Donate to Remove ads

Got a credit card? use our Credit Card & Finance Calculators

Thanks to johnstevens77,Bhoddhisatva,scotia,Anonymous,Cornytiv34, for Donating to support the site

Capital gains calculation when selling and buying same (but different quantities) of share within 30 days help?

Practical Issues
tlf67482
2 Lemon pips
Posts: 174
Joined: November 22nd, 2017, 11:23 am
Has thanked: 135 times
Been thanked: 16 times

Capital gains calculation when selling and buying same (but different quantities) of share within 30 days help?

#402963

Postby tlf67482 » April 9th, 2021, 5:53 pm

Trying to help out a family member that has sold and bought back the same share within 30 days outside an ISA.

Can anyone see that I am calculating this correctly when working out capital gains / allowances.

Monday bought 1000 shares at £1 = £1000.00
Wednesday dispose 1000 shares at £2 = £2000.00
Friday bought 600 shares at £2.50 = £1500.00

Going to split the Monday purchase and Wednesday disposal into 400/600 shares so I can match.

Monday bought 400 shares at £1 = £400
Monday bought 600 shares at £1 = £600

Wednesday dispose 400 shares at £2 = £800
Wednesday dispose 600 shares at £2 = £1200

Wednesday capital gain 400 shares = £800 - £400 = £400
Wednesday capital gain 600 shares = £1200 - £600 = £600

Preliminary Total 2020/21 allowance used £1000 (£400+£600) out of £12300

Friday bought 600 shares at £2.50 = £1500
Recalculate the previous Wednesday gain due to 30 day rule 600 shares = £1200 - £1500 = -£300 (now a £300 loss not a £600 gain)

Actual Total 2020/21 allowance used £100 (£400-£300) out of £12300

When they come to sell the 600 shares they should use the original buy details from Monday of £1 / £600 when calculating the gain not the Friday £2.50 / £1500 buy details.

Thanks

Gengulphus
Lemon Quarter
Posts: 4255
Joined: November 4th, 2016, 1:17 am
Been thanked: 2628 times

Re: Capital gains calculation when selling and buying same (but different quantities) of share within 30 days help?

#402994

Postby Gengulphus » April 9th, 2021, 7:39 pm

tlf67482 wrote:Trying to help out a family member that has sold and bought back the same share within 30 days outside an ISA.

Can anyone see that I am calculating this correctly when working out capital gains / allowances.

Monday bought 1000 shares at £1 = £1000.00
Wednesday dispose 1000 shares at £2 = £2000.00
Friday bought 600 shares at £2.50 = £1500.00

Going to split the Monday purchase and Wednesday disposal into 400/600 shares so I can match.

Monday bought 400 shares at £1 = £400
Monday bought 600 shares at £1 = £600

Wednesday dispose 400 shares at £2 = £800
Wednesday dispose 600 shares at £2 = £1200

Wednesday capital gain 400 shares = £800 - £400 = £400
Wednesday capital gain 600 shares = £1200 - £600 = £600

Preliminary Total 2020/21 allowance used £1000 (£400+£600) out of £12300

Friday bought 600 shares at £2.50 = £1500
Recalculate the previous Wednesday gain due to 30 day rule 600 shares = £1200 - £1500 = -£300 (now a £300 loss not a £600 gain)

Actual Total 2020/21 allowance used £100 (£400-£300) out of £12300

When they come to sell the 600 shares they should use the original buy details from Monday of £1 / £600 when calculating the gain not the Friday £2.50 / £1500 buy details.

You've got the right final answer - provided there are no further purchases within the 30 days following Wednesday. But I would suggest leaving the incorrect intermediate calculation out of the calculations presented in the tax return - it simply makes it easier to become confused about what you're doing (and even if you don't get confused yourself, in the probably-unlikely event that HMRC chooses to look at your tax return, it might confuse them to the point of asking you for further explanations).

The way I would present it would be basically (*) as follows, assuming the trades were two weeks ago, as Monday this week and Friday last week were bank holidays:

==========
Transactions:

22/03/2021 Buy 1000 shares for £1000
24/03/2021 Sell 1000 shares for £2000
26/03/2021 Buy 600 shares for £1500
No more transactions up to and including 23/04/21 (the 30th day after the sale)

Matches of sells to buys:

First, 600 shares sold on 24/03/2021 are matched to 600 shares bought on 26/03/2021 under the 30-day rule.
This requires the 1000 shares sold on 24/03/2021 to be apportioned into 600 shares sold for £1200 and 400 shares sold for £800.
Matching the 600-share sell and buy calculates a gain/loss of £1200-£1500, i.e. a loss of £300.

