CGT - Bed & Breakfast Rules

Thames26

Hi - In tax year 25/26 I undertook a manual Bed and ISA transaction in order to crystalise a gain on an OEIC position below the 3k CGT threshold. Stupidly, a few days later I bought some further units of the same position in the same non-ISA account which I realise triggers the bed and breakfast 30 day rule, resetting the cost basis and the profit / loss. I have already sold this new position and expect a negligible gain.

I can understand the cost and p/l reset implications but why is this an issue when I have a gain in the first place. I have effectively reset the gain to zero, albeit by mistake. I would appreciate any clarification on how these rules play out when you have a gain and what the detriment is.

Many Thanks

eskbanker

Not quite sure exactly what you're asking, but perhaps worth sharing some figures (units, values, dates, etc) in order for posters to be able to comment meaningfully?

poseidon1

You seem to be asking, what was the nature of the 'mischief', that led to HMRC introducing the long standing 30 day rule in the first place. The following article explains -

https://www.investopedia.com/terms/b/bed-and-breakfast-deal.asp#:~:text=It%20allowed%20investors%20to%20claim,a%20capital%20gains%20tax%20exemption.

As you will see the mischief was all about forestalling the ability to establish an allowable carried forward tax loss, whilst still retaining the loss making asset. I recall this was a standard tax planning ploy executed by stockbrokers and proactive accountancy practices on behalf of clients, prior to being outlawed.

However 'bed and isa' or 'bed and sipp' now allows the loss to be realised albeit the loss making asset itself goes on to be held in a tax exempt wrapper. Have done it myself a few times.

Of course the contemplated 'mischief' does not arise where there has been a realised gain rather than loss, but the anti avoidance legislature chose not to make a distinction when drafting the rules.

Thames26

Thanks - That's exactly it - I totally understand the reason for the rule in the case of washing losses but I'm confused why the rule also applies if I have realised a gain. I don't see how it penalises me or benefits HMRC.

masonic

https://forums.moneysavingexpert.com/discussion/comment/81858398#Comment_81858398

The rule applies regardless of gains or losses. If you repurchase the same share within 30 days then the disposal is matched to the re-acquisition in preference to the original purchase. This more often than not will reduce your gain and limit your ability to use your CGT allowance without really disposing of an asset. Though there are workarounds.

phlebas192

https://forums.moneysavingexpert.com/discussion/comment/81858398#Comment_81858398

Without this rule you could take gains up to the CGT allowance every year without effectively disposing of any assets. That's a direct reduction in the potential tax take.

Of course, the objection to this is hardly consistent since you can Bed & ISA to use up the allowance with even less market risk than Bed & Breakfasting. But no one ever said tax rules were designed to be consistent!

Bostonerimus1

Such complications are part of the reason I keep transactions on my accounts to a minimum and if I sell say a US index fund I will be careful to buy a global index fund next. This year I sold some units of a US equity index fund and under the FIFO rule on my account the units sold were purchased in 1997 when the Dow was around 8000, it's now at 49000. That really makes the increase in the value of equities over that last 30 years concrete.