Maybe a HYP isn't for me?

[Lootman]

But you do need to record the number of shares remaining in your records and their carrying pool cost in case you sell another less than entire holding in the future, or start mucking about repurchasing to augment the number held/pool value or heaven forbid you buy sell on same day or repurchase within 30 days. I used to have a client that was in and out of the same 12-15 shares like a yo yo, circa 200 sales a year and similar number of purchases, matching re CGT was a long, slow, process (should have used software)

In that case, yes. But I am careful to not fall foul of the 30-day rule and, indeed, when I decide to sell a holding then it is because I no longer wish to own it, so won't be repurchasing it either within 30 days or after then. (Unless it's a bed-and-ISA switch but then the 30-day rule doesn't apply anyway).

Again, I don't usually do partial sales in my taxable account (*). And, even if I did, my broker maintains cost basis information such that, if I sell 50% of a holding then the cost basis on the remaining lot is changed to 50% of the original. (Brokers sometimes fail to make the correct adjustment for corporate actions, but in my experience they handle buys and sells correctly).

So I maintain that for the way I trade I have no need to document the number of shares. It may be an input into a calculation but it doesn't need to be recorded or submitted.

(*) At some point I will have to. I typically sell off my losers and smaller positions, and they do not have gains that exceed my annual CGT allowance. But eventually I will have to start selling positions where the gain exceeds that allowance, and then I may get around that via partial sales.

[Gengulphus]

So I maintain that for the way I trade I have no need to document the number of shares. ...

Yes - the only real problem was that what you originally said was "Actually you don't need "number of shares" nor "sales price" nor "average purchase price" for reporting gains and losses." (in viewtopic.php?f=31&t=10718&start=20#p126398). That reads as telling other people what they need to do, and it omits to say "First start trading the way I do. Then..."!

... It may be an input into a calculation but it doesn't need to be recorded or submitted.

This may be just a question of using "record" and related words differently, but as far as I'm concerned, recording information is no big deal in these days of electronic communications and storage - processing it might be if the processing required cannot be easily automated, but not simply putting it into one's records. E.g. when I do a trade, my broker sends me either a contract note or a notification that it's available on their website. Either way, putting a copy of it into my files takes a matter of seconds, and I've then recorded all details of the deal - it would actually take longer to record it without the number-of-shares information than with that information, because the latter would involve processing it to remove the information!

Back in the days of paper communications and storage, it was more of a problem: the paperwork built up to a very cumbersome volume over the years. But nowadays, I find that the most efficient way for me to deal with communications from financial providers is basically a quick initial sort into a few categories - for brokers, for instance, they go into a general "Short Term" folder for anything that clearly will no longer be relevant to anything at all after 3 months, or broker-specific "Statements", "Contract Notes", "Corporate Actions" or "Other" folders. Apart from the "Short Term" stuff, it will probably stay around in my records permanently - I may well never look at it again, but clearing out stuff that has ceased to be wanted at all adds more work than it saves! And unlike with paper records or the situation in the early days of electronic communications, storing it all doesn't create any significant inconvenience, nor is likely to do so in the future - my entire electronic financial records fit on one memory stick, and by the time they grow to no longer do so on current memory sticks, I've little doubt that available memory stick capacities will have grown to make them still do so!

... my broker maintains cost basis information such that, if I sell 50% of a holding then the cost basis on the remaining lot is changed to 50% of the original. (Brokers sometimes fail to make the correct adjustment for corporate actions, but in my experience they handle buys and sells correctly).

I feel I should point out a couple more flaws with relying on brokers to maintain cost-basis records for one: first, it won't be good enough for some taxpayer special circumstances - for example, changing between being UK-tax-resident and not, or also having other taxable holdings of the same shares. Both of those basically require full transaction records that the client can process to take account of the special circumstances, and/or the client being able to provide the appropriate details of how their circumstances change.

