Selling and buying, 30-day rule

sarahTT

(If this would be better discussed in "Cutting Tax", please, mods, move it there. Thanks.)

I have just learned about this 30-day rule re selling an equity and buying it again within 30 days. I have for the current tax return just such a case and the main problem I an now having is that the chain of buys/sales straddles two tax years, ie 2020/1 and 2021/2.

So I have this:
1. buy 100 units @ £2 on March 21st tax year 1
2. buy 100 units @ £2.50 on March 25st tax year 1
3. sell 100 units @ £3 on March 31st tax year 1
4. buy 100 units @ £2.75 on April 10th tax year 2
5. buy 100 units @ £3.25 on April 15th tax year 2
6. sell the whole lot @3.50 on April 25th tax year 2

Since buy 4 is within 30 days of buys 1 and 2 I assume that when I sell everything (sale 6) sale 3 is not treated as a "real" sale and I have to sum up all costs when buying and subtract these from the sale 6 proceeds? But what puzzles me is the straddling of tax years as I made a Capital Gain for sale 3 but this seems to be not included in my tax return for 2020/1?

I am afraid I have not fully understood this 30-day thing. So, how do I treat this (for me mind-boggling) conundrum? Thanks for any help or pointers to help!

jimjames

Are those the correct numbers or just examples? If correct then there should be no CGT liability unless you have other gains that already exceed £12000. 

If you put those investments inside an ISA then you have no need to worry about CGT or income tax.

Aegis

sarahTT said:

(If this would be better discussed in "Cutting Tax", please, mods, move it there. Thanks.)

I have just learned about this 30-day rule re selling an equity and buying it again within 30 days. I have for the current tax return just such a case and the main problem I an now having is that the chain of buys/sales straddles two tax years, ie 2020/1 and 2021/2.

So I have this:
1. buy 100 units @ £2 on March 21st tax year 1
2. buy 100 units @ £2.50 on March 25st tax year 1
3. sell 100 units @ £3 on March 31st tax year 1
4. buy 100 units @ £2.75 on April 10th tax year 2
5. buy 100 units @ £3.25 on April 15th tax year 2
6. sell the whole lot @3.50 on April 25th tax year 2

Since buy 4 is within 30 days of buys 1 and 2 I assume that when I sell everything (sale 6) sale 3 is not treated as a "real" sale and I have to sum up all costs when buying and subtract these from the sale 6 proceeds? But what puzzles me is the straddling of tax years as I made a Capital Gain for sale 3 but this seems to be not included in my tax return for 2020/1?

I am afraid I have not fully understood this 30-day thing. So, how do I treat this (for me mind-boggling) conundrum? Thanks for any help or pointers to help!

It's been a while since I looked at it, but my understanding is that the sale and subsequent repurchase would effectively be ignored for CGT purposes, so you'd be left with:

1. buy 100 units @ £2 on March 21st tax year 1
2. buy 100 units @ £2.50 on March 25st tax year 1
3. sell 100 units @ £3 on March 31st tax year 1
4. buy 100 units @ £2.75 on April 10th tax year 2
5. buy 100 units @ £3.25 on April 15th tax year 2
6. sell the whole lot @3.50 on April 25th tax year 2

If you ignore those lines it all becomes much easier, as you have a series of purchases and a sale at a gain, which may incur CGT at the time of disposal.

sarahTT

(The numbers are just examples.)
Wow... now I am even more mind-boggled than I was before. My (perhaps naive) understanding basically was what @Aegis has written. But there seems to be a twist, as @Deleted_User says... but I can't say that I fully understand it. Here's an attempt though: if I simply add up all costs from the three buys and subtract that total from the proceeds of Sale 6 then this would right ONLY IF sale 3 and buy 4 had been done at the same price, right? As I do make a gain with the sale 3/buy 4 pair though, I have to pay taxes on that gain?

At any rate, my immediate problem is that I have to figure out a figure to put into the 2020/1 return... and I if understand correctly then that would 100 units x (sale 3 price - buy 4 price)?

EthicsGradient

Deleted_User said:

The overall idea is that all the buys and sells are used once (and only once) in calculating gains. Though the ways they are matched up with one another is not always what you'd expect. The total gain will still be the same in the end, because that is (indirectly) just all the sells minus all the buys.

