Lootman wrote:Gengulphus wrote:And the suggestion in this report that the CGT allowance might be reduced to a third or less of its current amount while still acting as an "administrative de minimis" should serve as a reminder that there is a possibility that one might one day have to account for CGT, even for those for whom it currently seems an impossibly distant prospect: tax law changes can potentially make much more major differences to such matters than one thinks are at all likely to happen in the normal course of events.
I.e. basically, my suggested policy on keeping share transaction records is "if you still own the shares, keep the transaction details, however old they are - and if you cease to own them, continue holding them for at least a few years". I would add that in these days of cheap computer storage and the transaction details generally being in electronic documents rather than paper documents, it is actually easier to keep the records than to dispose of them. With paper records, there comes a point where one needs to go through them, weeding out the no-longer-relevant ones, because one simply doesn't have the physical space to store the old records - even though doing the weeding out may be quite a bit of work, and disposing of the weeded-out paper documents safely more work. But with electronic documents, a very easy method is just to start a new folder each tax year and leave all the old tax years' folders untouched (or just move them en masse to a back-up disc if one's main disc is uncomfortably full).
It is of course prudent to keep transaction records, including subsequent events that effect the cost basis such as corporate actions. But the problem in many cases is that people will not have kept records of things that they previously had no reason to keep a record of.
Not quite - the problem is that they have not kept records of things that they previously
thought they had no reason to keep a record of. And I agree that it is a problem that the government would be well-advised to avoid because a lot of taxpayers are likely to be affected by it - but I'm
also saying that taxpayers would be well-advised to keep the records in order to 'immunise' themselves against such problems in case the government fails to realise that (it's not as though governments have a wonderful record of avoiding creating awkward problems for taxpayers...). Basically a belt-and-braces approach in which the taxpayer hopes the government will supply the belt, but supplies the braces themselves in case it doesn't.
Lootman wrote:So for example since indexation went away, there has been no need to retain the original purchase date of a share, because it does not affect the determination of the capital gain when sold (leaving aside the special case of the 30 day rule). So I for one have not kept such records for my positions. I can tell you the number of shares and the cost basis, and I will know the date of sale and the net proceeds. But the original purchase date and dates of any subsequent transactions is not material.
So if the CGT rules were now changed to make that important again, say if indexation were reintroduced, then I would have a problem.
You would indeed, and I'm certainly not advocating that the government should reintroduce indexation and make that a problem for you and many others (who incidentally might include me for a few of my shareholdings, as a few of my records have gone walkabouts - hopefully just mislaid rather than permanently lost).
Lootman wrote:Now you might be more thorough than I and keep that anyway. But then you might still be vulnerable to some other kind of rule change that requires other data that you have to date had no reason to think you would ever need.
I have kept pretty complete records, yes, but I would describe it more as having being indolent (especially in the early years when I had few shareholdings) than as being thorough. That's because for many years, I almost always just put most share-related documents I received into the appropriate share's folder in my filing cabinet and more-or-less forgot about them unless something required me to look at one of them (usually a takeover of one of the privatised utilities).
That did build up to too much paper eventually, but that was at about the same time as I started having to deal with CGT and so started to understand that information in those documents might be important some day - and in addition, that happened around 1998, when the major shift from indexation to taper relief happened, so I also became very aware that CGT rules could be changed quite markedly. I've been reducing my paper records since, but if they contain
any data specific to a shareholding I still own or have only disposed of in the last few years, I keep the original documents - and even after that, if original paper documents I want to get rid of contain such data, I make certain they've been scanned into my computer before getting rid of them. And of course, most shareholding-related documents these days are available in electronic form, so it's quite rare for new needs to do such scanning to arise at all by now.
As regards new rules requiring data that I don't have, that approach means that it's far more likely to be data I never had and cannot obtain now than data I did have once but that got rid of. Which could happen, of course - but that's not really something that one can take precautions against.
And just to be clear, I'm not expecting everybody to have ended up in as good a position as I am with regard to such records - I could easily have much less complete records than I do if I'd had a significant reason to reduce my accumulated paper records before CGT became relevant to me and I started to understand both what data were important for CGT and that it can change. Such reasons include the paper records having accumulated for several more years, or wanting to reduce the amount of stuff needing moving during a house move, either of which could easily have happened.
Lootman wrote:The correct approach therefore, in my view, would be to grandfather existing positions into the current rules, and have the new rules apply only to newly established positions.
Agreed, but I'm by no means certain the government will take the correct approach... So safeguarding oneself as far as reasonably possible against the government taking an incorrect approach seems prudent - though I agree that what people have done in the past might (and probably often does) seriously limit what is reasonably possible.
Gengulphus