Secondly, the remaining 400 shares sold on 24/03/2021 aren't matched under the 30-day rule, so are matched to the 'pool' of previously-purchased shares, which are just the 1000 shares bought on 22/03/2021.
This requires the 1000-shares 'pool' to be apportioned into 400 shares bought for £400 and 600 shares bought for £600.
Matching the 400-share sell and buy calculates a gain/loss of £800-£400, i.e. a gain of £400.

The remaining transactions carried forward are 600 shares bought for £600 on 22/03/2021.
==========

If on the other hand I were to buy more shares within the 30 days, say another 600 shares for £900 on 20/04/2021, my calculations would instead basically be:

==========
Transactions:

22/03/2021 Buy 1000 shares for £1000
24/03/2021 Sell 1000 shares for £2000
26/03/2021 Buy 600 shares for £1500
20/04/2021 Buy 600 shares for £900
No more transactions up to and including 23/04/21 (the 30th day after the sale)

Matches of sells to buys:

First, 600 shares sold on 24/03/2021 are matched to 600 shares bought on 26/03/2021 under the 30-day rule (choosing the earliest buy within the 30 days).
This requires the 1000 shares sold on 24/03/2021 to be apportioned into 600 shares sold for £1200 and 400 shares sold for £800.
Matching the 600-share sell and buy calculates a gain/loss of £1200-£1500, i.e. a loss of £300.

Secondly, the remaining 400 shares sold on 24/03/2021 are matched to 400 shares bought on 20/04/2021 under a second application of the 30-day rule.
This requires the 600 shares bought on 20/04/2021 to be apportioned into 400 shares bought for £600 and 200 shares bought for £300.
Matching the 400-share sell and buy calculates a gain/loss of £800-£600, i.e. a gain of £200.

The remaining transactions carried forward are 1000 shares bought for £1000 on 22/03/2021 and 200 shares bought for £300 on 20/04/2021. They get 'pooled' into a total of 1200 shares bought for a total of £1300, on multiple dates.
==========

The point is not to finalise the calculations you put in your tax return until after the markets have closed on the 30th day after your last sale in the tax year concerned, and to do them from the full set of transactions up to then without including calculations that are no longer valid. (You can of course finalise them earlier - but then make certain that you don't do any more trades in the shares before then!)

One other comment about the calculations you put in your tax return is that you should not offset the gains and losses against each other. I.e. in the above examples, the loss of £300 and the gain of £400 or £200 should go into the totals of gains and of losses that you enter into the tax return - don't reckon that they are a net gain of £100 in the first example and a net loss of £100 in the second that just go into the relevant total with nothing going into the other total. The totals of gains and losses will end up being netted off against each other, but that's the job of the tax calculation part of the tax return, not of the capital gains and losses part. But you're quite right that offsetting them against each other to produce £100 or -£100 tells you what the effect is on your usage of your CGT allowance - I'm just saying that that's a 'private' calculation for your own benefit, not one to put in your tax return.

(*) "Basically" because the examples above are basically a rough translation of the spreadsheets I actually use.

Gengulphus

tlf67482
2 Lemon pips
Posts: 174
Joined: November 22nd, 2017, 11:23 am
Has thanked: 135 times
Been thanked: 16 times

Re: Capital gains calculation when selling and buying same (but different quantities) of share within 30 days help?

#403003

Postby tlf67482 » April 9th, 2021, 8:03 pm

As clicking the Thanks button doesn't seem to be enough I thought I would post to say thanks also :D

A couple of follow up queries (very rusty as I use ISAs):

1. Can I take off charges/commissions?

Matching the 400-share sell and buy calculates a gain/loss of £800-£400, i.e. a gain of £400.


So with a buy commission of £10 a sell commission of £10 and stamp duty of £5 = £25 and 4/10ths allocation = £10
i.e. a gain of £390

2. The allowance is £12300 so as long as you are under this allowance there is no tax to pay so no need to request/fill in a tax form if you are normally PAYE?

