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

EthicsGradient

eskbanker said:

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.

The sale is only "effectively cancelled out" if the repurchase happens at the same price as the sale. If the repurchase happens at a lower price, then there is a bigger total gain, eventually. So that should be accounted for either in this tax year or some future one; these rules put it in this year.

dales1

Indeed that's so. For the "matched" shares, there is a profit or loss on the transaction, to be accounted for in the year in question.

And here is HMRC's wording:

How you work out the gain under the ‘bed and breakfasting’ rule

If a disposal of shares is identified with shares acquired within the following 30 days, the gain or loss on disposal is the difference between the net disposal proceeds and the acquisition cost.

From their helpsheet  https://www.gov.uk/government/publications/shares-and-capital-gains-tax-hs284-self-assessment-helpsheet/hs284-shares-and-capital-gains-tax-2021

Linton

EthicsGradient said:

eskbanker said:

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.

The sale is only "effectively cancelled out" if the repurchase happens at the same price as the sale. If the repurchase happens at a lower price, then there is a bigger total gain, eventually. So that should be accounted for either in this tax year or some future one; these rules put it in this year.

To clarify pls could you show your calculations for Scenario A. Clearly 52 of the shares bought at £38 are not covered by B&B rules since they weren't sold.  What is the purchase price of the other 1000 shares when they are sold later?  Is there any tax due for the month when the shares were sold/bought?

EthicsGradient

1,000 shares have been sold in this tax year, at £40. The cost for these is taken as £38 each, since (at least) 1,000 shares were bought for that, within 30 days of the sale. so the gain this year (ie the month the shares were sold - if you sold them in the dying days of 2021/22 tax year, and repurchased at the start of 2022/23, it would still be a gain in 2021/22) is
(1000*40)-(1000-38) = £2000.00
For a future disposal, the cost of acquiring the 1,052 shares will be taken as £5 for 1,000 of them (since that's the amount for which the gain was worked out), and £38 for 52 of them, so
(1000*5)+(52*38) = £6976.00, or £6.631 each (and that average acquisition price will be used, if there's a partial disposal).