CGT calculations...

AndyT678

Hi all

I'm hoping to get a definitive answer to a couple of CGT questions. It's a bit fiddly and complex so sit back, relax and grab your thinking caps.

If you don't enjoy persnickety tax discussions I'd recommend finding another thread.

So back in 2008 I bought 185 shares through a SAYE scheme. At the time they were worth about £3,500. They were immediately transferred into a S&S ISA and held there. I must have sold some at some point, I don't remember the details but in 2013 I know I had 101 shares left.

In 2009 and 2012 I exercised further SAYE share purchase options and immediately disposed of the shares resulting in capital gains that were below CGT thresholds. Probably not relevant to anything anyway. My assumption here is that because my existing holding is within an ISA the purchase and sale of these shares does nothing to my average cost for the remaining shares that I continue to own.

In 2013 my employer started a share matching scheme in addition to the SAYE scheme. The rules of this are; you contribute shares, hold them in a nominee account for 3 years and at the end of the vesting period the company matches the number of shares that you contributed on a 1 for 1 basis.

I was allowed to contribute up to 329 shares in this so I transferred the 101 shares I already owned out of the ISA and into the nominee account and added enough cash to purchase a further 228 shares.

Since then there have been regular purchases for new matching schemes each year plus purchases from dividend reinvestment. I know the dates, number of shares and purchase price of all of these.

So I now have a bunch of shares in an unwrapped nominee account and I want to know the average cost so that I can calculate my capital gain on disposal. The only ambiguity so far is the purchase cost of the 101 shares from 2008. Do I:

1. use the 2008 option price, clearly a super safe approach since it can't have been less than that.
2. attribute the difference between option price and market value when transferred to the ISA to my 2008 allowance. Ignore capital growth between 2008 and 2013 when held in ISA and revalue my "purchase" price to the market value when transferred to the nominee account in 2013.
3. something else?

The final complication is the maturity of the first of the matching schemes from 2013 later this year. My 329 shares will be matched and I reckon 139 will automatically be sold to cover income tax and NI.

The question then is how do I value the 329 "free" shares? £0 or market value at date of transfer or something else? Does the automatic sale of 139 shares counts towards CGT allowance? If so, using what purchase cost?

If you've read through to the end of that, my congratulations on your attention span and thanks for any help.

grey_gym_sock

the cost of shares transferred out of an ISA is their market value when they're transferred out.

for the matching shares, since it sounds like you will be paying tax on the value of the shares when you receive them, i assume you'd you the value which you're taxed on as their cost, too. unless the matching shares are under some government-approved scheme, and that has special rules. but i'd be surprised if there was a different answer; taking the cost as nil would be so disadvantageous that i can't see why the employer would do it this way if that were the result.

when you've worked out a cost for the 329 shares, and for the matching shares, add them up, giving you an overall cost for 658 shares. then selling 139 shares should have 139/658 of the total cost set against it. it doesn't make any difference that the sale is automatic.

Pincher

If they structure it this way, there is bound to be some kind of tax advantage it's exploiting.


About 18 years ago, there was a funny thing where we voluntarily reduced our salary by 10%, which became a "performance related pay", which was TAX FREE. Obviously everybody achieved their bonus, and didn't have to pay tax on it. The Inland Revenue withdrew it as soon as they realised the big companies were exploiting it. Thank god for that as well, as our final salary pension will be calculated based on our salary when we left the company, which could have been 10% less because of this short term tax dodge.


I would try to call the HMRC if you can get through.


I had a fiasco with CGT once. I actually used an accountant, who claimed he worked out some gains didn't count, due to some anti bed and breakfast rules. We duly filed the return. By the time the Inland Revenue queried the calculations, he had left his firm and emigrated to New Zealand. The IR then rejected his calculations, but at least I wasn't fined, as it was clearly filed by the accountant.

grey_gym_sock

grey_gym_sock wrote: »

when you've worked out a cost for the 329 shares, and for the matching shares, add them up, giving you an overall cost for 658 shares. then selling 139 shares should have 139/658 of the total cost set against it.

ah, hang on, that's not right ...

will they give you 329 shares and then sell 139 of your shares, all on the same day? if so, then the "same day rule" says that you match with sale with the cost of (some of) the shares acquired on the same day.

in which case, that will probably give you a gain close to 0.

and then only the remaining 190 new shares get added into a pool with your original 329 shares.