Thanks

Gengulphus
Lemon Quarter
Posts: 4255
Joined: November 4th, 2016, 1:17 am
Been thanked: 2628 times

Re: Capital gains calculation when selling and buying same (but different quantities) of share within 30 days help?

#403132

Postby Gengulphus » April 10th, 2021, 10:57 am

tlf67482 wrote:As clicking the Thanks button doesn't seem to be enough I thought I would post to say thanks also :D

A couple of follow up queries (very rusty as I use ISAs):

1. Can I take off charges/commissions?

Matching the 400-share sell and buy calculates a gain/loss of £800-£400, i.e. a gain of £400.


So with a buy commission of £10 a sell commission of £10 and stamp duty of £5 = £25 and 4/10ths allocation = £10
i.e. a gain of £390

Yes to all of those charges - they are all what are technically called 'incidental costs of acquisition / disposal'. If you were to do trades for more than £10k at a time, the PTM levy of £1 per trade would also be such a cost. No to proportional allocation of various other charges - for example, if your broker charges a £12/month account fee, you can't split it among the three trades you did in the month and take another £4 off each of them. Basically, a charge has to be for one specific trade for it to count as an 'incidental cost'. In my experience of CGT applied to share trades, that has never applied to anything other than stamp duty, broker commission and PTM levy, and so basically all the 'incidental costs' are on the contract notes for the trades. No guarantees that there are no exceptions to that rule of thumb - there almost certainly are! - but I haven't encountered any in over 20 years of buying and selling shares.

Sort-of-yes to your calculation. It works in that particular case because the 400 shares being sold happen to be 4/10ths of both the 1000 shares bought on 22/03/2021 and the 1000 shares sold on 24/03/2021. If that weren't the case, the various incidental costs would have to be apportioned according to which of the purchase and sale they related to. This is actually most easily dealt with by attaching them to the purchases and sales right from the start, as follows in my first example:

==========
Transactions:

22/03/2021 Buy 1000 shares for total allowable costs of £1015 (acquisition cost £1000, incidental costs £10 commission plus stamp duty £5)
24/03/2021 Sell 1000 shares for disposal proceeds of £2000, with total allowable costs of £10 (just the £10 commission incidental cost)
26/03/2021 Buy 600 shares for total allowable costs of £1517.50 (acquisition cost £1500, incidental cost £10 commission plus stamp duty £7.50)
No more transactions up to and including 23/04/21 (the 30th day after the sale)

Matches of sells to buys:

First, 600 shares sold on 24/03/2021 are matched to 600 shares bought on 26/03/2021 under the 30-day rule.
This requires the 1000 shares sold on 24/03/2021 to be apportioned into 600 shares sold for disposal proceeds of £1200 with allowable costs of £6, and 400 shares sold for disposal proceeds of £800 with allowable costs of £4.
Matching the 600-share sell and buy calculates a gain/loss of £1200 disposal proceeds - £1517.50 allowable costs of acquisition - £6 allowable costs of disposal, i.e. a loss of £323.50.

Secondly, the remaining 400 shares sold on 24/03/2021 aren't matched under the 30-day rule, so are matched to the 'pool' of previously-purchased shares, which are just the 1000 shares bought on 22/03/2021.
This requires the 1000-shares 'pool' to be apportioned into 400 shares bought for allowable costs of £406 and 600 shares bought for allowable costs of £609.
Matching the 400-share sell and buy calculates a gain/loss of £800 disposal proceeds - £406 allowable costs of acquisition - £4 allowable costs of disposal, i.e. a gain of £390.

The remaining transactions carried forward are 600 shares bought for allowable costs of £600 on 22/03/2021.
==========

The gain in that calculation happens to work out as you calculated it because a 4/10ths apportionment fraction applies to both the purchase and the sale. But to do a similar calculation for the loss, you would need to distinguish between the incidental costs associated with the purchase, to which an apportionment fraction of 600/600 = 1 applies, and those associated with the sale, to which an apportionment fraction of 600/1000 = 6/10ths applies. So you could calculate the adjustment as £17.50 * 1 + £10 * 0.6 = £23.50 if you wanted to - but it's less work just to lump the incidental costs in with the allowable costs of each trade and apportion those allowable costs.

tlf67482 wrote:2. The allowance is £12300 so as long as you are under this allowance there is no tax to pay so no need to request/fill in a tax form if you are normally PAYE?

