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bigduckontax, Accountant
Category: Tax
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I have built up a considerable holding of shares in one company

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I have built up a considerable holding of shares in one company over the past 3 years and those shares have risen in value and generated a capital gain far in excess of the annual allowance. However in the tax year April 2013 to April 2014 I bought and sold some shares in the same company using the stockbroker facility (T20) where You can buy then sell within 20 days without any outlay thus making a profit or loss dependent on share price movement. The problem that I have generated is that the disposal of these traded shares has realised a huge capital gain against the average price (104 holding). The 104 holding average price remains roughly the same after each of these transactions so I will still be liable for a capital gain when these are sold. It seems I am being hit twice. Am I doing something wrong in my calculations. Martin
Hello Martin, I'm Keith and happy to help you with your question.
When calculating your gains, or losses, each security transaction in which you deal is unique. You buy for X, sell for Y and the difference between X and Y is the gain or loss. You have to be very careful and keep accurate records, preferably as you close each transaction as go along, to build up a record. All the individual X and Y differences will then come out in the wash as it were to produce an end of the tax year capital gains tax position. The securities you retain do not come into the computation, you may well have a number of Xs without corresponding Ys. These are nothing to do with the case until a closure at some indeterminate future date. It is a relatively demanding discipline; I used to do it myself when I traded in stocks and shares, but I got out of that game before the market crash some years ago. The computation of the X figure may not be quite so straighforward if you are dealing in multiple holdings of the same shares.
As you have realised you have an Annual Exempt Allowance of 11K and any gain surplus over that is taxed at 18% or 28% or a combination of the two rates depending on your income including the gains in the year of sale. If you have been keeping records as I have suggested you will not be double counting for CGT purposes. If you are computing gains etc at the end of a tax year then its a wet towel round the head and the backs of a large number of envelopes to determine the position!
Here is the HMRC guidance on s104 holdings:
'Selling all of your shares in the Section 104 holding
If you sell or dispose of the entire holding, then the cost is the total cost of the holding.
Selling some of your shares in the Section 104 holding
If you only sell or dispose of part of the holding, you use a proportion of the total cost of the holding. You first work out the proportion of the holding being sold. You then multiply this proportion by the total cost of the holding. This gives you the cost of the shares in the Section 104 holding being sold.'
Needless to say this makes the computation even more complicated.
I do hope I have helped you in some way to navigate the maze. Get the towel and the envelopes!
bigduckontax, Accountant
Category: Tax
Satisfied Customers: 4959
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My answer is different and tells you exactly where you stand.

Take a look here for the share identification rules. You are certainly not being hit twice.

The fact that your broker allows you to buy and sell shares within a 20 day period with no cash outlay is irrelevant as far as the tax rules are concerned. If you "buy" some shares in Company A and "sell" them 20 days later, the purchase will have been added to the the Section 104 pool of shares you already have in Company A and the gain or loss on disposal of those shares will be based on the averaged cost of those shares in the Section 104 pool.

I hope this clarifies matters for you. I'm sorry the news isn't better but the rules have been written to stop the shielding of gains by so called "bed and breakfasting".

Let me know if you have any further questions. If you want me to answer any follow up questions you may have, you will need to mention my name, Tony, in your response.

I am pleased that another expert has commented. However, the identification of shares is very complex which is why I only gave you the relevant extract.
Thank you for your support, much appreciated.