share disposal profit over CGT allowance, how to reduce the CG

erik85

Hi all,

I recently sold a big chunk of shares invested in one company as I was expecting for the share price to plummet, much more than the CGT allowance.
I have read and somehow understood the 30days rule and its price matching. I also understand that losses can be used to offset any gain https://www.gov.uk/capital-gains-tax/losses
However I am struggling to relate the 30days rule and/or the offsetable losses to my situation; also I have some uncertainties around the finer details.
Here below a numerical example.

Let say I sold 1,000 shares at 40 pound and I bought those shares originally at 5 pound, the CG is 35,000 pound, obviously much more than the CGT allowance; as it stands I will need to be taxed on £27,700 (£35,000-£12,300).
However, in the meantime the share price has almost recovered, I truly believe in this company and I would like to re-invest in it again.

Scenario A
Share price is "today" 38 pound, with the £40,000 proceeds I can buy back 1,052 shares, +52 shares than what I had previously

Scenario B
Share price is "today" 42 pound, with the £40,000 proceeds I can buy back 952 shares, -48 shares than what I had previously

Question 1:
Am I right in understanding that purely in terms of calculating my remaining CGT allowance for year 2021/22, by re-investing all my original proceeds into the same company, my original CG of £35,000 is now cancelled and my CGT allowance is thus untouched? Does the re-investment need to happen within 30 days, otherwise the CG is "set in stones"?

Question 2:
If "today" is after 30 days from my original sale, when I come to sell my shares 5 years in the future, in order to calculate my CG:
Scenario A the cost of my 1052 shares will be calculated as [(1000*5)+(1052*38)]/(1000+1052)=21.91
Scenario B the cost of my 952 shares will be calculated as [(1000*5)+(952*42)]/(1000+952)=23.04

Question 3:
If "today" is within 30 days from my original sale, when I come to sell my shares 5 years in the future, in order to calculate my CG:
Scenario A the cost of my 1052 shares will be calculated as... 38 pound or 5 pound?
Scenario B the cost of my 952 shares will be calculated as.. 42 pound or 5 pound?

I am sure there is some fallacy in my understanding, so would really appreciated a correction or two, thanks!

Linton

I have never paid CGT so it could be wrong....

Scenario A, within 30 days, merging the 2 transactions:
 - You bought 52 shares costing £38.  You already had 1000 shares costing £5.  No CGT due since you did not sell
 - Average cost (1000*5+52*38)/1052=£6.63

Scenario A after 30 days
 - You sold 1000 shares cost £5, price £40 - CGT due
 - You bought 1052 shares costing £38

Scenario B within 30 days, merging the two transactions
 - you sold 48 shares costing £5 for £40.  CGT covered by allowance
 - 952 remaining shares still at cost of £5

Scenario B after 30 days
 - You sold 1000 shares cost £5, price £40 - CGT due
 - You bought 952 shares at a cost of £42

lozzy1965

Quick answer is:  You can sell some shares you have that are currently loss making, and offset the loss against your gain.  You can't buy back any shares in exactly the same company within 30 days if you want your full gain to be realised.

erik85

lozzy1965 said:

Quick answer is:  You can sell some shares you have that are currently loss making, and offset the loss against your gain.  You can't buy back any shares in exactly the same company within 30 days if you want your full gain to be realised.

I don't particularly care about any gain at the moment. I believe this company will flourish and it will be worth holding onto the shares for longer to realize more gains in the long term.
What I care about at the moment is not having to pay CGT on  £27,700  worth of profit.
To avoid this, shall I re-buy within 30 days or after?

ColdIron

If you buy back after 30 days it will be treated as a disposal for tax purposes

lozzy1965

erik85 said:

lozzy1965 said:

Quick answer is:  You can sell some shares you have that are currently loss making, and offset the loss against your gain.  You can't buy back any shares in exactly the same company within 30 days if you want your full gain to be realised.

I don't particularly care about any gain at the moment. I believe this company will flourish and it will be worth holding onto the shares for longer to realize more gains in the long term.
What I care about at the moment is not having to pay CGT on  £27,700  worth of profit.
To avoid this, shall I re-buy within 30 days or after?

If it were me, and I didn't have any other capital loss to realise, I would buy back enough shares (within 30 days) so that what remained sold, matched (just below) my capital gains allowance for the year.  Then buy back the remaining shares after the 30 days have past, thereby increasing my average base cost.
Other possibilities (for the portion that you have sold to realise a capital gain up to your tax free allowance) are 'bed and wife/partner' and 'bed and ISA' - if you can buy them in your partner's name or an S&S ISA immediately?