The numbers being just examples ...note that if the numbers of units in 3 and 4 are not identical, then the calculation is a bit more complicated. You always need to match a sale of N units against a purchase / purchases of the same number of units.

As a detail, aren't all purchases made within 30 days after a sale counted as one 'pool', and thus averaged? This would mean that 4 and 5 are taken as one pool, since both are within 30 days, so we are in the realm of "the number of units or sale of purchase are not identical" - 200 units in total, bought for £275+£325=£600. This, by coincidence, exactly matches the price per unit in the number 3 sale, so it would end up with 100 units sold in 2020/21 with £0 gain, and 100 units bought for £300, to be pooled with purchases 1 and 2, to be worked out for the 2021/22 sale in number 6.

https://www.gov.uk/government/publications/shares-and-capital-gains-tax-hs284-self-assessment-helpsheet/hs284-shares-and-capital-gains-tax-2019

sarahTT

Sorry for not getting back earlier...  had a nice weekend out with the family at Dover castle and the fab White Cliffs

My original problem still exists... I am not sure what to put into this year's (ie year 1 above) return, if anything. My current understanding (based on @Deleted_User's post) is that I should put in the proceeds of sale 3 minus the cost of buy 4. Is that right?

And further, why is it buy 4 and not buy 2? Seems not too clear to my taxed brain...

masonic

sarahTT said:

Sorry for not getting back earlier...  had a nice weekend out with the family at Dover castle and the fab White Cliffs

My original problem still exists... I am not sure what to put into this year's (ie year 1 above) return, if anything. My current understanding (based on @Deleted_User's post) is that I should put in the proceeds of sale 3 minus the cost of buy 4. Is that right?

Yes

sarahTT said:

And further, why is it buy 4 and not buy 2? Seems not too clear to my taxed brain...

Bed and breakfast rules involve sales that can be matched to a subsequent repurchase of the same financial instrument within 30 days, to hinder someone from artificially raising the acquisition price of their investment (and reducing a subsequent capital gain) through sale and immediate repurchase.

EthicsGradient

I now find that while my HMRC link doesn't say "match with the first acquisition after the sale", or anything like it, other sources do say "match the first disposal with the first acquisition":

Securities that are sold on a particular day will be identified secondly with securities of the same class acquired in the following 30 days (section 106A(5), TCGA 1992). The securities never form part of the section 104 holding.

If there are multiple disposals of securities, or multiple acquisitions of securities, the earliest disposal is identified with the earliest acquisition during the 30-day period.

https://uk.practicallaw.thomsonreuters.com/w-004-3878?originationContext=document&transitionType=DocumentItem&contextData=(sc.Default)&firstPage=true

The 30 day rule works on the 'First In First Out' (FIFO) basis. To illustrate what this means, let's say you buy and sell shares in the same company on the following dates:

• 1 June Buy 1,000 shares for £20,000

• 10 June Sell 1,000 shares for £24,000

• 20 June Buy 1,000 shares for £24,000

• 25 June Sell 1,000 shares for £30,000

• 28 June Buy 1,000 shares for £30,000

https://www.wealthprotectionreport.co.uk/public/Capital-Gains-Tax-Detailed-Calculations.cfm

dales1

I think it's fairly clear that Feral is correct.

(The HMRC page that EG showed is their very simplified example).

If you look at the actual legislation https://www.legislation.gov.uk/ukpga/1992/12/section/106A

then subsection 5(b) says that acquisitions within the 30 days are taken in chronological order, for matching purposes.

So here, sell 3 is matched with buy 4.

Dales.

sarahTT

OK, folks, thanks very much for that. I think I have the year 1 nut cracked.

Now a follow up: if all the transaction in the OP had been in one tax year, would I be right then to calculate the gains/loss as the difference between all sale proceeds minus all buy costs minus any transaction charges/fees?

eskbanker

sarahTT said:

OK, folks, thanks very much for that. I think I have the year 1 nut cracked.

Now a follow up: if all the transaction in the OP had been in one tax year, would I be right then to calculate the gains/loss as the difference between all sale proceeds minus all buy costs minus any transaction charges/fees?

That's not really the right way to calculate it, as there should be one CGT calculation per disposal, but the net effect should be the same if you start and end the tax year with no units.