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Share price cost apportionment

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brightncheerful
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Share price cost apportionment

#424590

Postby brightncheerful » July 4th, 2021, 9:18 am

When I buy shares i divide the total cost (including commission and stamp duty) by the number of shares to get to the total cost per share. In all the years of my trading in stocks and shares, whenever I sell part of a holding I always deduct the sale proceeds from the total buying cost of the original holding then divide the net amount by the number of shares kept to get to the cost per share.

Brokers tells me that's not how it's done. So what I'd like to know please is why not and how is it done?

tia
Bnc

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Re: Share price cost apportionment

#424593

Postby pje16 » July 4th, 2021, 9:22 am

You are working out the profit per share
Don't take away the sale proceeds.

If you buy 10 shares @£1 plus costs. the cost is £10 plus costs
Then sell 5 shares for £2, you have 5 shares left that still cost a £1 each plus costs

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Re: Share price cost apportionment

#424610

Postby mc2fool » July 4th, 2021, 10:32 am

brightncheerful wrote:When I buy shares i divide the total cost (including commission and stamp duty) by the number of shares to get to the total cost per share. In all the years of my trading in stocks and shares, whenever I sell part of a holding I always deduct the sale proceeds from the total buying cost of the original holding then divide the net amount by the number of shares kept to get to the cost per share.

So if the shares have doubled in value and you sell half of them, then you got the remaining half for free?

That's certainly one way of looking at it, but then if the shares have more than doubled in value and you sell half of them then what ... the cost per share becomes negative and the company is paying you to hold them?!?

Again, that's one way of looking at it, but not a way that any accountant or, most importantly, HMRC will do so! As pje16 points out, selling part of a holding doesn't affect the cost per share of the remainder, that remains the same as it was originally.

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Re: Share price cost apportionment

#424612

Postby pje16 » July 4th, 2021, 10:36 am

I did consider the selling half at twice the price scenario
but that's the profit angle, and is an ideal situation 8-)

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Re: Share price cost apportionment

#424616

Postby Alaric » July 4th, 2021, 10:47 am

brightncheerful wrote: So what I'd like to know please is why not and how is it done?


Suppose you buy 1000 shares at 100p each. Your buying cost was £ 1,000. At some later date you sell 40% of the shares for 200p. The book cost of the shares you sold was £ 400, your proceeds are £ 800 and your gain is £ 400. The book cost of the remaining shares is £ 600.

In other words selling shares doesn't change the historic prices you paid for them.

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Re: Share price cost apportionment

#424617

Postby Dod101 » July 4th, 2021, 10:48 am

Surely it depends on why the OP is doing the calculation? IF t is only for his own edification he can calculate the figure any way he likes.

If it is for CGT and his return to HMRC, then he needs to do a Section 104 pool. NO need to go into that if that is not what he is doing.

Dod

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Re: Share price cost apportionment

#424648

Postby 88V8 » July 4th, 2021, 12:02 pm

Dod101 wrote:If it is for CGT and his return to HMRC, then he needs to do a Section 104 pool.

And of course if some are held in ISA and some not, a separate calculation for those that are tax-exposed.

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Re: Share price cost apportionment

#424896

Postby brightncheerful » July 5th, 2021, 10:05 am

Very helpful. thank you. I have amended my calculations - and am coming to terms with the lower profit.

What should i do when increasing a holding before selling part?

For example, if I buy 1000 shares for £1 (£1000 ex costs) then another 1000 for £1.50 ( £1500 (ditto), 2000 shares total £2500 = £1.25 each average.

Should I separate the total holding into the number of shares at each purchase so that when i sell say 750 shares at £2.00 I can decide which purchase provided the 750. So instead of £1 per share profit I could use £1.50 ps purchase price and opt for £0.50 ps profit.

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Re: Share price cost apportionment

#424900

Postby pje16 » July 5th, 2021, 10:09 am

This post at HMRC explains it
https://www.gov.uk/tax-sell-shares/same-company
The base price is worked out on the average cost
cheers
Paul

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Re: Share price cost apportionment

#424902

Postby Alaric » July 5th, 2021, 10:19 am

pje16 wrote:The base price is worked out on the average cost


Alternative rules are "first in first out" - you deem the first purchase to be the first sold and "Last in, first out" where the most recent purchase is the one deemed sold.

As pointed out earlier, if it's a taxed account, sticking to the HMRC method is expedient. Outside of that, you can make it up as you go along. All you are doing is establishing a rule for splitting a total gain or loss between realised and unrealised.