MX5huggy

If you’re not going to use your CGT allowance on anything else this tax year I would realise a gain of £12300 by waiting 30 days plus on the portion of your shares that give a gain of this size. Then you have reset the gain on these. (The risk is that the shares jump up in that 30 days plus). Presume you have used your ISA allowance up? Else move them to a ISA. 

Thrugelmir

MX5huggy said:

If you’re not going to use your CGT allowance on anything else this tax year I would realise a gain of £12300 by waiting 30 days plus on the portion of your shares that give a gain of this size. Then you have reset the gain on these. (The risk is that the shares jump up in that 30 days plus). Presume you have used your ISA allowance up? Else move them to a ISA. 

Realising some gains every year to utilise the CGT allowance is the easiest solution. 

erik85

Linton said:

I have never paid CGT so it could be wrong....

Scenario A, within 30 days, merging the 2 transactions:
 - You bought 52 shares costing £38.  You already had 1000 shares costing £5.  No CGT due since you did not sell
 - Average cost (1000*5+52*38)/1052=£6.63

Thank you all for the replies, really useful and a lot of nice suggestions.

Indeed I have not made an ISA subscription this year yet, so I will use a portion of share which maximize my CGT allowance to fund my ISA.

On the comment above, is that answer from Linton correct at all?
With scenario A I buy back shares at a lower price than what I sold, surely that is a gain, thus liable to CGT?
if sold 1000 shares at 40 and within 30 days I buy back 1052 shares at 38, surely the 1000 shares generated a gain of (40-38)*1000= £2,000, which would count towards my CG allowance, which would decrease the portion of shares I can transfer to ISA?

THANKS ALL

EthicsGradient

erik85 said:

Linton said:

I have never paid CGT so it could be wrong....

Scenario A, within 30 days, merging the 2 transactions:
 - You bought 52 shares costing £38.  You already had 1000 shares costing £5.  No CGT due since you did not sell
 - Average cost (1000*5+52*38)/1052=£6.63

Thank you all for the replies, really useful and a lot of nice suggestions.

Indeed I have not made an ISA subscription this year yet, so I will use a portion of share which maximize my CGT allowance to fund my ISA.

On the comment above, is that answer from Linton correct at all?
With scenario A I buy back shares at a lower price than what I sold, surely that is a gain, thus liable to CGT?
if sold 1000 shares at 40 and within 30 days I buy back 1052 shares at 38, surely the 1000 shares generated a gain of (40-38)*1000= £2,000, which would count towards my CG allowance, which would decrease the portion of shares I can transfer to ISA?

THANKS ALL

My understanding from here: https://www.investmentguide.co.uk/capital-gains-tax-30-day-rule/ is that your latest calculation fro scenario A is correct, if you buy outside an ISA - for up to 1,000 shares, since you sold that amount in this tax year, their cost is taken as the £38*1,000 that you paid within the 30 days, so it is a capital gain of £2,000 this year. For future gain calculations, that 1,000 shares you now have will have a cost price of £5*1000=£5,000. If you bought another 52 shares outside an ISA, then the combined cost is £5000+£38*52=£6,976, for 1,052 shares.

For scenario B, for this year's tax, the 1,000 shares you sold will be matched with, first, 952 shares with a cost price of £42 = £39,984, and then 48 with a cost price of £5 = £240, so a total of £40,224. So that's a loss of £224 in this tax year. In future years, your 952 shares will have a cost price of £5,or £4,760 in total.

While I have paid capital gains tax in some years, I've never repurchased anything within 30 days, so have never had to do this kind of calculation for real.

eskbanker

erik85 said:

Linton said:

I have never paid CGT so it could be wrong....

Scenario A, within 30 days, merging the 2 transactions:
 - You bought 52 shares costing £38.  You already had 1000 shares costing £5.  No CGT due since you did not sell
 - Average cost (1000*5+52*38)/1052=£6.63

On the comment above, is that answer from Linton correct at all?
With scenario A I buy back shares at a lower price than what I sold, surely that is a gain, thus liable to CGT?
if sold 1000 shares at 40 and within 30 days I buy back 1052 shares at 38, surely the 1000 shares generated a gain of (40-38)*1000= £2,000, which would count towards my CG allowance, which would decrease the portion of shares I can transfer to ISA?

Linton's answer seems correct to me - if you repurchase within 30 days then the sale is effectively cancelled out by the matching process, so there is no capital gain realised and the acquisition cost of those matched 1,000 shares therefore remains at £5.