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30 day rule

Practical Issues
penteluk
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30 day rule

#400744

Postby penteluk » April 1st, 2021, 9:02 am

I am having trouble understanding the 30 day rule. I have some shares which were showing a gain. I sold them to crystallise the gain. If I the rebuy them within 30 days is the whole sale and purchase transaction ignored for CGT purposes?

Example, all ignoring fees:

I buy 1000 shares in company A at £1 a share. Total £1000
2 years later I sell these shares at £10 a share. Total £10,000. Gain £9000

2 weeks later the share price has fallen to £5 a share, so I buy 1000 shares total £5000

This is all within the same tax year and I have already realised gains over the nil rate band within the year.

Question 1: is the £9000 gain realised taxable?
Question 2: what is the cost price for the eventual sale of the second purchase of 1000 shares?

My understanding is that the sale and purchase would be linked under the 30 day rule and that these 2 transactions would be ignored, is this correct?

Gengulphus
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Re: 30 day rule

#400940

Postby Gengulphus » April 1st, 2021, 8:18 pm

penteluk wrote:I am having trouble understanding the 30 day rule. I have some shares which were showing a gain. I sold them to crystallise the gain. If I the rebuy them within 30 days is the whole sale and purchase transaction ignored for CGT purposes?

No. See my post viewtopic.php?p=393071#p393071 for exactly how the rules work. Using them, the answer to your example:

penteluk wrote:Example, all ignoring fees:

I buy 1000 shares in company A at £1 a share. Total £1000
2 years later I sell these shares at £10 a share. Total £10,000. Gain £9000

2 weeks later the share price has fallen to £5 a share, so I buy 1000 shares total £5000

is that your sale of 1000 shares for £10,000 gets matched to the repurchase for £5,000 by the 30-day rule, so you realise a gain of £5,000. The original purchase of 1000 shares for £1,000 is left unmatched and has a cost basis of £1,000 for any subsequent sale.

If the second purchase had instead been of 2000 shares for £10,000, then the sale would have been matched to half of that repurchase by the 30-day rule, i.e. 1000 shares bought for £5,000, realising a gain of £5,000. The original purchase of 1000 shares for £1,000 and the other half of the second purchase are left unmatched and get merged, leaving you with a pool of 1000+1000 = 2000 shares with a cost basis of £1,000+£5,000 = £6,000 for any subsequent sale.

If the second purchase had instead been of 500 shares for £2,500, then half the sale (500 shares sold for £5,000) gets matched to the whole repurchase by the 30-day rule, realising a gain of £2,500. Assuming there are no further repurchases in the 30 days following the sale, the other half of the sale (also 500 shares sold for £5,000) then gets matched to half of the original purchase (500 shares bought for £500), realising a further gain of £4,500. The other half of the original purchase is left unmatched, so you're left with 500 shares bought for £500 for any subsequent sale.

penteluk wrote:This is all within the same tax year and ...

In fact, that isn't relevant. The date you realise the gain is always the date of the sale, so only one tax year is involved in your example. Yes, the repurchase might be in a later tax year, but that doesn't matter any more than the fact that when the 30-day rule doesn't apply, the matched sale(s) might be in an earlier tax year. For example, a sale today could be matched to a purchase in any of the next 30 days (April 2nd-30th and May 1st) by the 30-day rule.

penteluk wrote:Question 1: is the £9000 gain realised taxable?

What £9,000 gain? You may well have thought for a while that you'd realised a gain of £9,000 - but the 30-day rule implies that at least in principle, any gain calculated for a sale is tentative until the 31st day after the sale. ("At least in principle" because you can make it definite by resolving not to repurchase in the next 30 days and sticking to that resolve.)

penteluk wrote:My understanding is that the sale and purchase would be linked under the 30 day rule and that these 2 transactions would be ignored, is this correct?

Yes, in your example the sale and repurchase are matched to each other by the 30-day rule, but no, they're not ignored: a gain or loss is calculated from them, and if the two trades hadn't been for exactly the same number of shares, the unmatched part of the trade for the larger number of shares would have taken part in further matching with your other trades.

Gengulphus

Mike4
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Re: 30 day rule

#400944

Postby Mike4 » April 1st, 2021, 8:43 pm

I have to say, I'm deeply impressed by the OP's ability to time the market.

If they are making a habit of this, I'm not surprised they need an answer to this question...

penteluk
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Re: 30 day rule

#401026

Postby penteluk » April 2nd, 2021, 9:39 am

Thank you Gengulphus, a very clear and helpful explanation.

Mike4. If only... I had miscalculated the use of this years CGT allowance and wanted to unwind a sale to reduce my gain and was amazed that the share price had dropped. This does not usually happen, my sale usually starts a rally!


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