Capital gains tax on share sale question

vacheron

[Deleted User] said:

[Deleted User] said:

purdyoaten2 said:

[Deleted User] said:

jonnywells said:

Still struggling to get my head around this. Tried the calculator on the HMRC website but get stuck when i get asked what figure I paid for them as there was lots of different prices.
Is there any other calculators out there I can try? 

This is something I been struggling to understand myself, but I think you basically ignore the individual prices and use something called the weighted average cost price.  This is achieved by dividing the total amount invested by the acquired total number of shares/units in your investment.  This will become your cost price for each share/unit.  

When you sell, you take the number of shares and multiply this by the average cost and subtract the amount from the same number of shares multiplied by the selling price.  

I think that's the way it  works. but not sure, so I'll be grateful if someone can confirm or explain further.

Never called it that but sounds just fine.

2000 shares cost £1 = 2000
4000 shares cost £1.25 = 5000
2000 shares cost £2.50 = 5000

Total 6000 shares cost 12000 or £2 each. 

This ignores dealing and duty costs of course and assumes all in S104 pool.

Hi,

correction:

Total 8000 shares cost 12000 or £1.50 each.

You then decide to sell 4000 shares (which cost you £6000) for £2 each and receive £8000, so gain £2000.

So let's take this scenario one stage further.  After selling the 4000 shares, you're left with another 4000 shares and they still have a cost price of £1.50.  So, let's say some time later, you buy 2000 shares, at £4.00/share and total cost £8000; you now have a total of 6000 shares.  Total cost invested is now 6000 + 8000 = 14000 for 6000 shares; new average price is therefore .   £2.33 ie 14000/6000  


Can someone please check my logic?

I didn't check the maths, but the logic is correct. 

Think of the shares as identical buttons in a box. You have no way of knowing what price you paid for any specific button as there is nothing to differentiate them, but if you are selling them you can work out the average cost you paid and so how much you need to sell a button for in order to make a profit. It doesn't matter if you sell an individual button bought for £2 or a £4, as they are both only worth what someone is willing to pay for a button right now.

If your stock gets low and you need to buy more, this will then effect your average button buying price, and therefore your potential gain (or loss) when you come to sell.

What complicates matters is when the button manufacturer pays you a variable amount of cash once or twice per year as a thank you for each button you have in your box at the time. He then converts this cash into an equivalent amount of buttons at that days price and then drops them into your box with all the others, totally messing up your nice simple maths... et voila! - Dividend Re-Investment! 

[Deleted User]

[Deleted User] said:

[Deleted User] said:

[Deleted User] said:

jonnywells said:

Still struggling to get my head around this. Tried the calculator on the HMRC website but get stuck when i get asked what figure I paid for them as there was lots of different prices.
Is there any other calculators out there I can try? 

This is something I been struggling to understand myself, but I think you basically ignore the individual prices and use something called the weighted average cost price.  This is achieved by dividing the total amount invested by the acquired total number of shares/units in your investment.  This will become your cost price for each share/unit.  

When you sell, you take the number of shares and multiply this by the average cost and subtract the amount from the same number of shares multiplied by the selling price.  

I think that's the way it  works. but not sure, so I'll be grateful if someone can confirm or explain further.

Never called it that but sounds just fine.

2000 shares cost £1 = 2000
4000 shares cost £1.25 = 5000
2000 shares cost £2.50 = 5000

Total 6000 shares cost 12000 or £2 each. 

This ignores dealing and duty costs of course and assumes all in S104 pool.

I think you mean 8000 shares at 12000 = 1.50. ?? As a novice, just trying to be sure in case I missed something.  Can you please explain what you mean by S104 pool?  

Of course - excuse my eyesight! Still you seem to have got the idea now!

Jeremy535897

Please read the link in my earlier post:
https://www.gov.uk/government/publications/shares-and-capital-gains-tax-hs284-self-assessment-helpsheet/hs284-shares-and-capital-gains-tax-2020

[Deleted User]

vacheron said:

[Deleted User] said:

[Deleted User] said:

purdyoaten2 said:

[Deleted User] said:

jonnywells said:

Still struggling to get my head around this. Tried the calculator on the HMRC website but get stuck when i get asked what figure I paid for them as there was lots of different prices.
Is there any other calculators out there I can try? 

This is something I been struggling to understand myself, but I think you basically ignore the individual prices and use something called the weighted average cost price.  This is achieved by dividing the total amount invested by the acquired total number of shares/units in your investment.  This will become your cost price for each share/unit.  

When you sell, you take the number of shares and multiply this by the average cost and subtract the amount from the same number of shares multiplied by the selling price.  

I think that's the way it  works. but not sure, so I'll be grateful if someone can confirm or explain further.

Never called it that but sounds just fine.

2000 shares cost £1 = 2000
4000 shares cost £1.25 = 5000
2000 shares cost £2.50 = 5000

Total 6000 shares cost 12000 or £2 each. 

This ignores dealing and duty costs of course and assumes all in S104 pool.

Hi,

correction:

Total 8000 shares cost 12000 or £1.50 each.

You then decide to sell 4000 shares (which cost you £6000) for £2 each and receive £8000, so gain £2000.

So let's take this scenario one stage further.  After selling the 4000 shares, you're left with another 4000 shares and they still have a cost price of £1.50.  So, let's say some time later, you buy 2000 shares, at £4.00/share and total cost £8000; you now have a total of 6000 shares.  Total cost invested is now 6000 + 8000 = 14000 for 6000 shares; new average price is therefore .   £2.33 ie 14000/6000  


Can someone please check my logic?

I didn't check the maths, but the logic is correct. 

Think of the shares as identical buttons in a box. You have no way of knowing what price you paid for any specific button as there is nothing to differentiate them, but if you are selling them you can work out the average cost you paid and so how much you need to sell a button for in order to make a profit. It doesn't matter if you sell an individual button bought for £2 or a £4, as they are both only worth what someone is willing to pay for a button right now.

If your stock gets low and you need to buy more, this will then effect your average button buying price, and therefore your potential gain (or loss) when you come to sell.

What complicates matters is when the button manufacturer pays you a variable amount of cash once or twice per year as a thank you for each button you have in your box at the time. He then converts this cash into an equivalent amount of buttons at that days price and then drops them into your box with all the others, totally messing up your nice simple maths... et voila! - Dividend Re-Investment! 

Thank you for your explanation, but you confused me with your last paragraph!!  If I understand it correctly, you're referring to what happens in an accumulation fund with div re-invested. However, the bit that confuses me is when you say 'He then converts this cash into an equivalent amount of buttons at that days price and then drops them into your box with all the others' . As far as I know, I would not receive any additional units with div re-invested ie (ACC funds or INC funds for that matter).  Instead, the added div are reflected in the price of the ACC fund and paid out to INC funds holders. 

Can you please explain this concept further.   

vacheron

You are correct, if you are buying a fund where it reinvests all the dividends back into the fund then that would be reflected in the unit price. 

However if you owned an individual share with an instruction to to automatically re-invest the dividends, they will take the dividend cash value and buy shares at the current price with it , then add those shares to your total holding.

[Deleted User]

Many thanks for explaining that for me.  I see the difference now.

Incidentally are there any 'very basic books' that novices like me can read to understand these very basic concepts of investing, such as answering questions about CGT and dividends and legislative reporting regarding tax.  I tried looking at monevator but it doesn't seem to deal with basic mundane issues such as the questions I been asking.