CGT - Baffled by Jargon!

HarperBoy

I realise this may be the wrong place to bring my problem, but I am close to despair in trying to get the answer to what I believe is a simple question (though perhaps that just shows how ignorant I am).


I bought 900 BT shares at 335p in the 1993 public offer. On 31 Dec 94, BT gave me 90 bonus shares (1 for 10) as per the prospectus. I subsequently sold all 990. I am confused about the CGT position. I made a single payment of £3015 for the first batch and made no payment (of course) for the bonus 90. So as far as I am concerned I paid £3015 for a total of 990 shares.


However, I have read advice which says in effect that “the price of the bonus shares is treated as 376.25p for CGT purposes”. What does this mean in practical terms? Am I deemed to have paid 376.25p for the 90 shares, a total of £338.62? When calculating profit or loss, should my original £3015 be reduced, or increased, by this transaction? Or does it relate to calculations needed when selling part of my holding, so that - because I sold the whole lot in one go - it has no relevance to me at all? I hope so!

[Deleted User]

I suspect that the price, if you were to sell your shares on 31st December 1994, had to be adjusted to take into account the scrip issue. For example, BT shares were worth 418.05 each on 30th December becoming 376.25 on the next day after the scrip issue.

In my view you are correct - you hold 990 shares at a cost to you of 335 each and this is the figure to use upon disposal.

agrinnall

Does it really matter? Unless you have other capital gains to take into account even the straight sale price of 990 BT shares is way below your annual CGT allowance, and the profit will be much less (in fact, at current price it would appear you may well have made a loss).


Edit: purdy, where does 2004 come into it? There's no mention of a sale date, just subsequent to 1994, if the shares were sold in 2004 I doubt if HMRC would be worrying about CGT 14 years later.

HarperBoy

[Deleted User] wrote:

I suspect that the price, if you were to sell your shares on 31st December 2004, had to be adjusted to take into account the scrip issue. For example, BT shares were worth 418.05 each on 30th December becoming 376.25 on the next day after the scrip issue.

In my view you are correct - you hold 990 shares at a cost to you of 335 each and this is the figure to use upon disposal.

Thanks to PurdyOaten 2, just what I hoped to hear!

HarperBoy

agrinnall wrote: »

Does it really matter? Unless you have other capital gains to take into account even the straight sale price of 990 BT shares is way below your annual CGT allowance, and the profit will be much less (in fact, at current price it would appear you may well have made a loss).


Edit: purdy, where does 2004 come into it? There's no mention of a sale date, just subsequent to 1994, if the shares were sold in 2004 I doubt if HMRC would be worrying about CGT 14 years later.

Thanks, agrinnall. Yes, it is relevant, because I have a whole stack of other acquisitions and disposals (not to mention some fancy footwork to complete around the subsequent BT demerger in Nov 2001). I was just wanting to clarify my starting position before moving on to that lot, so I kept my query to a single problem - for which I have had a helpful reply. You're right, I have made a loss - well, probably, though I still have to take account of the demerger which reduces my valuation at that date by 22.46%. Thanks for your interest.

Keep_pedalling

[Deleted User] wrote:

I suspect that the price, if you were to sell your shares on 31st December 2004, had to be adjusted to take into account the scrip issue. For example, BT shares were worth 418.05 each on 30th December becoming 376.25 on the next day after the scrip issue.

In my view you are correct - you hold 990 shares at a cost to you of 335 each and this is the figure to use upon disposal.

I would have done the same.

I had a lot of BT shares over the years as I worked for them and purchased via share save. I had some odd ones left over which I disposed of but because I had lost the certificates I had no idea what the purchase price or the date of acquisition. As I was well under my CG allowance I played safe and declared the acquisition cost as zero.

[Deleted User]

agrinnall wrote: »

Does it really matter? Unless you have other capital gains to take into account even the straight sale price of 990 BT shares is way below your annual CGT allowance, and the profit will be much less (in fact, at current price it would appear you may well have made a loss).


Edit: purdy, where does 2004 come into it? There's no mention of a sale date, just subsequent to 1994, if the shares were sold in 2004 I doubt if HMRC would be worrying about CGT 14 years later.

I have NO idea where 2004 came from either. I did mean 1994. I remember from the old books that we used to use that, at time of scrip issues, a value date was stated. That was my attempted explanation for the 376.25 figure quoted by the op. See below:

https://www.btplc.com/Sharesandperformance/Financialreportingandnews/Annualreportandreview/Listinginformation/Listinginformation.htm

londoninvestor

HarperBoy wrote: »

Or does it relate to calculations needed when selling part of my holding, so that - because I sold the whole lot in one go - it has no relevance to me at all? I hope so!

Correct, it shouldn't matter as you sold the entire holding.

As it happens, before 1998, or any time since 2008, you would have been fine using this logic even if you were selling part of your holding. That is, imagine you'd sold 60% rather than 100% of what you had. Then your cost basis for the sale would have been 60% x £3015.

Where shares were acquired after 1998 and sold before 2008, the position was a bit different - in that case, when you sold, you worked on a "last in first out" basis rather than treating all your shares as one pool. I'm not quite sure how those rules interacted with stock splits, rights issues etc, but it might have been that it required you to track a separate acquisition price for shares you got that way. So you might have needed to know the "price for CGT of the bonus shares".

However, since 2008, and between 1998 and 2008, when you sell, you just care about the average price of the shares in your "pool".

Article here, including strained metaphor about pools and swimming.

HarperBoy

Thanks, as good as I hoped. Why do the people who make rules have to make them so complex? I'm convinced that a lot of incorrect tax returns are not fraudulent, just confused!

londoninvestor

The policy in the 1998-2008 period was to have Taper Relief, which made gains on long-term investments more tax-favourable than short-term gains.

So if you follow that policy, you do need a rule of matching sales back to purchases, rather than just having an average-price pool of shares.

For example, let's say you buy 100 shares in 1998, 100 in 2000, then you sell 100 in 2002 and the final 100 in 2004.

Now, did you (a) hold 100 shares for 6 years (1998-2004) and 100 for 2 years (2000-2002)?
(b) or did you hold 100 for 4 years (1998-2002) and the other 100 for a different 4 years (2000-2004)?

(a) was the correct answer in that period, but without those rules around matching, it wouldn't have been clear.

Still that was well before I had any taxable gains and I'm certainly happier dealing with it the way it is now!