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Capital Gains Tax for Shares

Practical Issues
PinkDalek
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Re: Capital Gains Tax for Shares

#386469

Postby PinkDalek » February 13th, 2021, 5:56 pm

Rajput1962 wrote:Finally, is the annual platform fee an allowable cost against CGT calcs?


No, as they are neither incidental costs of acquisition or disposal "incurred wholly and exclusively for the purposes of the acquisition or disposal".

Random slightly unrelated link Expenditure: incidental costs of acquisition and disposal
https://www.gov.uk/hmrc-internal-manuals/capital-gains-manual/cg15250

Nor are they enhancement expenditure.

Gengulphus
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Re: Capital Gains Tax for Shares

#393071

Postby Gengulphus » March 6th, 2021, 12:23 pm

Pipsmum wrote:I'm having real problems understanding the disposal rules order of tax return entries. I'm trying to fill in a self assessment form for capital gains.

I've read this thread carefully and I'm not in the league of all those of you with huge CGT bills, as all of my calcs are way, way below the allowance thresholds. However some of them are outside the ISA wrapper so presumably must go onto the form.

Single type share disposal is straightforward enough to understand, but when I've repeatedly bought and sold the same share over a longer period then..... i'm struggling a bit.

If I repeatedly traded the same shares within a period from 30/1/18 until the final sale on the 20/1/20 so two years worth (ten purchases and ten sales but not always the same quantities so not every one is a buy and sell all each time)...

Do I apply the rules in order of these by extracting those from the overall body as such:
1) same day rule... then
2) bed and breakfast rule.... then
3) all the rest as Section 104

Roughly speaking, yes. But to be precise, for each type of share you hold or have held:

Step 1) Write down the list of all your buys and sells to date of that type of share in date order: each entry on the list should contain the date, the number of shares bought or sold, the costs (including the price paid in the case of a buy), and in the case of a sale, the disposal proceeds - i.e. the 'top line of the contract note' price you are paid for the shares, before commission and any other costs are deducted. (If you hold the same type of share with multiple brokers, or both with a broker and as certificates: "all" really does mean "all" here - i.e. write down one combined list, not separate lists for each broker/certificate. That implies that information you get from a broker about a shareholding's cost for CGT purposes is only useful if the shareholding concerned is your only holding of the share, both now and in the past - otherwise, the broker quite simply doesn't have all the information they need to calculate it accurately.)

Step 2) Go through the list, looking for cases of two or more buys on the same date. For each such case, replace all the buys on that date with a single buy on that date, of the combined number of shares for the combined costs.

Step 3) Go through the list, looking for cases of two or more sells on the same date. For each such case, replace all the sells on that date with a single sell on that date, of the combined number of shares for the combined disposal proceeds, with the combined costs. (Steps 2 and 3 can easily be done together if you prefer, but they do have to be done before step 4 to avoid possible questions of which sells match which buys when there are three or more trades on the same day, including at least one buy and at least one sell.)

Step 4) Go through the list, looking for cases of a buy and a sell on the same day. For each such case, if the buy and the sell are for the same number of shares, calculate a realised gain or loss from them and remove both the buy and the sell from the list. If they're for different numbers of shares, split (or 'apportion' in tax-speak) the one which is for the larger number of shares into two trades of the same type, one for the smaller number of shares and one for the difference between the two numbers of shares, splitting the costs in proportion to the numbers of shares, and if it's a sell, splitting the disposal proceeds similarly. Calculate a realised gain or loss from the buy and sell you now have that are for the same number of shares and remove both that buy and that sell from the list, but leave the other trade generated by the split on the list. (In order to avoid excessive repetition, I will refer below to this process of potentially apportioning one of a buy and a sell, calculating a realised gain or loss, and leaving at most one trade on the list in their place as just 'matching' the buy and the sell.)