Secondly, and probably more relevant to most people, brokers occasionally exit the business and transfer their clients to other brokers (*). One would of course hope that such a transfer would include the transferor broker making the cost-basis information available to the transferee broker and the transferee broker registering it as the cost-basis information of the transferred holdings (rather than e.g. their market values on the day of the transfer). But my experience of even the better financial providers is such that the operative word in that is definitely "hope" rather than "expect"!

That's easily dealt with either by routinely making records of whatever the broker sends one, or by specially making records of everything the transferor broker has on their website about one's account before it ceases to be available. I.e. it's an easily-overcome flaw as long as one is aware of its existence, and only becomes more major if one lets it slip by one... But that's not all that unlikely for long-term shareholdings, because the relevant cost basis may have been acquired long before CGT became at all relevant to one.

Indeed, I'm affected by that form of the second flaw myself in one minor respect: some of my SSE shares are ones I bought in the early 1990s (as shares in Scottish Hydro-Electric - the company has been renamed twice since, once during its merger to form Scottish & Southern Energy and then later to shorten the name to just SSE). At the time, I basically just bought shares in privatisations and kept the certificates in a drawer, but my holding of Scottish Hydro-Electric was particularly disappointingly small and I responded to an offer of a one-off certificated dealing service to either sell one's shares or buy more. I received a contract note, which I'm fairly certain I've never chucked out - but CGT wasn't even looming on my horizon at the time (it basically appeared there and reached me over just a couple of years in the late 1990s as a result of the tech boom), and so I didn't attach any great importance to it, just kept it in a pile of miscellaneous financial papers. And it's gone missing... Almost certainly simply mislaid and will turn up somewhere totally unexpected, but until it does, I won't know exactly what my cost basis for those SSE shares is. It does mean that I'm glad I haven't felt any serious need to sell any SSE shares for the last 10 years (I did sell some before that, but the CGT rules then in effect didn't identify the shares concerned as being even partially among the shares I sold). If necessary, I could of course deal with that by coming up with a low estimate of their cost basis, or even an estimate of zero, and accepting that I would pay a bit more CGT as a result, but I'd prefer not to have to...

(*) Generally they allow the clients to say which broker they want to be transferred to, but have a default transferee broker - which is presumably essential to be able to deal with clients who simply won't respond.

Gengulphus

[Alaric]

At the time, I basically just bought shares in privatisations and kept the certificates in a drawer

Privatisations can present a particular record keeping problem. Unlike contract notes which show a date, cost and shares all on the same piece of paper, you have a share certificate in isolation from the allotment letter which shows how much you paid for them. To add complications, you often bought partly paid and there were bonus shares issued later.

The Company websites aren't always that useful in documenting the issue price history of the Company. Most record the base cost split if there has been a demerger, but the base cost itself can take some unearthing.

[Lootman]

So I maintain that for the way I trade I have no need to document the number of shares. ...

Yes - the only real problem was that what you originally said was "Actually you don't need "number of shares" nor "sales price" nor "average purchase price" for reporting gains and losses." (in viewtopic.php?f=31&t=10718&start=20#p126398). That reads as telling other people what they need to do, and it omits to say "First start trading the way I do. Then..."!

I think we are saying two slightly different things. When I said that you don't need A, B or C for reporting gains, I meant literally that you don't have to report them, as in you don't have to declare them or submit them to HMRC. I've already agreed that number of shares might be an input into calculations, although I don't need to for the reasons cited. (And I only have one taxable account and so don't have the problem of the same holding in more than one account, which I would avoid anyway precisely because of the complication you noted).

... It may be an input into a calculation but it doesn't need to be recorded or submitted.

This may be just a question of using "record" and related words differently, but as far as I'm concerned, recording information is no big deal in these days of electronic communications and storage - processing it might be if the processing required cannot be easily automated, but not simply putting it into one's records. E.g. when I do a trade, my broker sends me either a contract note or a notification that it's available on their website. Either way, putting a copy of it into my files takes a matter of seconds, and I've then recorded all details of the deal - it would actually take longer to record it without the number-of-shares information than with that information, because the latter would involve processing it to remove the information!

