Bed & ISA vs Bed & Breakfast

edited 30 November -1 at 1:00AM in Savings & Investments
37 replies 6.9K views
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  • Terry_TowellingTerry_Towelling Forumite
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    I should get out more because I'm finding this enjoyable. Yes I have had a toffee pear and it tastes exactly the same as a toffee apple - sweet and sickly.:)

    I accept that I am probably the only soldier marching in step :)and I'm frequently back-to-front but it's not what is being said that is back to front; what I am hearing is essentially 'proof by induction'. Assume the answer is true and then try to make it fit by interpreting words in a certain way.

    Interesting view that putting shares in an ISA amounts to buying an ISA rather than buying shares but, again, it sounds like interpreting something to fit a conclusion you've already made. The ISA is just a place to store the shares and you pay rent for that in fees. The same applies to investment accounts; you pay rent for those too but if I put shares into one you wouldn't say I'd bought an investment account, you'd say I'd bought shares and so would HMRC. It's like keeping my paper share certificates in a cupboard; Yes, I have to buy the cupboard but that's got nothing to do with what I keep in it.

    The ISA is not the asset, the shares are.

    I can feel a new wheeze coming on - Bed, Breakfast & Evening Meal. Sell your shares, buy back in an ISA, sell them from the ISA and buy back again outside the ISA. What might HMRC say about that if it all happened within 30 days? If it has viewed the Bed & ISA transaction as a disposal, then the buy back must be a new acquisition with a new base cost.

    Not sure quite what the advantages might be (apart from perhaps getting back to paper certificates which are free to hold) but there must be a benefit in there somewhere or HMRC wouldn't have dis-incentivised B&B in the first place.
  • Uncle_BobUncle_Bob Forumite
    11 Posts
    Just to be clear, although HMRC are free to offer their views in their manuals it is ultimately the tax legislation that determines these matters (and the courts if there is uncertainty in the legislation).


    In this particular case, have a look (if you are feeling brave!) at the legislation at section 104 TCGA 1992 and onwards. This details the 'matching rules' for shares. You'll see that there are references to the acquisitions being made by the same person and 'in the same capacity'. Buying shares through an ISA is not buying them in the same capacity as buying them in a normal trading account.


    Don't forget to also give consideration to Bed & SIPP and Bed & Spouse planning too ;)
  • FubblyFubbly Forumite
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    Second Anniversary 10 Posts

    I can feel a new wheeze coming on - Bed, Breakfast & Evening Meal. Sell your shares, buy back in an ISA, sell them from the ISA and buy back again outside the ISA. What might HMRC say about that if it all happened within 30 days? If it has viewed the Bed & ISA transaction as a disposal, then the buy back must be a new acquisition with a new base cost.

    .
    HMRC do not view the Bed and ISA as a disposal, they view the initial sale as a disposal. This status is not affected by a purchase within an ISA but will be by a purchase, within 30 days,outside an ISA, however the purchase was funded.
  • edited 2 June 2018 at 1:48AM
    grey_gym_sockgrey_gym_sock Forumite
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    edited 2 June 2018 at 1:48AM
    the way to look at it is that everything that happens inside an ISA is completely invisible for tax purposes. e.g. you think you sold a share outside an ISA and bought it back inside? no: for tax purposes, you just sold it.

    incidentally, it not 100% accurate to say that selling and buying back within 30 days - when this is all outside an ISA - is not treated as a disposal. the end result is quite similar to that, but actually it's treated as a disposal, but the cost basis for the disposal is the cost for the later (within 30 days) purchase, not the original cost.

    perhaps a (fictional) example will make that clearer ...

    suppose i bought/inherited 1000 shares in PQR plc back in 1977. that's before 31 march 1982, so the basis cost is the value on the latter date; let's say that was £1 per share, so a total basis cost of £1000.

    on 1 may 2018, i sell my 1000 shares, for net proceeds of £8000 (that's after deducing dealing commission on the sale). on the face of it, that looks like a taxable profit of £7000.

    and that's what it would be. except that, on 31 may 2018 (exactly 30 days after the sale), i bought 1000 shares in PQR plc again (i have trouble sticking with decisions :)), for a total cost (including dealing commission, etc) of £8200.

    for tax purposes, the sale on 1 may is matched with the purchase on 31 may, giving me a loss for tax purposes of £200 (not a gain of £7000).

    and the 1000 shares i now hold have a cost basis of £1000 (not of £8200), because they use the original cost, not more recent cost. (which is sort of logical: both the costs are used somewhere, and neither is used twice.)

    usually, share prices don't move very far in 30 days (or at least, not as far as they move in decades). so the 30 day rule tends to give you a small loss or gain now, with the big gain being postponed into the distant future.

    but basically, there is no reason for you to run into the 30 day rule. because the only selling and buying back you're likely to want to do is with the buying back being inside an ISA, which doesn't count for tax purposes.
  • spenderdavespenderdave Forumite
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    Remember if you have a large investment that would overall be subject to CGT you can bed and ISA part of it so that the capital gain is below the annual CGT allowance, then do the remainder the following tax year. It is some years since I did this myself and no longer remember the details (have the paperwork somewhere) but that is how I got round it.
  • jkwer521jkwer521 Forumite
    38 Posts
    Third Anniversary
    Malthusian was correct - it is not the same capacity.