Step 5) At this point, we've finished dealing with the same-day rules, the list no longer contains any cases of two or more trades on the same day, and so the fact that the list is in date order makes it completely unambiguous which is its earliest-dated trade. Start with a 'pool' (or more formally, 'Section 104 pool') of 0 shares bought for costs of £0.00, and then repeatedly process the earliest-dated trade still in the list as follows:

* If it is a buy, add its number of shares and its costs into the pool, remove it from the list, and we've finished processing it (so move on to processing what has now become the earliest-dated trade in the list).

* If it is a sell, look to see whether there are any buys in the next 30 days after the sell (e.g. if the sell is dated September 30th, look for buys dated from October 1st to October 30th, both ends inclusive). If you don't find any, match the sell to the pool, with the modifications that if they're for equal numbers of shares, the pool is reduced back to 0 shares with £0.00 costs rather than being deleted entirely, and if the sell is for fewer shares than the pool contains, the unmatched part of the split pool becomes the new pool rather than going on to the list (*).

If you do find one or more buys in the next 30 days after the sell, match the sell to the earliest such buy. (Note that if that buy is for fewer shares than the sell, then after doing that the remaining part of the sell will still be the earliest-dated entry in the list, and so will be matched again, either to a later buy in the next 30 days or to the pool.)

Every time we process a trade during step 5, we remove that trade itself from the list, or a later-dated buy, or both. So the list does steadily shrink - i.e. this process of calculating gains and losses will finish! But it can finish in two different ways: either the list is reduced to containing no trades and there's nothing left to do, or you're asked whether there is a buy within the next 30 days after a sale and you cannot tell because the date that you made up the list of trades (step 1) is within those 30 days. In that case, either park the calculation until you can make the list up to a sufficiently-later date, or resolve not to buy the share until the 30 days have elapsed (and stick to that resolution!). Note by the way that it doesn't matter whether those next 30 days are in the same tax year or not - one classic CGT planning mistake is to do some carefully-designed sales on say April 5th to make optimum use of one's CGT allowance, and then wreck the planned matching of the sales to buys by buying the same type of shares on any of April 6th to May 5th. (If you do make that mistake, by the way, you can rectify it by selling the mistakenly-bought shares provided you sell them on the same day that you bought them.)

One final note is that the above instructions assume that all that has happened to the holding is buys and sells (and dividend payments, which simply aren't relevant to CGT). If there have been other corporate actions, such as capital distributions, mergers, demergers, share splits/consolidations, rights issues, open offers, etc, etc, etc, then they are still the basics about how to do the calculations, but additional instructions are needed about the appropriate adjustments for those corporate actions.

(*) If the pool contains fewer shares than the number sold, then either you've made a mistake or you have been shorting the shares concerned. In the latter case, I cannot help with any certainty - I think I once saw something saying that in that case, you then look for and match to the earliest-dated buy that happens more than 30 days after the sale, but I don't remember where I saw that, nor how official it was - and even if it was official, there's no guarantee that it's still the right answer!

Gengulphus

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Re: Capital Gains Tax for Shares

#393090

Postby Gengulphus » March 6th, 2021, 1:24 pm

Charlottesquare wrote:I think original Interserve is in administration, as part of the administration process the "business" was I think sold, this may be why you still come across references, but I think these are references to the business not the company in which you held shares I think it ended up sold to its creditors.

If held outwith an ISA etc (which appears not to be the case in your instance) I would be investigating making a negligible value claim as there are strict time limits making such a claim, the effective date of said claim I believe requires to be whilst the actual share instrument continues to exist (A trap for the unwary who wait too long) I would check what, if anything, the administrators have said, often they publish update statements regarding what is happening.

The date of a negligible value claim has to be a date that you still own the shares, and so it cannot be after the company is finally dissolved, because both the company and its shares cease to exist at that point. That is a trap for the unwary, but less of one than it might seem, because the point of a negligible value claim is to claim to be treated as though you have realised the loss, even though technically you haven't realised it because you still own the shares. But when the company is dissolved, the shares cease to exist, so you no longer own them, and that's counted as you having disposed of them. I.e. at that point, you no longer need to be treated as though you've realised the loss because you've actually realised it.