Yes, I wasn't claiming that recording such data was a big deal. Obviously one can choose to document it in one's own records for any reason, no reason or even a bad reason! I certainly wasn't suggesting that you shouldn't - only that you can most likely get away with not doing that. And in fact, looking again at the spreadsheet I use for my gains and losses, I see that the number of shares is in there. It just doesn't get used for anything and is omitted from what I send to my accountant annually.

I guess what I am really saying is that I use Occam's Razor when it comes to data I export, preferring to keep files as brief and simple as possible.

I actually don't have any use for contract notes either, and haven't looked at one in years. If there ever was a query about a line item then I might need to retrieve one, but it has never happened.

... my broker maintains cost basis information such that, if I sell 50% of a holding then the cost basis on the remaining lot is changed to 50% of the original. (Brokers sometimes fail to make the correct adjustment for corporate actions, but in my experience they handle buys and sells correctly).

I feel I should point out a couple more flaws with relying on brokers to maintain cost-basis records for one: first, it won't be good enough for some taxpayer special circumstances - for example, changing between being UK-tax-resident and not, or also having other taxable holdings of the same shares. Both of those basically require full transaction records that the client can process to take account of the special circumstances, and/or the client being able to provide the appropriate details of how their circumstances change.

I wasn't aware that a broker's record of cost basis is affected by my changing my UK residency status. Although obviously if I ceased to be UK resident then CGT would cease to apply to me at some point anyway so the issue might be moot (ignoring any foreign CGT of course).

As for transfers from one broker to another, I can see how some information could be lost in transit. An involuntary transfer has only happened to me once and, in that case, nothing was lost that I noticed. That said, I took the precaution of doing some screen prints of my positions so that, if cost data was lost, I would at least have the data up to the point of the transfer.

Some broker systems I have seen allow you to change the cost basis information. Others do not. I think it's a useful feature precisely for the exception cases you mention.

[Gengulphus]

At the time, I basically just bought shares in privatisations and kept the certificates in a drawer

Privatisations can present a particular record keeping problem. Unlike contract notes which show a date, cost and shares all on the same piece of paper, you have a share certificate in isolation from the allotment letter which shows how much you paid for them. To add complications, you often bought partly paid and there were bonus shares issued later.

The Company websites aren't always that useful in documenting the issue price history of the Company. Most record the base cost split if there has been a demerger, but the base cost itself can take some unearthing.

Agreed - I went through that years ago! But fortunately, the numbers of shares were of course on the certificate and the subscription prices are a matter of public record - in some cases, quite difficult to find, but at least in the cases where I didn't appear to have kept the details myself (I often chucked other application-associated paperwork in the same drawer as the certificates), all eventually findable. No such hope for the information on my missing Scottish Hydro-Electric contract note...

Gengulphus

[westmoreland]

personally i don't think any private investor can properly monitor more than 8-10 shares (unless the person is retired and enjoys scouring company reports). the only way i think it is feasible is if you restrict yourself only to clear compounding companies with management who have a flawless record going back many years, which means you don't have to be so up to date with the company's performance.

even so, 10 shares is 20 annual and interim reports per year.

[Gengulphus]

So I maintain that for the way I trade I have no need to document the number of shares. ...

Yes - the only real problem was that what you originally said was "Actually you don't need "number of shares" nor "sales price" nor "average purchase price" for reporting gains and losses." (in viewtopic.php?f=31&t=10718&start=20#p126398). That reads as telling other people what they need to do, and it omits to say "First start trading the way I do. Then..."!

