 200 shares I sold in 2010 off the 500 I bought in 2010 or the ones I bought in 2005. Is there a rule about this or is it up to the individual to decide to minimise capital gains?

Taking the 2010 example, I still have the 500 shares I bought in 2005 for £1, 300 of the shares I bought in 2010 for £1.50 and then 500 shares I bought in 2012 for £2.50. The average cost price is then about £1.31 a share.

Taking the 2005 example, I now only have 300 of the shares I bought in 2005 for £1, 500 of the shares I bought in 2010 for £1.50, and 500 of the shares I bought in 2012 for £2.50. The average cost price is then about £1.77 a share.

Presumably for tax reasons I would want the average share price to be £1.77 so the gain would seem smaller.

This is obviously a very simple example, but say I had held shares in a company for 25 years or so with dozens of lots of buying and selling over the years, would I still need to have the buying and selling prices of every trade to work out the average cost price for capital gain purposes?

Many thanks,

grey_gym_sock

Robster88 wrote: »

Lets say in 2005 I bought 500 shares in ABC Ltd for £1 each. Then in 2010 I bought 500 more for £1.50. I understand that the average cost price would then be £1.25 per share.

What if then in 2011 I sold 200 shares at £2 a share, and then bought 500 more in 2012 for £2.50. How would one work out the average cost price then?

for the 2011 sale, you use the average cost to date, viz. £1.25 per share. so you have a chargeable gain of £400 - £250 = £150. and your remaining 800 shares still have an average cost of £1.25 (= a total cost of £1000).

in 2012, when you buy another 500 shares for £2.50 each (= a total cost of £1250), that gives you a current pool of 1300 shares, with a total cost of £2250, so the average cost is now c. £1.73077.

you don't have a choice about which costs to use.

there are different rules when you buy and sell on the same day, or buy up to 30 days after a sale.

it can indeed get very complicated if you have many purchases over the years.

Linton

grey_gym_sock wrote: »

.....

it can indeed get very complicated if you have many purchases over the years.

Which is a very good reason to hold your investments in an ISA. It avoids the complications and also avoids the need to maintain detailed records so that you can justify your tax declarations should this be required by HMRC.

jimjames

Based on the numbers given the CGT would be nil as you're way below the annual exemption bands anyway. You need over £11k of gains before you need to pay CGT.

Robster88

grey_gym_sock wrote: »

for the 2011 sale, you use the average cost to date, viz. £1.25 per share. so you have a chargeable gain of £400 - £250 = £150. and your remaining 800 shares still have an average cost of £1.25 (= a total cost of £1000).

in 2012, when you buy another 500 shares for £2.50 each (= a total cost of £1250), that gives you a current pool of 1300 shares, with a total cost of £2250, so the average cost is now c. £1.73077.

you don't have a choice about which costs to use.

there are different rules when you buy and sell on the same day, or buy up to 30 days after a sale.

it can indeed get very complicated if you have many purchases over the years.

I see, that makes more sense - I didn't seem right that you had a choice about which cost to use.

Robster88

jimjames wrote: »

Based on the numbers given the CGT would be nil as you're way below the annual exemption bands anyway. You need over £11k of gains before you need to pay CGT.

Yes I know, those numbers were just to explain the concept simply, I realise you wouldn't actually need to pay any tax on those sorts of gains.