Bed & ISA vs Bed & Breakfast

edited 30 November -1 at 1:00AM in Savings & Investments
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  • grey_gym_sockgrey_gym_sock Forumite
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    OK, I've read the entire TCGA from cover to cover

    well, that's more than i've ever done :)
    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.

    yes, they don't attempt to prevent any kind of buying and selling.

    but they thought some taxpayers were having a laugh with "bed & breakfast" transactions. so they brought in the 30 day rule, which has changed the tax effect of some transactions.

    note that there won't be any argument now about whether the taxpayer has been "having a laugh" (to put it technically :)). all we need to do is apply the rules (which now include the 30 day rule) literally.
    jkwer521 wrote: »
    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.

    yes, exactly.

    and compare that to what would happen if the 30 day rule didn't exist: the first disposal would be a gain of 2k, and the second disposal a gain of £1k. which is still a total of 3k gain.

    so you could say it's a case of 3 of one, or a quarter dozen of the other :) (... sorry.)
  • Terry_TowellingTerry_Towelling Forumite
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    I lied about reading the TCGA right through.:)

    Thank you. I see the mistake now. I've had people in my ear telling me that when you sell and buy an existing holding within 30 days, that won't be seen as a disposal and the cost base for calculating gains from such quick-fire trading is that of your original holding.

    So that is not true.

    Any sale is always a disposal (regardless), but it will be matched with any same-stock-re-purchase made within the next 30 days and the base cost for assessing gains/losses will be that of your later re-purchase and not the prior sale - thus you make no gain or loss.

    The holding you end up with after all these shenanigans still carries the original base cost from when you first bought it.

    Obviously, for portfolios acquired in tranches and for part disposals and higher-number re-acquisitions it will be a more complicated picture - let's not go there.

    Have I finally got the correct understanding?
  • grey_gym_sockgrey_gym_sock Forumite
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    Have I finally got the correct understanding?

    yes :)
  • dunstonhdunstonh Forumite
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    ....23 posts later than it needed to be.
  • capital0necapital0ne Forumite
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    dunstonh wrote: »
    It is not the same.

    Unwrapped, you are selling an asset and buying back the same asset.
    With bed & iSA, you are selling an asset but not buying it back. You are buying an ISA instead. What you hold in the ISA is irrelevant. it doesnt matter if its the same underlying asset or different.

    It is quite simple. Are you buying the same asset back? No you are not.
    You couldn't be clearer - well explained
  • Terry_TowellingTerry_Towelling Forumite
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    dunstonh wrote: »
    ....23 posts later than it needed to be.

    OOOh! I've already apologised for my ignorance and now I will thank you all for your patience but it wasn't helped by reading words like, 'not viewed as a disposal' and, 'your base cost still applies'.

    I had got it stuck in my mind that the base cost of your original holding applied to the B&B txn and that the B&B sale txn is not seen as a disposal when it is.

    I may have my head on back-to-front but I get there in the end.

    If I need any more help, remember to explain in 'Jack and Jill' language from beginning to end - if you're still prepared to converse with me that is!
  • MalthusianMalthusian Forumite
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    At the risk of dragging the thread out, we don't need to use Janet & John language, you need to avoid making things more complicated than they are.

    You came up with the idea that bed & breakfast rules should somehow apply to selling and repurchasing in an ISA. This interpretation is contrary to what everyone thinks and what every HMRC manual has to say on the matter, and most importantly, makes no sense whatsoever; it would suggest that you can eliminate a CGT bill simply by repurchasing within an ISA, which by itself makes it an extraordinary claim requiring extraordinary evidence. That would be enough for most people to stop there and reject the idea.

    Instead you complicated the issue by persisting with this idea and demand that everybody else refute it. This is quite tricky, because when people draft legislation and HMRC manuals they generally state "This is the rule". They don't bother trying to imagine all the possible ways people could get the rule wrong, and write pages and pages of "This is not the rule and here's why." Nonetheless, despite its trickiness, I refuted this idea with chapter and verse anyway. You then claimed that I was fitting the evidence to support the conclusion (with no evidence) and complicated things even further by surrounding your incorrect idea with irrelevant analogies about cupboards.

    These analogies were the mental equivalent of the famous gag when someone barricades themselves inside a room by hauling heavy furniture in front of the door, not realising that the door opens the other way. Piling up all this mental furniture in defence of your idea was a waste of energy.

    None of this was necessary as the question had been answered correctly in post #2 and if you wanted further evidence, everything you will find in expert guidance, HMRC handbooks and the legislation supports DunstonH's answer in post #2.

