Capital Gain calculation for short selling shares

megatower

Does anyone has experience for Capital Gain calculation of short selling (i.e. sell before buy) shares?

After reading HMRC manual,

https://www.gov.uk/hmrc-internal-manuals/capital-gains-manual/cg51555

my understanding are

1. The gain is realised at the short (disposal) rather than the cover (acquisition).
2. If there are multiple short and cover transactions interleaved overtime (assuming they are more than 30 days apart to make it trickier), there is no need to use a section 104 pool to track the average 'short' price. This is derived the point 4 "Finally against acquisitions following the disposal,…, take the earliest acquisition" from the manual.

Are these correct interpretations? Any thought would be much appreciated.

megatower

The gain is realised at the short (disposal) rather than the cover (acquisition).

Just have a second thought, this is unlikely to be correct. As if the cover is made a couple of years later, then there is no way to pay the CG tax in time correctly for the tax year where the short is in.

Dead_keen

Short selling shares (using real shares rather than spread betting or derivatives) involves: 1. Borrow shares. 2. Sell shares. 3 Buy shares 4. Return the bought shares to the lender. Only steps 2 and 3 matter for CGT. if you want to get geeky, look at s105(2) TCGA, as mentioned in the manuals point 4 that you quote. In terms of your expenses associated with the borrowing, it gets complicated.

if the cover is made a couple of years later, then there is no way to pay the CG tax in time correctly for the tax year where the short is in

That's never stopped CGT applying. Unascertainable deferred consideration is a classic example of having to pay tax before you know your real gain. Just do your best and if you get it wrong, amend your tax return.

masonic

Are you sure this is relevant to the shorting activity you are intending to do? As most times people talk of shorting something it is via a separate financial instrument rather than taking possession of the shares in order to sell them.

megatower

There are different ways to short, and it could be well be a different instrument. But here it's shorting directly and the buy back is no different to a normal share purchase (other than you would then return it to the broker). Also discussion on a different forum also points to the same HMRC manual.

There maybe a separate HMRC rule for it but that's the nearest thing I could find.

I'm a bit surprise I couldn't find much on internet given short selling isn't something new at all.

masonic

You probably haven't found much because most people don't do it. Most of those who do would buy a short ETF, a CFD, or make spread bet. The vast majority of those who do such things lose money, so CGT isn't an issue, but the situation is simpler in those other cases, the last one being tax exempt.

megatower

https://forums.moneysavingexpert.com/discussion/comment/82050007#Comment_82050007

Almost didn't see your comment. I don't need to worry about the expense yet (only small positions so no big deal), any pointer for how to calculate those expenses?