I think we are saying two slightly different things. When I said that you don't need A, B or C for reporting gains, I meant literally that you don't have to report them, as in you don't have to declare them or submit them to HMRC. I've already agreed that number of shares might be an input into calculations, although I don't need to for the reasons cited. (And I only have one taxable account and so don't have the problem of the same holding in more than one account, which I would avoid anyway precisely because of the complication you noted).

I see your point, but I think you might be taking things a bit too literally. In particular, the 'Computation Working Sheet (for straightforward calculations)" on page CGN9 of HMRC's instructions for filling in the capital gains part of a paper (*) tax return has a box for (with my bold) "Description of asset, for example, type and number of shares sold or address of property". One isn't obliged to use that working sheet, and indeed they say it isn't usable for many more complex cases, but I would take it as a general guide to the level of detail they'd like to see in straightforward computations. And I suspect that failure to provide that level of detail in one's computations makes it much more likely that they'll ask the taxpayer for the details concerned if they end up looking at the computations. And as far as I'm concerned, I'd much prefer to supply the details when they're fresh in my mind and easily to hand because I'm filling in my tax return, rather than having to come back months or even years later and dig them out again!

So perhaps not literally needed - one could get away with not recording the inputs to one's CGT computations at all, provided one is willing to trust one's broker to keep those inputs available indefinitely (which I am not, having once been mildly burned by an otherwise-excellent broker only keeping transaction records available on their website for a few years) and to repeat looking up all the inputs if called upon to explain the computations. But it seems much less work to record the inputs - in the simplest case, it's just a matter of taking a copy of the spreadsheet used to generate the computations one submits and making it read-only to guard against inadvertent subsequent modification, as such a copy will include recorded values of all of its inputs.

By the way, I'm not saying there that I think HMRC are at all likely to look at one's CGT computations. I don't think they are - the fact that they don't require them in any particular format strongly suggests to me that they only get read at all if the tax return is selected for human investigation. But they do say quite openly that they investigate some tax returns chosen entirely randomly, so while one can clearly reduce the chances of them doing so by not raising their suspicions in other ways, I very much doubt one can reduce them to zero.

(*) The online version has a similar working sheet, but I'm not aware of any way of getting at it without logging on and starting to edit one of my tax returns, and even if I were willing to do that, I wouldn't be able to supply any working links to it - or to be precise, I most certainly hope I wouldn't!

Gengulphus

[absolutezero]

personally i don't think any private investor can properly monitor more than 8-10 shares (unless the person is retired and enjoys scouring company reports). the only way i think it is feasible is if you restrict yourself only to clear compounding companies with management who have a flawless record going back many years, which means you don't have to be so up to date with the company's performance.

even so, 10 shares is 20 annual and interim reports per year.

I take the Investor's Chronicle for that!

[Itsallaguess]

Personally i don't think any private investor can properly monitor more than 8-10 shares (unless the person is retired and enjoys scouring company reports).

You may well be correct.

The real question for HYP owners, however, is to ask if their holdings require 'proper monitoring'......

I own over 40 individual holdings and don't consider that my management of them constitutes 'proper monitoring' in the way that you're describing, and yet I'm quite happy with both the strategy and my HYP-like portfolio.

In fact, for some very odd reason that I'm still yet to fully answer, I seem to spend more time reading about other peoples holdings than I actually spend managing my own......

Cheers,

Itsallaguess

[westmoreland]

Personally i don't think any private investor can properly monitor more than 8-10 shares (unless the person is retired and enjoys scouring company reports).

You may well be correct.

The real question for HYP owners, however, is to ask if their holdings require 'proper monitoring'......

I own over 40 individual holdings and don't consider that my management of them constitutes 'proper monitoring' in the way that you're describing, and yet I'm quite happy with both the strategy and my HYP-like portfolio.

In fact, for some very odd reason that I'm still yet to fully answer, I seem to spend more time reading about other peoples holdings than I actually spend managing my own......