    The ISA regulation 1998 section 34 (2) (a) (12) (a) and (c) (applying to the TCG Act 1992) says that the sections of the TCG Act:

    "shall apply separately in relation to any securities which are held by a person as account investments so long as they are so held"

    (where an "account investment" effectively means an investment within an ISA)

    and

    "while applying separately to any such securities, shall have effect as if that person held them in a capacity other than that in which he holds any other securities of the same class whether under another such account or otherwise."

    so they are not held in the same capacity.
  • londoninvestorlondoninvestor Forumite
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    the way to look at it is that everything that happens inside an ISA is completely invisible for tax purposes

    And to that you can add "whether you like it or not!" That's a good way of summarising the point here.


    If you buy a share in an ISA and sell it for a gain, you don't have any CGT to pay.


    If however, you buy it and then sell it at a loss, that loss doesn't offset any of your taxable gains. The same buy and sell, in an unwrapped account, would have generated a loss that might reduce your CGT liability. But if you did it in an ISA, those transactions just don't exist as far as the tax system is concerned, and you can't use them to your tax advantage.
  • dunstonhdunstonh Forumite
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    The ISA is not the asset, the shares are.

    ISAs are classed as a packaged product. You are selling an asset and replacing it with a packaged product. The contents of that packaged product are not of interest to HMRC as long as they are allowable.
    I am an Independent Financial Adviser (IFA). The comments I make are just my opinion and are for discussion purposes only. They are not financial advice and you should not treat them as such. If you feel an area discussed may be relevant to you, then please seek advice from an Independent Financial Adviser local to you.
  • Terry_TowellingTerry_Towelling Forumite
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    OK, I've read the entire TCGA from cover to cover and am in possession of all the right facts - but not necessarily in the right order.

    Would folks agree with the following:-

    HMRC can’t legally prevent buying and selling in a short period, but it views such activity as probably a deliberate attempt to limit a future chargeable gain or to create a future deductible loss. The Bed & ISA process cannot in itself lead to a future chargeable gain/deductible loss due to the ISA rules, so the original 'Bed' sale is a disposal.

    But what about the following scenario? - ignore the fact that it is highly unlikely to happen.

    I buy shares in Thickhead plc for £18K. The value rises to £20K. I Bed and ISA it all. Further surges happen amidst talk of a buy out and it reaches £22K within a couple of weeks. I sell it all - I'm £4K up. A couple of weeks later, the buy out is off and the market slumps - good time to buy. So I buy back my entire stock for only £16K (outside the ISA obviously).

    HMRC would then match this with the original 'Bed' sale - presumably???

    Another month passes, the market recovers and my stock is worth £17K. I sell the lot again. I've made another £1K. So, I'm £5K up in just 2 months. Well within the annual CGT allowance and some of it was made in an ISA anyway, so nothing to pay HMRC.

    However, because my post-ISA purchase was made within 30 days of the original 'Bed' sale can I declare my final £17K sale as a £1K deductible loss because the HMRC matching process will rule my 'Bed' sale as non-disposal after all and oblige me to apply my original £18K base cost to my final £17K sale?
  • jkwer521jkwer521 Forumite
    38 Posts
    Third Anniversary
    I don't think this is right - I think you would still be taxed on 3k of the gain. The simple way to think about it is that you can ignore what goes on inside the ISA, which is a gain of 2k. The other 3k is taxable because it is outside the ISA.

    Technically what happens (outside the ISA) is that you buy at 18k, sell at 20k, buy at 16k - all within 30 days. The rules say that if you repurchase within 30 days of a disposal then the repurchased shares are taken into account before the ones you originally held. So for the sale at 20k, the purchase price is deemed to be 16k because you purchased these within 30 days of the disposal. So you are deemed to have gained 4k.

    Since the shares you originally purchased at 18k have technically not been disposed of (since the disposal is of the newly purchased shares at 16k), the shares you retain have the notional purchase price of 18k.

    Then when you sell these at 17k, you make a loss of 1k.

    So you have made a gain of 4k and a loss of 1k, meaning overall your gains are 3k.
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