Given that bed-and-breakfasting is no longer possible because you must wait a certain time ( ? 3 months ?) before any capital gain is deemed to be realised, if that is the correct way of putting it, would it be true to say that if you sell a security incurring a large capital gain but buy it back, hopefully at a lower price, within that time but in the same financial year, no capital gain for tax purposes has occurred? If anybody sees what I mean? :-) Or have I got this all wrong?
Bed-and-breakfasting assumes that you sell just enough shares to avoid CGT on that sale and then repurchase them so that you re-base the purchase price. Then when you sell them in the future the gain will be calculated from a higher start price. If you re-purchase them at a lower price then although you might have done yourself a good turn as far as share trading is concerned you will have cancelled out some or all of the CGT saving on a future sale.
However, you have to NOT repurchase the shares for 30 days, or you will be deemed to have held the shares all the way through. Thus there is a risk that the price might rise, making repurchase expensive.
To avoid this you could buy some different shares, but this is not true bed-and-breakfasting.
The "same financial year" is not relevant. What happens is that any sale is a chargeable event, relating to the tax year in which it falls (when the bargain is struck I think, regardless of when you get the money). To work out the gain or loss you take the sale proceeds and subtract a cost amount for the purchase of a set of shares which match the ones you sold. The full matching rules are fairly complex, but the key point here is that if you buy the identical shares within 30 days of a sale the matching goes forwards in time and not backwards.
Example: buy 10k shares for 5 each in 2001. On March 30th this year you sell them all for 10 each. So far you have a taxable gain in the 2003/04 tax year of 50000 - from which you would subtract the annual allowance (something like 8k, I forget the exact amount) and then pay tax at your marginal income tax rate.
However, suppose that on April 10th the price has fallen to 9, and you decide to buy all the shares back. Your tax position for the sale, still in the 03/04 tax year, is that you have still made a gain, but only of 10k (100k sale proceeds minus 90k cost, ignoring dealing costs which you can also subtract). If you had bought the shares back at a higher cost you would realise a *loss* in 03/04.
When you eventually come to sell the shares again the gain will be with reference to the initial purchase in 2001, the intervening sale and buy back will be irrelevant.
That's what I'm trying to get at, in a way. If I sell them and buy them back within the 30 days, even within the same financial year, will I be deemed to have held them continuously and so have incurred no 'current' liability to CGT ( until the time comes when I actually do sell them, if you see what I mean)? What I'm trying to do, if it is possible, is to benefit from an anticipated price fall without incurring all the capital gains which the stocks have accrued, in the process. In fact, I have no intention of ever finally selling the shares, or at least not all in one lump so as to exceed my CGT allowance in any year.
If I interpret you correctly, that is very clear indeed. So, if I substitute March 30 by February 29, and April 10 by March 10, my capital gain, still in 03/04, remains exactly as you state? That is very convenient since I assume that, before Herr Brown introduced this method of eliminating B & B, the capital gain would have been £500K. Wonderful !!! I bet that that was not his intention.
??? If it really is "very clear indeed" then the chances are very strong that you have understood correctly, so what's all this "If I interpret you correctly" bit?
I am so sorry if, despite my having benefitted - at huge public expense - from a 'guid' Scottish education at 'guid' Scottish Academy ( and who could wish for better?) in the 'guid' old days, the ravages of age have robbed my little grey cells of a certain precision, causing me to conflate - to use a currently popular term - .
I should point out that I'm not a tax advisor and you should check the rules yourself before you rely on them, but yes, the absolute dates shouldn't make any difference. Also the capital gain certainly wouldn't have been 500k! I assume you mean 50k - and indeed it would, although under the old rules you would have got indexation relief which would have reduced the gain a bit. Also under the new rules you still have the embedded gain to worry about in the future. And you could also consider whether you can get the same effect at a lower cost, e.g. by using spread bets or options to offset your exposure for a short period (spread bets are outside the CGT net, gain or loss, options are not).
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