Cheers,

Itsallaguess

bearing in mind a professional would have 3-4 full time analysts to support him, i think 40 is too many. although if index funds didnt exist and i had to invest for diversification, i would apply strict return on capital, valuation and leverage screens, avoiding cyclical industries altogether.

as a private investor i only devote around max 20% of my ISA to individual stocks. i do sit on some cash waiting for a company on my list that i think is a no brainer at the current valuation. it's very rare that i find a company that is a clear buy (i only have shares in 3 companies )

[Itsallaguess]

bearing in mind a professional would have 3-4 full time analysts to support him, I think 40 is too many.

It may be too many for you to monitor in the way that you'd 'need' to monitor them, but I'm just suggesting that not everyone 'needs' to do that....

If someone tries to justify the 'need' to do that by referring to how many stock analysts are 'needed' for a particular stock-monitoring task, then I'd not personally be able to apply the same justification in that way, sorry.

For the record, I didn't take a single look at my 40+ portfolio during the month of November last year, and as well as giving me a great sense of accomplishment, it also reinforced my view that the whole 'portfolio management' aspect is largely overdone, especially for some of the more 'hands-off' strategies such as HYP.

Cheers,

Itsallaguess

[westmoreland]

bearing in mind a professional would have 3-4 full time analysts to support him, I think 40 is too many.

It may be too many for you to monitor in the way that you'd 'need' to monitor them, but I'm just suggesting that not everyone 'needs' to do that....

If someone tries to justify the 'need' to do that by referring to how many stock analysts are 'needed' for a particular stock-monitoring task, then I'd not personally be able to apply the same justification in that way, sorry.

For the record, I didn't take a single look at my 40+ portfolio during the month of November last year, and as well as giving me a great sense of accomplishment, it also reinforced my view that the whole 'portfolio management' aspect is largely overdone, especially for some of the more 'hands-off' strategies such as HYP.

Cheers,

Itsallaguess

i said that if you have a hands off approach, it's vital that you basically stick to companies with good long term track records of ROC, capital allocation, with long term management. in other words, do your homework before you buy the shares.

applying a buy and hold without the strict criteria above is a recipe for disaster IMO.

[Lootman]

I see your point, but I think you might be taking things a bit too literally. In particular, the 'Computation Working Sheet (for straightforward calculations)" on page CGN9 of HMRC's instructions for filling in the capital gains part of a paper (*) tax return has a box for (with my bold) "Description of asset, for example, type and number of shares sold or address of property". One isn't obliged to use that working sheet, and indeed they say it isn't usable for many more complex cases, but I would take it as a general guide to the level of detail they'd like to see in straightforward computations. And I suspect that failure to provide that level of detail in one's computations makes it much more likely that they'll ask the taxpayer for the details concerned if they end up looking at the computations.

As a general rule I subscribe to that view, i.e. never give HMRC a pretext to investigate you in any event, and certainly not by being minimalist about data that they might reasonably want to see. In fact it is for exactly that reason that I am hesitant to deviate from my broker's records even if I think they are wrong.

You have me at a disadvantage because I do not directly submit my tax return but rather use an accountant. So my claim that this is not needed is predicated only on the fact that both my accountant has never deemed it necessary and that HMRC has never questioned that lack of data.

As you say "By the way, I'm not saying there that I think HMRC are at all likely to look at one's CGT computations. I don't think they are - the fact that they don't require them in any particular format strongly suggests to me that they only get read at all if the tax return is selected for human investigation" and that is also my impression". Indeed.

To your other point, yes, it is possible that if I need the record of a transaction from a few years ago then I may not be able to locate it if my broker has failed or lacks decent record-keeping. But then HMRC in that case also will not be able to independently determine the truth either, so that takes us back to what is reasonable, and I am fairly sure that I can at least approximate that trade if I took the basic precaution of recording when it took place, since I could look up the price on that date.

Although then of course I might wish that I had a record of how many shares the buy was for

[Charlottesquare]

HMRC guidance on record retention re CGT.

https://www.gov.uk/capital-gains-tax/records

I actually keep my own tax records much longer as I have my own business and record keeping requirements for that are far longer than 12 months after the SA lodging deadline listed above.