The trap for the unwary is twofold:

(a) A negligible value claim allows you to name the date on which you are to be treated as having realised the loss, within reasonably wide limits, but once the company is dissolved, the date of actually realising the loss is fixed: it's the date the company was dissolved. I.e. you abruptly lose any flexibility about when the realised loss enters into your CGT affairs when the company is dissolved - and that loss of flexibility might lead to the realised loss being used less efficiently than it otherwise could have been.

(b) The time limits on the date a negligible value claims to have realised the loss move forward as time advances - the main one is that that date must be in the tax year that you actually make the claim or one of the two preceding tax years. I.e. while the company remains undissolved, the clock isn't ticking on making a negligible value claim. But once it is dissolved, the actual realised loss has to be claimed in the same tax year or one of the following 4 tax years, otherwise it becomes unusable. So basically, the company being dissolved starts a 4-5 year countdown to tell HMRC about the loss.

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Re: Capital Gains Tax for Shares

#393104

Postby Gengulphus » March 6th, 2021, 1:58 pm

PinkDalek wrote:Edit: If conceivably a Capital Loss is involved, beware of the special rules for "Where an asset is sold to a connected person at a loss, the normal loss relief rules do not apply. The loss may only be offset against gains arising on future disposals to the same connected person whilst they are still connected (TCGA 1992 s.18(3), (4))" extracted from CGT: Connected Parties and Asset Valuations https://www.taxationweb.co.uk/tax-articles/general/cgt-connected-parties-and-asset-valuations.html. At a loss would include for nil consideration as in a gift I believe.

A gift might or might not be at a loss, because of the market value rule: when a disposal is made to a connected person or otherwise than by an at-arms-length commercial bargain, the consideration is treated as having been the market value of the asset disposed of, and the actual consideration paid (if any) is ignored.

A gift is not an at-arms-length commercial bargain (regardless of whether the recipient is a connected person or not), and so a gain or loss is calculated as the market value of the asset given minus the gift-giver's allowable costs. That could either be a gain or a loss - in particular, the fact that a gift is given for nil consideration is irrelevant to the calculation and so does not automatically make it a loss.

There is a flip side to that: it's also treated that way in the recipient's CGT affairs - i.e. if CGT is (or becomes) relevant to them, they can do their CGT calculations on the basis of having allowable costs equal to the market value of the assets, even though they haven't actually had to pay any costs. When making a gift of shares or other assets that might be subject to CGT, it's a good idea to accompany it with a letter pointing this out and telling them what that market value is - it may save them a significant amount of money and/or effort in the future.

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Re: Capital Gains Tax for Shares

#393129

Postby Gengulphus » March 6th, 2021, 4:03 pm

Rajput1962 wrote:VWRL ex-divi was 17th Dec 2020, and i was trying to get a proportion of the divi 'earned' in my ISA.

So towards the end of the day i sold a load in my dealing account on 16th Dec 2020 only to then discover that i would have to wait 3 days before i could transfer the cash into my ISA. So i bought them all back half an hour later. There wasn't enough time left to do a Bed & ISA that day. I called customer services the next day on the 17th and effected a BED & ISA and the money was transferred into the ISA straightaway whereupon i bought VWRL again. I thought that because i still held the shares in the dealing a/c on both the 16th and 17th i'd get the divi one way or another. Not so.

I've had an email to say that as i (sold and) rebought on the 16th the purchase didn't settle until 3 days later - so i missed out on the rebought shares divi. As for the ISA account, same problem - the shares didn't settle until 3 days later either and so missed out again.

