Capital Gains/Section 104

Tomabz

Hi, I have a relatively large quantity of shares built up in an ex-employers share scheme. The time has come to start divesting these shares and I am looking at the CGT implications. The shares have built up over a number of years and been allocated in various ways.
Reading the guidance on the HMRC website, I think that these need to be considered as a Section 104 holding?
To work out the amount that I can sell each year to stay below the CGT threshold, I think that I need to consider them as a pool of shares and work out the prices that I paid for each batch of shares and work out, what is essentially an average price for each share. This is obviously doable, but a shedload of work.
Speaking to ex-colleagues, nobody else seems to do this, they tell me that provided that I sell less than the CGT limit each year, then “everything is fine”. I realise that the chances of getting caught by HMRC doing that is probably small, but it worries me.
My question is, have I got it wrong?
Do I only need to consider Section 104 if I exceed the CGT threshold?
Am I making hard work of this and should I just do what “everybody else” does?
Do I really need to go back over some 30 years to work out the acquisition costs?
I would really appreciate an answer to this question from someone who really knows!
Regards
Tom

dales1

Tomabz wrote: »

provided that I sell less than the CGT limit each year, then “everything is fine”. I realise that the chances of getting caught by HMRC doing that is probably small, but it worries me.

That's correct and fine and perfectly legal. If your gains (not sales) are below the CGT annual allowance, you're OK.
The only hitch is that, if you are in self-assessment, and if you sell over 4 times the cgt allowance in the year, you have to send your full S104 calculations to HMRC even though no tax may be due.
https://www.gov.uk/capital-gains-tax/work-out-need-to-pay
So you may need to keep full records in case this calculation is ever needed.
And you may want to do the calculations, to see if you are maximising your gains each year within the allowance.

Tomabz

Hi, thanks a lot for the reply.
So, it seems that I have been “over-thinking” it?
In a given year, I can just pull out a few share certificates from the bunch, do my own calculation on sale vs. purchase cost of those particular shares, make sure that I am below the CGT limit for that year and not bother telling HMRC? (I AM in Self Assesment, which is why I am thinking about this stuff). I would keep a record, but don’t even have to think about that Section 104 nonsense?
(I would always stay below the 4x CGT limit for sales)
Regards
Tom

eskbanker

No - you essentially have two options:

1. Ensure that the sale proceeds (not gains) in any tax year are below the CGT threshold; or
2. Work out the average unit price of all your shares and use this to calculate gains, as per section 104

dales1

No, you must comply with the s104 "pooling" calculations for all of your shares. You cannot select individual share purchases.
But if (as your friends advise) you never sell more than £11k or so (ie the CGT allowance) of share proceeds, (and no other asset sales) then your gains will certainly not be taxable or reportable.
If you sell slowly over the years like this, you're without worries for cgt.

If you sell a lot of shares in one year, then you've got some calculations to do, to work out the actual taxable capital gains.

It's not too difficult, as long as you've got the full background details of every share cost price and number of shares (less commission paid).
PS eskbanker is correct and quick and succinct (damn him !)

Tomabz

Thanks a lot guys, I think I have it.
Eskbanker, very clear summary - cheers!

I still think my friends are being overly simplistic though, they are selling amounts with a total sale price over the CGT limit on the basis that they “know” the gain (not the proceeds) is below the limit. That is likely true, but not based on calculation of the pooled cost. In the greater scheme of things, their profits are not huge and HMRC will likely never know.

Now that I have started to dig out all my old records, I will do the calc as I wanted to be able to maximise my gain to the CGT limit for a few years and don’t want to risk getting a nasty surprise at some point in the future. As you say, it’s not a difficult calculation in itself, the time consuming bit is going through bundles of certificates/counterfoils for shares accumulated over a lot of years. Some of which were reasonably sized chunks from maturing grants, but those ones are well outnumbered by the regular (3 monthly) dividend shares that I get in place of cash dividends. Yes, I should have kept better records along the way - lesson learned!

Thanks again and best regards
Tom