Capital gain on 20 year old shares, how on earth can I calculate it correctly?

vacheron

JamesRobinson48 said:

verybigchris said:

No need to report a 100% capital gain when they know the purchase price of at least some of the holding.

The easy option is to report a gain of £666.49, being the difference between the sale price and original purchase, effectively treating the reinvestments as if they were purchased at nil cost.

Unfortunately, that suggested approach would understate the taxable gain. That's because of the PRU / MNG share split in 2019. The cost basis at the time of the split should be apportioned between the continuing PRU and MNG shareholdings, based (if memory serves me right) on the relative market values of the two shareholdings on the first day the two share tickers started being traded independently.

It just goes to show the importance of detailed record-keeping.  If one did not keep CGT-compliant records, and if it's not worth paying a professional to do the work for such a small shareholding, then personally I would simply declare the original cost as £1, pay CGT on effectively the entire proceeds, ... and put the resulting incremental tax expense down to experience.

Certainly more food for thought there. 

I appreciate this is becoming quite in depth and academic now, but I do find it an interesting topic for discussion, (which is after all what forums are about). 

Thinking about what you said, I posted in my previous comment, that the "book cost" of the MNG shares given to me by my dealing platform was 122.46p, compared to the actual  220p MNG "demerger price". This suggests that my dealing account considers my historic gains (at the time of the de-merger) to be about 79.7%

So, using the same gains on the Prudential demerger price of 1286p would give my calculated "book cost" of the Prudential (post demerger) element as 715.83p per share.

My holding of 81.28 shares of each following the demerger would give my total "book cost" purchase values as £99.54 for the MNG element and £581.83 for the prudential element. Could I therefore justifiably use these values to calculate the gains separately when I sell each holding?

masonic

vacheron said:

My assumption here is that my dealing account may have extrapolated an equivalent purchase price based on the original cost per share of the Prudential shares during my ownership plus the dividend reinvestments? Does that seem logical to anyone? 

If so, I guess I'll just use that to calculate the MNG portion when I sell.

I would be very suspicious of the automatically calculated acquisition price quoted in your dealing account.

If you intend to sell the MNG shares in this tax year it makes the calculations easier. You would just need to take your combined Pru and MNG proceeds and deduct the £499.20 originally paid to work out the crude overestimate of capital gain.

masonic

vacheron said:

My holding of 81.28 shares of each following the demerger would give my total "book cost" purchase values as £99.54 for the MNG element and £581.83 for the prudential element. Could I therefore justifiably use these values to calculate the gains separately when I sell each holding?

Only if the demerger would count as a disposal of the earlier shares for CGT purposes (i.e. gain up to that point was crystallised in an earlier tax year). I don't think it would.

verybigchris

bowlhead99 said:

verybigchris said:

masonic said:

Personally, I'd just treat it as 100% capital gain for the purposes of working out how much remaining CGT allowance you have to play with. Time and effort saved will be worth it.

No need to report a 100% capital gain when they know the purchase price of at least some of the holding.

The easy option is to report a gain of £666.49, being the difference between the sale price and original purchase, effectively treating the reinvestments as if they were purchased at nil cost.

But they haven't sold all of the holding that they originally bought for £499.20, because what they bought was split into M&G and Prudential.

Ah, you're quite right, good catch. I'd misinterpreted the OP as selling the whole lot.

vacheron

masonic said:

vacheron said:

My holding of 81.28 shares of each following the demerger would give my total "book cost" purchase values as £99.54 for the MNG element and £581.83 for the prudential element. Could I therefore justifiably use these values to calculate the gains separately when I sell each holding?

Only if the demerger would count as a disposal of the earlier shares for CGT purposes (i.e. gain up to that point was crystallised in an earlier tax year). I don't think it would.

Good point. And you are correct, nothing has been crystalised since 2000.

I had actually added something along those lines on my earlier post but deleted it as it was getting complicated enough.  

My thinking was that if the "pre-demerger" Prudential shares were considered to have a total "book cost" of £681.37 (£581.83 + £99.54) prior to the de-merger, yet I bought the egg shares for £499.20, then I would also have to factor in the difference between these prices (£182.17) which would have been the increase in value between buying the original Egg shares in 2000 and the conversion to Prudential shares in 2006).

I knew this would be fun!

Time4T_Accounts

A very interesting thread.  So, are you saying that HMRC will accept any calculation as long as it is reasonably, logically and clearly made (and, consistently as well in future years)?

vacheron

verybigchris said:

bowlhead99 said:

verybigchris said:

masonic said:

Personally, I'd just treat it as 100% capital gain for the purposes of working out how much remaining CGT allowance you have to play with. Time and effort saved will be worth it.

No need to report a 100% capital gain when they know the purchase price of at least some of the holding.

The easy option is to report a gain of £666.49, being the difference between the sale price and original purchase, effectively treating the reinvestments as if they were purchased at nil cost.

But they haven't sold all of the holding that they originally bought for £499.20, because what they bought was split into M&G and Prudential.

Ah, you're quite right, good catch. I'd misinterpreted the OP as selling the whole lot.

Yes. I have only sold the PRU element so far, but I also plan to selling all the MNG this tax year too.

I will probably do so on the 27th of January as my dealing platform has a reduced commission window then which will save me £10 on the dealing charge which is worth it given the small sum involved (only around £190).

vacheron

PS.  bowlhead99,  thank you so much for your detailed post and very useful links. Apologies for not replying sooner but I just spotted it when I re-checked as it ended up being the last post on the previous page.

You hit the nail on the head that to accurately calculate this would be a significant undertaking, I now think that I can indeed get hold of all the data required to attempt to do this including all the dividend re-investment purchase prices since the pru transfer (the prior egg dividends being paid out in cash in 2008), but as you say, the time and effort involved for the sums concerned is totally disproportional (unless you are simply in it for the sport). So in the end I guess HMRC are the real winner as it is better to simply err on the side of caution.  

Mickey666

I agree with the OP that it becomes very complicated to calculate CGT liability on disposal.
However, it's possible avoid the issue altogether by only selling amounts below the annual CGT allowance. 
In this way, even if the sale proceeds are 100% profit (which they won't be, but you get the gist) there can be no CGT to pay, and because there is no CGT to pay there's nothing to declare.

I appreciate this approach is not applicable if you want to dispose of an amount over the CGT allowance but it's worth considering.  It's also possible to transfer shares to a spouse with no tax implications, so can utilise their CGT allowance and if you sell around March/April the disposal can be split across tax years.  In this way it's possible to sell around £49k of shares with zero CGT liability and nothing to declare.

bowlhead99

Mickey666 said:

  It's also possible to transfer shares to a spouse with no tax implications, so can utilise their CGT allowance and if you sell around March/April the disposal can be split across tax years.  In this way it's possible to sell around £49k of shares with zero CGT liability and nothing to declare.

I suppose if you are getting regular vesting of employee share scheme shares (and not the type of schemes that you can immediately transfer into an ISA to avoid taxes on disposal) so you keep going over your annual exemption, you might not be able to benefit by shifting the timing of personal share trades across the year ends.  But transfer to a spouse for the spouse to immediately sell (using your base cost, but using their annual exemption) is a great way to shift more of the profits into those precious 'annual exemption' bands, whether its your employee shares or just general investments.

Of course, while a shares transfer to spouse can save a few thousand of tax, getting a spouse if you don't already have one is not always a cheap or hassle free exercise...