Calculating when an asset is both a gain and a loss in the same year 10 January at 11:23PM edited 10 January at 11:51PM in Cutting tax 8 replies 131 views

MPS92

Hey, quick question about calculating CGT tax due...

I have been involved in buying shares in the last few years. My question concerns the following scenario (all amounts for demo purposes only!):

With an initial investment of £10k I bought 100 shares. These increased to £60k in value, when I sold half of them, gaining £20k. I decided to buy back in the same number of shares (50) at the same price (£30k). Then I sold all 100 shares for £40k. So those 50 shares were briefly a pure gain, which then became a loss, but still a gain from the initial investment. The other 50 shares are a pure gain. This is all within the same tax year.

So here I am still net positive from the initial investment so CGT is due. How do I factor in that £10k loss on those shares when they're also a gain? Is it simply that the £30k gain is what is taxable (assuming personal allowance is already used)? Or does the calculation have to be chronological? So that first £20k gain is considered taxable, then the second £20k gain, then I deduct the loss of £10k from the tax deductable total?

Sorry for the complex question! It's all new to me!

Thanks a lot in advance!

TheAble

Let's work in terms of share prices.

You bought:

100 @ £100
50   @ £600

You sold:

50   @ £600
100 @ £400

The 50s therefore cancel out.

Your gain:

100 X (£400 - £100)

= £30,000

(You might be able to deduct brokerage fees from this btw to effectively reduce the gain a bit - not sure. Definitely check.)

MPS92

Oh wow, thanks for the quick response! Guess that clarifies my doubts. So as long as an asset is bought and sold in the same tax year the 'loss' isn't deducted from the final tax deductible amount, but the first gain plus the second, lesser, gain minus the tax deductible amount from the first gain's disposal. Which is less generous but more realistic, I suppose! Cheers!

eskbanker

MPS92 said:

With an initial investment of £10k I bought 100 shares. These increased to £60k in value, when I sold half of them, gaining £20k.

The gain here would have been £25K if you sold £30K worth that you'd paid £5K for.

MPS92 said:

I decided to buy back in the same number of shares (50) at the same price (£30k).

If you bought these back within 30 days of the sale, that effectively cancelled out the sale by matching up with it, so you'd be back to having 100 shares with an acquisition cost of £10K, and no CGT impact thus far.

However, if there was more than 30 days between sale and purchase, you'd have the original 50 shares bought for £5K and another 50 at £30K, so the acquisition cost for your holding of 100 shares would now have been reset to £35K (but you'd also have crystallised a CGT gain of £25K) - this is why many people take advantage of the opportunity to use their annual CGT allowance to minimise future liabilities.

MPS92

Cool, cheers, that's helpful! It definitely was within 30 days (more a matter of hours) that I re-purchased. 

However, for simplicity's sake I stated the re-purchase price as the same as the disposal, when in fact there was a difference of 10 cents or so. I suppose that would mean it really is a 'new asset'?

Over all, the tax due should be the same, I think, as I keep arriving at the same sum no matter the route.

Cheers!

Jeremy535897

If you sell 50 shares and buy 50 of the same class of shares in the same company back within 30 days, you match those two transactions for capital gains tax. It is irrelevant whether you paid the same or a different price to that which you received on the sale. If you bought back 49 shares, you would match those 49 shares with 49 of the 50 you sold.

MPS92

Am I right in thinking that, with all assets bought/disposed and gains/losses within the same tax year, it should arrive at the same taxable gain? 

It seems with the 'matching' it removes the need to calculate the initial higher gain, then the loss against the final gains.

Jeremy535897

Yes, if you owned no shares of the same class on 6 April 2022 and on 5 April 2023, say, and bought no more of the same shares before 5 May 2023.

MPS92

Cool, thanks for the info! Can't wait to hear what HMRC say in response to my 'workings'. All I know is the tax sum will be accurate and hurt enough sending it!