I had thought that owing the shares on the ex-divi date itself was fine but it seems that its the number actually held 'cleared' the day before the ex-divi date is the key date. All in all, in trying to save a bit of tax i end up losing it and a bit more. Oh, and the extra dealing charges too. :cry:

I would suggest bearing the settlement period in mind in case there's a divi due. The next VWRL (and some other Vanguard ETFs) ex-divi date is 18th March 2021 which is getting towards tax year end when folk might be thinking about gains/losses etc.

The situation for shares is clear: if your contract note says that the trade is ex-dividend, which it will do if the trade occurs on or after the ex-dividend date and before the payment date, then the shares have been traded without the right to receive the dividend being included - so you're still entitled to receive the dividend if you sold the shares and you're not entitled to receive it if you bought the shares. Otherwise, the shares are traded with the right to receive the dividend included, so you're not entitled to receive the dividend if you sold the shares and you are entitled to receive it if you bought the shares. This is basically a matter of contractual law - stock exchanges have standard contracts for all normal share trades done on them, those contracts have standard lists of "bargain conditions" to document the finer details of a trade (such as the "ex-dividend" bargain condition affecting who is entitled to a pending dividend), and your contract note basically documents the variable parts of the standard contract (type of share, number of shares, date contract agreed, share price, bargain conditions, fees, etc) without including all the standard text that would be needed to become the full text of the contract.

The record date is to do with when the company's share registrars inspect the share register to determine who to send the dividend to. The gap between the ex-dividend date and the record date and the stock exchange's standard settlement period are designed so that together they ensure that dividends are sent to the person who is entitled to them, provided standard settlement is used and adhered to. If non-standard settlement is used, or if a problem occurs that delays settlement, however, it can happen that one person is entitled to the dividend and another is sent it by the registrars. If that happens, it is the job of the brokers to claim the dividend off the person who has received it (but is not entitled to it), and forward it to the person who is entitled to it.

So essentially, for shares contractual entitlement to a dividend is determined by when the trade happened with respect to the ex-dividend date, and in particular if you sell a number of shares and buy the same number of shares back the same day, you'll be entitled to the dividends on that number of shares, not on no shares or on twice that number of shares. Messing around with the settlement periods won't change that - but it might well change the bureaucracy and time required to collect on your entitlement, and in extreme cases you might end up legally entitled to the dividends but unable to collect them.

However, VWRL is an ETF rather than a share, and I don't know the contractual basis on which trades in it happen. It might be that it's the same legal basis on which share trades happen and you're being deprived on dividends you're entitled to by incompetence (or worse) of "customer services", in which case legal action might be needed. But it seems at least as likely to me that it's a different contractual basis - one under which you are not entitled to the dividend.

So the main point of this post is that things one knows about share trades don't necessarily carry over the trades in other types of investment, such as ETFs.

Gengulphus

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Re: Capital Gains Tax for Shares

#393138

Postby Gengulphus » March 6th, 2021, 4:26 pm

Arborbridge wrote:
If you bought shares on Thursday 4 May this would not settle until Monday 8 May. ‘You would not be on the share register as at the record date and therefore would not qualify for the dividend,’ explains Neil Evans, head of middle office at financial services firm Killik.

I'm not sure this is the correct use of the word therefore! It does not necessarily follow (therefore there is no therefore) and there is something screwy here. The XD date has to be the important date, otherwise there is no point in having such a date - or have they altered the rules without telling anyone?

You're right that it's an incorrect use the the word "therefore", because qualifying for the dividend doesn't depend on the settlement period. Neil Evans' conclusion that you don't qualify for the dividend in the circumstances described in the Shares article concerned is correct, but it follows from the earlier statement in that article that "The ex-dividend date would be Thursday 4 May.", not from anything he is quoted as saying. And he would be correct if he'd said "... and therefore you will not be sent the dividend", at least assuming you hold the shares as a certificate or in a CREST account (if you hold them in a nominee account, the reason you're not sent the dividend is that like the dividends on all your shares in that account, they're sent to your broker's nominee company for it to sort out).

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