Calculation of Capital Gains Tax

lindabea

Hi everyone, I'd like to understand how to calculate CGT when selling a S&S investment. I think I understand the simple scenario when you bought the shares at X and sold at Y. CGT = (Y-X)* 10%.

But, and here's the bit I'd like to understand... what if the investment you're selling is made up of of shares/units you bought at different times and consequently different prices? How do you determine the purchase price when the shares/units you are selling could be made up of different prices?

AnotherJoe

You do a weighted average.
100 bought at 50, 100 bought at 100, average price 75. Simples.
94 bought at 37.1, 109 bought at 231.9, average price 141.69. Slightly less simple.
Now, if you don't sell them all, you better remember that price for when you next sell them because otherwise it will be a b*gg*r to work it out.
Or buy and sell them in a SIPP /ISA if you can so that doesn't matter.

lindabea

OK - I think I may have been over-complicating it. So you would take an average price of the entire holding, and that price is then used as the purchase price for the units you're selling. However, regarding your comment

'Now, if you don't sell them all, you better remember that price for when you next sell them because otherwise it will be a b*gg*r to work it out.'

This gives me some concern and possibly sleepless nights. Why would I need to remember that avg price? Can I not re-calculate a new avg price with the remaining units after making a partial sell? Is there any help that may be provided by the platform with regard to CGT

lpgm

lindabea wrote: »

Why would I need to remember that avg price? Can I not re-calculate a new avg price with the remaining units after making a partial sell? Is there any help that may be provided by the platform with regard to CGT

Because the average purchase price changes when you buy, not when you sell. Just keep a spreadsheet with all your purchases and calculations.

londoninvestor

Some wrinkles to be aware of (you can of course happily ignore if they don't apply to you!)

- Buying less than 30 days after a sale triggers some special rules
- For accumulation units in funds, the reinvested dividends can be added to your cost of acquisition
- For income units in funds, the equalisation payments must be deducted from your cost of acquisition

ColdIron

lindabea wrote: »

This gives me some concern and possibly sleepless nights. Why would I need to remember that avg price? Can I not re-calculate a new avg price with the remaining units after making a partial sell?

Because there is no new average price of acquisition after a sale. The average price at the time of this sale will be the same as the average price at the time of your next sale. Selling does not change your purchase cost so no need to recalculate. All it does is reduce the number of units or shares, not how much they cost you to buy. If you were to make another purchase after this sale but before the next you would need to recalculate using the old details (number of shares or units and average cost) and the new acquisition costs (number of shares or units and actual cost)

Is there any help that may be provided by the platform with regard to CGT

Generally no, CSD will provide a report upon request but they are unusual in this respect. However the contract notes they issue form the basis of purchases and sales so don't mislay these

Reed_Richards

AnotherJoe wrote: »

You do a weighted average.

It wasn't always that way. At one time you had to assume that the shares you sold were the ones you bought most recently and work your way back. So if you had bought 100 at 50 and then later 100 at 100 then sold 100 at 75 you would have had a capital loss of 100 x 25 because it would have been deemed that the 100 you sold were those from the more recent purchase. I think averaging is better.

Tom99

ColdIron wrote: »

Because there is no new average price of acquisition after a sale. The average price at the time of this sale will be the same as the average price at the time of your next sale. Selling does not change your purchase cost so no need to recalculate. All it does is reduce the number of units or shares, not how much they cost you to buy. If you were to make another purchase after this sale but before the next you would need to recalculate using the old details (number of shares or units and average cost) and the new acquisition costs (number of shares or units and actual cost)

Generally no, CSD will provide a report upon request but they are unusual in this respect. However the contract notes they issue form the basis of purchases and sales so don't mislay these

You buy 100 shares at £1 each. Later you sell 50 shares for £2 each. Later still you buy 50 shares for £2 each.
When you next sell some shares what is your cost per share?

londoninvestor

£1.50 - and it would be the same whatever the price of the sale transaction was.

londoninvestor

Rationale:
After transaction 1, you have 100 shares at average price £1, cost basis £100

After transaction 2, you have 50 shares at average price £1, cost basis £50
[A sell never changes the average price, you recalculate the cost basis according to the remaining holding and the average price]

After transaction 3, you have 100 shares at cost basis £150 (the £50 cost of the running holding plus the £100 cost of the new acquisition) so your average price is £1.50.

ColdIron

Tom99 wrote: »

You buy 100 shares at £1 each. Later you sell 50 shares for £2 each. Later still you buy 50 shares for £2 each.
When you next sell some shares what is your cost per share?

• You buy 100 shares at £1 each.
  You have 100 shares that cost you £100, cost per share £1, total cost £100
• Later you sell 50 shares for £2 each.
  You have 50 shares that still cost you £1 each, total cost £50
• Later still you buy 50 shares for £2 each.
  You now have 100 shares, to acquire those shares it cost you your original £50 plus £100

• When you next sell some shares what is your cost per share?
  You have 100 shares that cost you £150 to buy so the cost per share is £1.50