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