It depends on what your total gains are before deducting losses. (This is the main reason why I said that "One other comment about the calculations you put in your tax return is that you should not offset the gains and losses against each other. ... you're quite right that offsetting them against each other to produce £100 or -£100 tells you what the effect is on your usage of your CGT allowance - I'm just saying that that's a 'private' calculation for your own benefit, not one to put in your tax return." - I should probably actually have ended that something like "... to use for your tax return", because it's not just relevant to how you fill in a tax return, but also to whether you need to fill one in at all.)

If your total gains before deducting losses are under the CGT allowance (and any losses you have just push your net gains further under the allowance) that's not a reason to have to (*) request a tax return form, and not a reason to have to fill in the capital gains part of a tax return HMRC have sent you (or equivalently, and more likely these days, have asked you to fill in an online return).

If your total gains before deducting losses are over the CGT allowance (and it's the offsetting of the losses that push your net gains under the allowance) and HMRC have sent you a tax return form to fill in, you do have to fill its capital gains section in - that's a matter of correctly answering a question in an online return or obeying an instruction in a paper return.

If your total gains before deducting losses are over the CGT allowance (and it's the offsetting of the losses that push your net gains under the allowance) and HMRC haven't sent you a tax return form to fill in, you're actually in a sort of Catch-22 position: you basically have to tell HMRC about your CGT position one way or another. That's because of the rules about 'claiming' losses (which basically means telling HMRC about them). For as long as you don't claim a loss, it's unusable against gains, so as things stand, you have net gains over the CGT allowance - so you have to request a tax return (**). You can rectify that by telling HMRC about the losses, but that involves telling them about at least part of your CGT position, and they'll probably respond to that by asking you to fill in a tax return... You might try avoiding that by telling them about your full CGT position - i.e. all your capital gains and losses for the tax year (including declaring that it is all of them), so that they can see for themselves that you don't owe them CGT. But I'm very doubtful about that working - I strongly suspect they would still ask you to fill in a tax return unless your full CGT position is especially simple (e.g. just one or two realised gains and losses), and even if it was that simple, I'm still somewhat doubtful... So if I were in that position, I think I would simply request a tax return as the simplest and most straightforward way of dealing with the situation.

One other point to note about that situation is that there is a time limit on claiming losses - they can be claimed up to the end of the 4th tax year after they were realised, and if not claimed by then, become forever unclaimable (***). So if you just let the situation slide, eventually the position of owing HMRC CGT becomes unfixable.

(*) I'm choosing my words carefully here - the "not a reason to" wording because there might be other reasons that mean you have to do those things. One particular one worth noting is that if your total disposal proceeds (without deducting incidental costs of disposal) are over 4 times the CGT allowance, you do have to fill in the capital gains part of a tax return HMRC have sent you no matter what your gains/losses position is - that's again a matter of correctly answering a question in an online return or obeying an instruction in a paper return. But as far as I am aware, having total disposal proceeds over 4 times the CGT allowance is not in itself a reason to have to request a tax return form if HMRC haven't sent you one.

Also, the "have to" wording is because there are circumstances in which you will probably want to request/fill in a tax return form even though you don't have to do so. One particular case is if you have net losses for a tax year - i.e. total losses greater than total gains - and no other reasons for having to do so apply. In that case, the net losses can be carried forward into future tax years, where they will probably eventually end up saving you CGT ("probably" only because you might end up dying or tax law about using brought-forward losses might change before that happened). It's not certain that you will want to, of course - if the net losses concerned were £10, for instance, you might very reasonably decide that the potential future 20% = £2 CGT saving wasn't adequate compensation for the time and effort you would have to put into the tax return. If the net losses were £10k, it's likely to be a different story!

(**) Technically, you only have to inform HMRC that you owe them CGT, but unless your CGT position is very simple and the amount of CGT owed small, the results of that are rather predictably that they ask you to fill in a tax return!

(***) There's an exception for losses realised in the 1995/1996 tax year or before - they are still claimable, I suspect as a matter of not changing their position retrospectively when the rules about claiming losses were introduced back then. Probably no longer relevant to very many people!

Gengulphus


Return to “Taxes (Practical)”

Who is online

Users browsing this forum: No registered users and 8 guests