CGT and the 30 day rule

C_Mababejive

Hi all,

just checking i have this right..

I own some shares in Amalgamated Amalgamations in a share dealing account outside of an ISA wrapper.

I sell them up to my annual CGT allowance.

I understand i have to wait 30 days before i repurchase the same share.

Why? surely i have sold, used up my CGT allowance and should therefore be free to buy?

If i sell my shares in AA which are held outside an ISA wrapper and then repurchase them the next day (Bed and ISA) and i correct in that the 30 day rule is not applicable?

Thanks

HappyHarry

C_Mababejive wrote: »

Hi all,

just checking i have this right..

I own some shares in Amalgamated Amalgamations in a share dealing account outside of an ISA wrapper.

I sell them up to my annual CGT allowance.

I understand i have to wait 30 days before i repurchase the same share.

Why? surely i have sold, used up my CGT allowance and should therefore be free to buy?

If i sell my shares in AA which are held outside an ISA wrapper and then repurchase them the next day (Bed and ISA) and i correct in that the 30 day rule is not applicable?

Thanks

The thirty day rule does not apply to Bed and ISA, as the new shares purchased are inside an ISA and therefore exempt from CGT.

Why does the 30 day rule exist? To stop people selling and repurchasing the same shares each year, using their annual CGT allowance to reduce tax on long-term holdings. It was the Inland Revenue's way of bringing in more tax.

See here: https://www.oldmutualwealth.co.uk/Adviser/literature-and-support/knowledge-direct/individual-taxation/capital-gains-tax/30-day-bed-and-breakfast-rules-and-cgt/

TBC15

For CGT when you sell shares or units some of which were purchased at separate times what order are they assumed to be disposed of?

ColdIron

1. First Shares acquired on the same day as the disposal (the ‘same day’ rule).
2. Second Shares acquired in the 30 days following the day of disposal (the ‘bed and breakfasting’ rule) provided the person making the disposal was resident in the United Kingdom at the time of the acquisition if the relevant acquisition was on or after 22 March 2007.
3. Third Shares in the Section 104 holding.

https://www.gov.uk/government/publications/shares-and-capital-gains-tax-hs284-self-assessment-helpsheet/hs-shares-and-capital-gains-tax-2015

TBC15

If I bought 1000 shares in the year 2000, 1000 shares in the year 2005, 1000 shares in in the year 2010 and 1000 shares yesterday and if I sold 2000 shares today what from a CGT perspective would be the shares I had actually sold?

Edit. Just found out what a section 104 holding is, share price on acquisition for CGT is total acquisition price for all shares divided by number of shares held.

bowlhead99

TBC15 wrote: »

If I bought 1000 shares in the year 2000, 1000 shares in the year 2005, 1000 shares in in the year 2010 and 1000 shares yesterday and if I sold 2000 shares today what from a CGT perspective would be the shares I had actually sold?

You would have sold 2000 of your 4000 shares which is half of all your shares. So the relevant costs of those shares are half the costs you spent buying all those shares.

Compare that to the proceeds and see if you made a profit or not.

TBC15

Would a non-resident selling up his holdings before return to UK have to wait 30 days before repurchasing?

talexuser

If you reinvest dividends throughout the tax year and thus increase the number of shares...

eg buy 1000 shares in April at price A, have 4 dividends through the year total 40 extra shares.

Sell 500 shares of 1040 total next March at price B to use up allowance.

Is gain simply 500 x (price A - price minus costs?

540 shares left.

Next year you so the same at the end of the tax year. Presumably the 500 sold are calculated from price A.

You now have 80 shares left from 2 years of dividends.

What is the calculation for their starting price, the average from price A to current?

EnglishMohican

My question is very hypothetical to make the maths simple for me but the basic situation must be possible if I have understood what has been said so far.

In Year 1, I buy 5140 shares at £40.57 each. In year two, I buy 2860 more of the same shares at £52.37 each. The section 104 average cost is £44.79.

In year 3 I sell 2860 shares unfortunately for exactly the price I paid for them (£52.37) and make an apparent capital gain of £21690.17 (2860 *( 52.37-44.79) ) on which I pay tax.
In year 4 I sell the remaining 5140 shares and the stock market has collapsed so I sell them for £40.57 each - the original price I paid for them. Now I make an apparent capital loss of 21690.17 (5140*(40.57-44.79)).

Have I understood the process correctly and done the sums correctly and in year 4, can I go to HMRC and ask for the tax that I paid in Year 3 back - as in fact I have made £0 gain overall.

I believe I can count the loss in year 4 against any gain I made in the same (and subsequent) years but if they were my only shares ever, can I have (effectively) the tax back as cash.

bowlhead99

TBC15 wrote: »

Would a non-resident selling up his holdings before return to UK have to wait 30 days before repurchasing?

If he wants the proceeds of that 'selling up' disposal to be matched with the purchase of the shares he previously owned, and not with the purchase of the shares that he is just re-buying, then that would seem to be right.

bowlhead99

talexuser wrote: »

If you reinvest dividends throughout the tax year and thus increase the number of shares...

eg buy 1000 shares in April at price A, have 4 dividends through the year total 40 extra shares.

Sell 500 shares of 1040 total next March at price B to use up allowance.

Is gain simply 500 x (price A - price minus costs?

No, it is basically 500/1040ths of the purchase price of all the 1040 shares. The purchase cost of all the 1040 shares includes the cost of the first 1000 which were acquired at price 'A' per share, and the cost of the next 10 and the next 10 and the next 10 and the next 10 which were bought with dividend proceeds and acquired for prices 'W', 'X', 'Y', 'Z' at the time of spending the dividend proceeds on them.

From knowing the total cost of ALL the 1040 shares (which is greater than what you paid for just the first 1000, because it includes what you paid for the last 40 too), you can divide the total cost by 1040 and see the price per share. Say that's 101p a share. It might be more than the 100p or whatever that was Price A. Forget Price A. You are looking at what did you pay, on average, for ALL the shares. Which includes the shares that were purchased out of dividend proceeds.

When you sell 500 shares, you are selling shares that cost £505 so you take the £505 and the £10 sale costs off the proceeds you got for selling the 500 shares (maybe £600) and you make your £85 profit.

540 shares left.

OK, in the example above, the 540 shares had an average cost of 101p each or £545.40.

Over the course of the year you will be buying 10 more shares with your first dividend proceeds at price R, then another 10 a few months later at price S, then another 10 at price T, then another 10 at price U. So in total the cost of your pool of 580 shares will be £545.40+ (10xR) + (10xS) + (10xT) + (10xU).

Maybe all those shares R, S, T, U were acquired with an average cost of 105p per share. So the 40 extra shares cost £42 on top of the 540 shares you had at the beginning of the year which cost £545.40, so your total pile of 580 shares cost £587.40, which is 101.276p each, and you will use that cost per share when selling the next slice.

Next year you so the same at the end of the tax year. Presumably the 500 sold are calculated from price A.

No, we forgot price A quite early on because it is no longer relevant. You are holding 580 shares which cost £587.40, which is 101.276p a share.

If you choose to sell 500 of them: the cost of the shares sold, at 101.276p each is £506.38. Or another way of looking at it is that you are selling 500/580ths of something that cost £587.40 which is £506.38.

You now have 80 shares left from 2 years of dividends.

What is the calculation for their starting price, the average from price A to current?

As you just calculated, you had 580 shares costing £587.40, and if you sold 500 of them with a cost of £506.38, the 80 you have left must have cost £81.02.

Which would make sense given we know they cost £101.276p each because we have been tracking the overall average price of the pool as we add cost when buying and remove cost when selling.