Short term CGT loss

torrence

If you acquire identical shares or units at different times, HMRC assumes you dispose of them in a strict order.
The tax rules say you must match the shares or units you are selling to the ones you bought in this order:
1. shares or units you buy on the same day
2. shares or units you buy within the next 30 days.
3 shares or units purchased purchased more than 30 days prior to the disposal being calculated, these are treated as being held in a pool and acquired at their average price.

Does 2. mean you can claim a capital loss if the price increases and you buy within 30 days at a higher price than you sold?

It may seem a strange scenario, but for rebalancing purposes, it could be possible that another asset in the portfolio increases dramatically, leaving the recently sold asset very underweight, prompting buy even though the price is now higher. 

If further down the line, (more than 30 days), you do more selling, does the CGT calculation revert back to a "pooled" average price for all the units / shares being sold?

Does this average price "pooling" mean that if over many years you buy, hold, and sell (not necessarily within 30 days, but rebalacing as necesary), that your average pooled price also includes all the previously disposed of shares or units, i.e. the average continues to roll. Are any of the historical "buy" prices ever excluded or removed from the pooled rolling average?

dont_look_now

torrence said:

If you acquire identical shares or units at different times, HMRC assumes you dispose of them in a strict order.
The tax rules say you must match the shares or units you are selling to the ones you bought in this order:
1. shares or units you buy on the same day
2. shares or units you buy within the next 30 days.
3 shares or units purchased purchased more than 30 days prior to the disposal being calculated, these are treated as being held in a pool and acquired at their average price.

More precisely, 3 is: shares or units purchased 1 or more days prior to the disposal being calculated, and which have not already been matched with an earlier disposal.

Does 2. mean you can claim a capital loss if the price increases and you buy within 30 days at a higher price than you sold?

Yes. E.g. You bought 1000 shares for £1000 a few years ago. You sell them all for £2000. You buy the same number of shares back for £2500 next week. You have a loss of £500. But when you sell them again next year, the cost basis will be £1000, based on the earlier purchase (because the later purchase has already been matched, under the 30 day rule; so the "pool" consists of just the original purchase).

Does this average price "pooling" mean that if over many years you buy, hold, and sell (not necessarily within 30 days, but rebalacing as necesary), that your average pooled price also includes all the previously disposed of shares or units, i.e. the average continues to roll. Are any of the historical "buy" prices ever excluded or removed from the pooled rolling average?

Each cost is only used once. If a cost is used under the same day rule, or under the 30 day rule, then it never enters the pool. When those rules are not applicable, any sale uses the current cost-per-share in the pool, so it reduces the the total cost left in the pool, but doesn't change the cost-per-share; and any purchase is added to the pool, which will change the cost-per-share in the pool (unless the purchase coincidentally happens to be at the same cost-per-share as the pool).

E.g. Buy 1000 shares in 2010 for £1000. Pool has 1000 shares, total cost of £1000, cost-per-share of £1.

Sell 200 shares in 2012. Cost basis for sale is £200. Pool now has 800 shares, total cost of £800, cost-per-share of £1.

Buy 400 shares in 2014 for £1000. Pool now has 1200 shares, total cost of £1800, cost-per-share of £1.50.

Sell 500 shares in 2016. Cost basis for sale is £750. Pool now has 700 shares, total cost of £1050, cost-per-share of £1.50.

eskbanker

torrence said:

Does 2. mean you can claim a capital loss if the price increases and you buy within 30 days at a higher price than you sold?

No, CGT is only calculated when making a disposal, i.e. when you sell something you've bought previously.  Making a matched repurchase within 30 days only has the effect of eliminating the sale, so when you do eventually sell, the purchase value is deemed to be the earlier lower figure rather than the later higher one.

torrence said:

If further down the line, (more than 30 days), you do more selling, does the CGT calculation revert back to a "pooled" average price for all the units / shares being sold?

Sales don't affect the average price, only purchases do.

torrence said:

Does this average price "pooling" mean that if over many years you buy, hold, and sell (not necessarily within 30 days, but rebalacing as necesary), that your average pooled price also includes all the previously disposed of shares or units, i.e. the average continues to roll. Are any of the historical "buy" prices ever excluded or removed from the pooled rolling average?

The average rolls as you say, so no purchases are ever eliminated unless you deplete the pool entirely at some point.

bowlhead99

torrence said:

If you acquire identical shares or units at different times, HMRC assumes you dispose of them in a strict order.
The tax rules say you must match the shares or units you are selling to the ones you bought in this order:
1. shares or units you buy on the same day
2. shares or units you buy within the next 30 days.
3 shares or units purchased purchased more than 30 days prior to the disposal being calculated, these are treated as being held in a pool and acquired at their average price.

Does 2. mean you can claim a capital loss if the price increases and you buy within 30 days at a higher price than you sold?

Yes. If you have 1000 shares which had cost an you £1000 total (average cost of £1 each), and then you sell 200 of them at £2 each, but a week later buy 50 back for £1.90 each:

50 of the shares sold for £2 will be matched against the 50 you bought for £1.90 each making £0.10 per share or £5 profit. The other 150 shares sold for £2 each will come out of the original pool of shares that cost £1 each, making £1 per share profit or £150 total. Grand total profit £155. The other 850 shares you bought for £850 and have not sold yet still have an average price of £1 each.

Alternatively if the buyback price for the 50 shares was £2.10:
50 of the shares sold for £2 will be matched against the 50 you bought for £2.10 each making £0.10 per share or £5 loss. The other 150 shares sold for £2 each will come out of the original pool of shares that cost £1 each, making £1 per share profit or £150 total.  Grand total profit £145. The other 850 shares you bought for £850 and have not sold yet still have an average price of £1 each.

If further down the line, (more than 30 days), you do more selling, does the CGT calculation revert back to a "pooled" average price for all the units / shares being sold?

If you do more selling later, and don't do more rebuying within 30 days subsequent to that sale, the sales price of that later selling will be compared against the pool average cost. So if you sell some or all of the 850 remaining shares (which had a cost of £850 or £1 each), the selling price of (e.g.) £5 per share will produce a profit of £4 per share. The ones you had bought for £1.90 or £2.10 don't come into it because they already got matched and sold as part of the sale at £2.

From time to time you might add more shares to the pool of unsold shares. For example, with 850 shares left unsold (total cost £850), perhaps you spend £750 on buying another 350 shares at £2.14 each. At that point, you have 1200 shares with a total cost of £1600, so you know your average cost of the shares in that pool whenever you next need to use it, is (1600/1200 = £1.33 each).

Later on you might sell 500 from that enlarged pile of 1600 shares. If you sell them at £10 each, and if no other purchases happen in the following 30 days from that sale you would make a big profit on on the 500 sold shares (about £4.3k) and be left with 1100 unsold shares, still carrying a cost of £1.33 each. But if you then bought back 200 of them a fortnight later at £11 each, the sale of the 500 shares at £10 would be first matched to 200 shares at £11 and the other 300 of the 500 sold would be matched to your general pool at £1.33 each. The total costs would be (200x11 + 300x1.33) = (£2200+£400) =£2600 to be compared to the £5000 sales proceeds and only £2.4k profit instead of the £4.3k you'd have had if you didn't do the buy back.  The reason you made a smaller profit is that lots of your cheap shares were unused so the number of shares you have left in the pool is 1600 -300 = 1300, all still at 1.33 each, rather than 1600 - 500 = 1100, all still at 1.33 each.

torrence

Thank you all. Bowlhead99 thanks for doing the extra examples with the maths. I think this covers all likely scenarios thank you.