Given records re CGT only really come into play upon disposal the prime records seem to need to hang around for ever. Whilst my shares etc are now all tax sheltered I will admit I still (by habit) keep all contract notes for a considerable number of years post disposal (at least 10) but that is just me, I even have a drawer full of bank statements from the 1990s.

[torata]

In fact, for some very odd reason that I'm still yet to fully answer, I seem to spend more time reading about other peoples holdings than I actually spend managing my own......

Cheers,

Itsallaguess

So true... and probably the sign of an HYPer

torata
(Lemon Fool - most days; update prices and dividends into MS Money - 2 x month; press buy/sell button - 4 x year)

[Gengulphus]

To your other point, yes, it is possible that if I need the record of a transaction from a few years ago then I may not be able to locate it if my broker has failed or lacks decent record-keeping. But then HMRC in that case also will not be able to independently determine the truth either, so that takes us back to what is reasonable, ...

I wouldn't be all that certain of that. HMRC routinely obtain lots of data from financial providers, and so might have kept it even if I didn't.

I could of course investigate exactly what their requirements for data from financial providers are, but those requirements can change in the future - and IMHO probably will if (as seems likely) they move more towards a "this is what we think your tax return should say - please accept or correct" type of system. So trying to base what I do on what HMRC ought to be able to independently determine looks to me like a nightmare compared with just keeping my own records...

... and I am fairly sure that I can at least approximate that trade if I took the basic precaution of recording when it took place, since I could look up the price on that date.

True, but the basic precaution of saving a copy of the contract note the broker supplies is better (since it enables one to get an exact figure without the additional job of looking up a historical share price rather than just an approximate one with that job) and no more work!

Gengulphus

[Lootman]

To your other point, yes, it is possible that if I need the record of a transaction from a few years ago then I may not be able to locate it if my broker has failed or lacks decent record-keeping. But then HMRC in that case also will not be able to independently determine the truth either, so that takes us back to what is reasonable, ...

I wouldn't be all that certain of that. HMRC routinely obtain lots of data from financial providers, and so might have kept it even if I didn't.

I could of course investigate exactly what their requirements for data from financial providers are, but those requirements can change in the future - and IMHO probably will if (as seems likely) they move more towards a "this is what we think your tax return should say - please accept or correct" type of system. So trying to base what I do on what HMRC ought to be able to independently determine looks to me like a nightmare compared with just keeping my own records...

I cannot be certain about that either of course. But I doubt that brokers send HMRC details for every trade that every one of their customers performs, and then HMRC keep those records forever. It's possible, obviously, but it would be a huge amount of data to send and store. And HMRC's approach seems to be more exception-based, i.e. HMRC believes what you tell them you did maybe 99% of the time, but every now and then they ask you to justify your return, either because they are looking at you more generally, or perhaps because you are chosen at random for scrutiny.

So I'd agree with you that HMRC will probably move in that direction, in the same way that the US IRS already has, and where the IRS already knows your gains and losses because the brokers have to send that information to them.

But in the situation I described, where HMRC queries a reported gain or loss, and neither I nor my broker has a record of the original trade, then I think it's a reasonable assumption that HMRC don't have that information either. In which case I suspect the discussion would be based more on what a reasonable reconstruction of that trade is. And in fact I have one open position that shows a cost basis of zero. Clearly this is wrong but since I haven't sold it, the matter quite simply hasn't arisen yet. When it does I will attempt such a reconstruction and probably err on the side of being conservative. If HMRC then ask for proof I would just submit the basis of my reconstruction and invite them to disagree if they feel strongly enough.

I agree that ideally you'd keep your own history of contract notes, as you suggest. I wasn't recommending not doing that. But I suspect a good number of investors like me don't do that, or have incomplete records, and can still manage the situation.