Shares - Bed & Breakfasting

dragonjim2001

I find myself in a position where I have to take account of Bed & Breakfasting regulations in a number of holdings caused by the shareholder buying shares within 30 days of selling others of the same type.

While the legislation and documentation is quite clear that Bed & Breakfasting covers any new shares acquired either on the same day or within 30 days of a disposal, there are a couple of things I can not find information on and hope you can help me:

1. Does Bed & Breakfasting only occur when shares are disposed of through sale or does it also occur when there has been a partial disposal caused by a Takeover, Merger or Share Organisation? So, for example, a company pays out a large Capital payment due to a Share Organisation which is over £3,000 and greater than 5% of the costs making it a Partial Disposal, does this count as a disposal for Bed & Breakfasting purposes? (My gut feeling is no, as this would be outside of the spirit of the legislation).

2. Does it apply to shares acquired through Gift or Inheritance, or just through the purchase of shares? (Again, my gut says only share purchases, but...)

3. The priority order for which acquisitions should be used first is: same day; then all acquisitions within 30 days.  My question is, does the priority decrease the further ahead the shares are purchased?  So, for example, if shares were bought four days after the disposal and another batch six days afterwards, would the first batch bought closer to the disposal be processed first before that bought later? (My gut: those closer are processed first...)

Thanks for any help you can offer.

masonic

dragonjim2001 said:

I find myself in a position where I have to take account of Bed & Breakfasting regulations in a number of holdings caused by the shareholder buying shares within 30 days of selling others of the same type.

While the legislation and documentation is quite clear that Bed & Breakfasting covers any new shares acquired either on the same day or within 30 days of a disposal, there are a couple of things I can not find information on and hope you can help me:

1. Does Bed & Breakfasting only occur when shares are disposed of through sale or does it also occur when there has been a partial disposal caused by a Takeover, Merger or Share Organisation? So, for example, a company pays out a large Capital payment due to a Share Organisation which is over £3,000 and greater than 5% of the costs making it a Partial Disposal, does this count as a disposal for Bed & Breakfasting purposes? (My gut feeling is no, as this would be outside of the spirit of the legislation).

It depends, and often shareholders are given guidance. You are discussing a corporate action that results in a disposal (the first part of B&B, requiring you then to repurchase the shares). Generally in a share reorganisation where a shareholder gives up one class of share for another, this is not a disposal. Where a shareholder gives up one share in exchange for another share and/or cash, then that can be a disposal, but usually this is a result of the share capital being acquired and delisted, so it would be unavailable to be repurchased within 30 days. Did you have a specific scenario in mind where you'd be able to repurchase the same financial instrument within 30 days?

If you turn it on its head, you could already hold the shares being issued in the corporate action, decide to sell this existing holding, then find out you are getting some more within 30 days due to a corporate action. This scenario could potentially have B&B implications.

dragonjim2001 said:
2. Does it apply to shares acquired through Gift or Inheritance, or just through the purchase of shares? (Again, my gut says only share purchases, but...)

If you sell shares acquired through gift or inheritance, then those shares would have a base cost and you'd be treated as disposing of them with CGT implications. If you were to sell and then repurchase those shares within 30 days, then that clearly would have B&B implications.

If you disposed of shares and then inherited or were gifted some more within 30 days, then that's a very interesting question. Gifting between cohabiting spouses and civil partners would not be considered a disposal for the donor, and the original base cost would be preserved, so this could not be one half of a B&B transaction. In other circumstances, my gut feeling would be you'd need to delay accepting the gift/inheritance if you wanted to avoid implications.

dragonjim2001 said:
3. The priority order for which acquisitions should be used first is: same day; then all acquisitions within 30 days.  My question is, does the priority decrease the further ahead the shares are purchased?  So, for example, if shares were bought four days after the disposal and another batch six days afterwards, would the first batch bought closer to the disposal be processed first before that bought later? (My gut: those closer are processed first...)

https://www.gov.uk/hmrc-internal-manuals/capital-gains-manual/cg51565 confirms this is on a first-in first-out basis in that situation, but I've not seen any official guidance relevant to S104 holdings. The legislation is unclear:

poblomov

masonic said:

Gifting between cohabiting spouses and civil partners would not be considered a disposal for the donor, and the original base cost would be preserved, so this could not be one half of a B&B transaction.

A gift between spouses is a disposal, but one at no gain/no loss

As far as regards the OPs question, I think it will depend on the specifics of the part disposal. Companies have in the past, for example, returned capital by way of B shares. Some of the original cost would be attributed to the redemption of the B shares, but a subsequent purchase would be of ordinary shares so wouldn't be matched to the part disposal.

With inherited shares, was the date of death within the following 30 days or just the date the shares were transferred from the executors?