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Re: Share price cost apportionment

#424907

Postby pje16 » July 5th, 2021, 10:31 am

Alaric wrote:Alternative rules are "first in first out" - you deem the first purchase to be the first sold and "Last in, first out" where the most recent purchase is the one deemed sold.

Must admit before I looked it up on HMRC i thought it was FIFO
Are FIFO and LIFO just for your own benefit/purposes
I'm just curious as all mine are in an ISA where CGT not does apply :D

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Re: Share price cost apportionment

#424909

Postby mc2fool » July 5th, 2021, 10:41 am

brightncheerful wrote:Very helpful. thank you. I have amended my calculations - and am coming to terms with the lower profit.

(a) the profit hasn't changed and (b) your calculation in the topic post didn't calculate profit anyway, just an idiosyncratic adjustment of the cost per share.

brightncheerful wrote:What should i do when increasing a holding before selling part?

For example, if I buy 1000 shares for £1 (£1000 ex costs) then another 1000 for £1.50 ( £1500 (ditto), 2000 shares total £2500 = £1.25 each average.

Should I separate the total holding into the number of shares at each purchase so that when i sell say 750 shares at £2.00 I can decide which purchase provided the 750. So instead of £1 per share profit I could use £1.50 ps purchase price and opt for £0.50 ps profit.

No! You have to use the average. But note that when calculating capital gains, costs are included both in the buy and in the sell.

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Re: Share price cost apportionment

#424910

Postby brightncheerful » July 5th, 2021, 10:46 am

Thank you.

Some time ago, my accountant asked about my shares holdings but i declined to disclose as i only buy and sell shares for fun and within the CGT allowance and didn't relish the thought of someone (even my accountant) becoming privy. I do however disclose all divi income on my tax return. A long time ago someone at accountants took it upon himself to calculate the amount divi he thought I should've received but I'd not mentioned from one particular company that I'd disclosed the year before. I had to introduce the accountant to my 'short term buy and sell''

Thinking perhaps I ought to update my records to avail of the capital loss that could be offset against CGT on my part of the ownership of our PPR, (tax relief percentage of outgoings for business purposes) which my accountant said could be backdated, I decided against for the same reasons and instead wait for a change in tax legislation to work in my favour.

Thanks to your answers to my op i shall when next i have spare time redo all the calculations.

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Re: Share price cost apportionment

#424989

Postby Alaric » July 5th, 2021, 3:32 pm

pje16 wrote:Are FIFO and LIFO just for your own benefit/purposes


Until next time a government decides to change the rules.

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Re: Share price cost apportionment

#425061

Postby Maylix » July 5th, 2021, 7:31 pm

mc2fool wrote:
brightncheerful wrote:Very helpful. thank you. I have amended my calculations - and am coming to terms with the lower profit.

(a) the profit hasn't changed and (b) your calculation in the topic post didn't calculate profit anyway, just an idiosyncratic adjustment of the cost per share.

brightncheerful wrote:What should i do when increasing a holding before selling part?

For example, if I buy 1000 shares for £1 (£1000 ex costs) then another 1000 for £1.50 ( £1500 (ditto), 2000 shares total £2500 = £1.25 each average.

Should I separate the total holding into the number of shares at each purchase so that when i sell say 750 shares at £2.00 I can decide which purchase provided the 750. So instead of £1 per share profit I could use £1.50 ps purchase price and opt for £0.50 ps profit.

No! You have to use the average. But note that when calculating capital gains, costs are included both in the buy and in the sell.


Sorry to disagree, but no, you don't have to use the average. If you're working out your Capital gains tax, then you do, as per HMRC instructions. But if you're doing it for other purposes, then FIFO or LIFO may be more appropriate. Personally the method I use the most frequently is that I keep track of the cost of each lot of of a particular share I buy. That way I can apply separate sell criteria to separate lots.
HTH
Maylix

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Re: Share price cost apportionment

#425079

Postby mc2fool » July 5th, 2021, 8:36 pm

Maylix wrote:
mc2fool wrote:No! You have to use the average. But note that when calculating capital gains, costs are included both in the buy and in the sell.

Sorry to disagree, but no, you don't have to use the average. If you're working out your Capital gains tax, then you do, as per HMRC instructions. But if you're doing it for other purposes, then ...

I made that point in my initial reply.

mc2fool wrote:Again, that's one way of looking at it, but not a way that any accountant or, most importantly, HMRC will do so.

Let's not forget what the original question was and what the OP wanted to know:
brightncheerful wrote:Brokers tells me that's not how it's done. So what I'd like to know please is why not and how is it done?

By which he clearly meant, how is it formally done (by brokers, HMRC, accountants, etc), not what other idiosyncratic ways there are of doing it if you feel like.


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