CGT Share Pool Calculations over time including sales and dividend reinvestment

STBO1969

I am lucky enough to have a pool of employer shares as part of remuneration package. When shares are awarded the relevant amount is sold by my employer to meet the income tax due and then the remaining shares are placed in a broker account operated by me from which I can sell the shares. Dividends are reinvested into this account also – I do not take any cash payment (by choice and the dividends are declared on my tax return).

I appreciate that the question of share pooling and CGT has been asked on these forums before. I hope my question is not repetitive as I’m introducing the element of sales and dividends along the way here.

My question is whether I am correctly calculating profit/loss over time given dividends that have been paid and sales that have been made.

Here is a simple illustration of what I do:

Year 1 Allocation (net after income tax deducted as above) 100 @ £10 per share so cost £1,000

Year 1 Dividend 10 @ £11 per share so cost £110

Year 2 Allocation (net as above) 100 @ £12ps so cost £1,200

Year 2 Dividend 20 @ £13ps so cost £260

Pool cost at this point is £2,570/230 so average cost per share is £11.17

Year 3 Sell 100 shares at £14ps so receive £1,400 (not deducting dealing cost to keep it simple). The average cost of the 100 sold is £1,117 so my profit for CGT purposes is £283.

After the sale I have a pool of 130 shares remaining at an average cost of £11.17 so £1452.10 total.

Year 3 Allocation (net) 100 @ £15ps so cost £1,500

Year 3 Dividend 10 @ £16ps so cost £160

Pool (total 240 shares) cost at this point is 130 at £11.17 (as initial pool calculation above) = £1452.10 plus 110 at £15.09 (this being the Y3 allocation and dividend cost of £1660/110. So my new pool at this point is 240 shares @ £12.97 (this being 130*11.17 = 1452.10 plus 110*15.09 = 1659.90 thus 240 shares have an average cost of 3112/240 = £12.97)

Comments?....

sausage_time

I have not checked your arithmetic but your reasoning aligns with my understanding.  My mental model is:

• On acquisition (buying, dividend reinvestment, allocation) you need to recalculate the Section 104 Pool price using the market price (which may be different from what you effectively pay in the case of RSUs and options).
• On selling, gain/loss is with respect to the pool price (which does not change as part of the disposal).

This also assumes that this is not part of an ESOP or other tax saving scheme.

STBO1969

sausage_time said:

I have not checked your arithmetic but your reasoning aligns with my understanding.  My mental model is:

• On acquisition (buying, dividend reinvestment, allocation) you need to recalculate the Section 104 Pool price using the market price (which may be different from what you effectively pay in the case of RSUs and options).
• On selling, gain/loss is with respect to the pool price (which does not change as part of the disposal).

This also assumes that this is not part of an ESOP or other tax saving scheme.

Thank you, it was indeed methodology not arithmetic I was wanting some reassurance on. Much appreciated.