    Instead of asking us to write answers in Janet & John language, you could try accepting the answer to your question unless there is a rational reason to believe it is wrong. Instead of refusing to believe it is right unless someone can quote directly from the legislation, and in a way that satisfies you. Exhaustive knowledge of the legislation is not necessary for straightforward common-or-garden tax planning such as this.
  • Terry_TowellingTerry_Towelling Forumite
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    OK, I'm suitably humiliated and well and truly put in my place and can see that you have slightly misinterpreted the angles I was exploring - my fault again for creating room for misinterpretation.


    In future, when I don't fully understand something, I'll not bother trying to paint a picture based on my lack of understanding, I'll just say, 'I don't understand' and you can pillory me for my ignorance.


    We all understand things differently and learn in different ways. To break through my own particular brand of idiocy I think that Grey Gym Sock's style of delivery is most helpful.
  • takesyourchancestakesyourchances Forumite
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    I have as good as run out of ISA allowance (£300 left) until the new tax year in April.



    I know the markets are a bit volatile at the moment, so I don't know if it is wise to invest in a fund and shares account and bed and breakfast the investments over to my ISA in April when the next tax year starts or build it up in cash and invest with a lump sum in April with money saved between now and then.



    I know any investments made between now and April could go down if I went to bed and breakfast it across, so thinking maybe cash to then is better?



    I have a SIPP and putting in a set amount still and want to keep funds towards the new tax year for my ISA.
  • edited 19 December 2018 at 9:55PM
    bowlhead99bowlhead99 Forumite
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    edited 19 December 2018 at 9:55PM
    I have as good as run out of ISA allowance (£300 left) until the new tax year in April.



    I know the markets are a bit volatile at the moment, so I don't know if it is wise to invest in a fund and shares account and bed and breakfast the investments over to my ISA in April when the next tax year starts or build it up in cash and invest with a lump sum in April with money saved between now and then.



    I know any investments made between now and April could go down if I went to bed and breakfast it across, so thinking maybe cash to then is better?



    I have a SIPP and putting in a set amount still and want to keep funds towards the new tax year for my ISA.

    You mention you have pretty much run out of ISA allowance which is the reason you can't put much more in your ISA right now.

    The way I read that, is you would like to carry on investing new money in the ISA and the only reason you are not going to do so is because the lack of allowance stops you. It's not that investing is a bad thing to do per se. So, it seems completely reasonable to invest outside the allowance and move the investments (effectively, sell and buy back) into the ISA once you have more allowance with which to do so.

    You want to be able to put money into your ISA next tax year. Imagine you buy £2000 of assets outside an ISA in during the rest of this tax year in a general investment account:

    - If those assets go up in value to £2500 between now and 6 April, that will kick start your 2019/20 ISA season because it will only cost you [2019/20 ISA allowance less £2500] to max out that year's ISA. The investment gain saved you from needing to earn a further £500 of net pay from your job, to max it out. Ooh, how convenient, you'll think to yourself.

    Alternatively,
    - if they go down in value to £1500, you will be able to put those assets plus [2019/20 ISA allowance less £1500] into your ISA before it's maxed out. In that case it cost you £500 extra to fill the ISA to capacity so you end up spending more money from your income to be able to max it out. Oh, how inconvenient, you'll think to yourself.

    There is no right answer to 'I am nervous about investments going down, should I invest now or just save in cash for a while first, instead'. Nobody can tell you what the markets will do in the next few months. But if you are only stopping investing due to running out of allowance, yet you know that really, running out of allowance is not a barrier to investing because you can simply invest unwrapped, then it seems like you are just looking for excuses to defer your investments because you are nervous about market conditions.

    One solution to that is to stop investing new money and use saving accounts instead as you suggest. Regular savers can pay 5% on small amounts per month.

    A more extreme solution is to sell your existing investments (because, if you believe markets will be lower in a few months, why keep the ones you've got, when you could just buy them cheaper later)?

    If you think that sounds silly, and recognise that whether the markets are higher or lower in four months time is really just a coin toss and will not matter much over the entire timeframe of the rest of your life, it just comes down to three choices:
    1) invest unwrapped in whatever assets you would usually buy and accept the risk
    2) invest unwrapped in lower risk assets
    3) do not invest, save in a savings account instead.

    If you follow 3, then when you get to April and have your savings ready to put into your new ISA allowance, and markets are still 'a bit volatile at the moment', which they often are, you will have three very similar choices:

    1) invest in the ISA in whatever assets you would usually buy and accept the risk
    2) invest in the ISA in lower risk assets
    3) do not invest, continue to save in a savings account instead and revisit some point before March 2020
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