Capital Gains Tax - calculation on a single share.
Discussion
I hold a modest amount of Prudential shares that I want to move into a Share ISA. I should have done this years ago and I dread to think of the amount of unnecessary tax that I have paid.
I bought the initial holding at a price of £5.05, I then bought more on a rights issue at £3.08. All dividends have been automatically reinvested to buy more PRU stock. (2 dividends a year over 20 years). A few months back they split into PRU shares and MNG shares.
My understanding is that i can use FIFO (first in, first out) or HAP (historic average pricing) to calculate my CGT - provided that I am consistent.
If I use FIFO I will have to go through all my dividends and calculate the purchase price of my entire holding.
If i use HAP I simply calculate the cash physically paid (i.e. at £5.05 and £3.08) and distribute that across the 2 holdings (PRU & MNG) - how?
Can anyone confirm the above?
I bought the initial holding at a price of £5.05, I then bought more on a rights issue at £3.08. All dividends have been automatically reinvested to buy more PRU stock. (2 dividends a year over 20 years). A few months back they split into PRU shares and MNG shares.
My understanding is that i can use FIFO (first in, first out) or HAP (historic average pricing) to calculate my CGT - provided that I am consistent.
If I use FIFO I will have to go through all my dividends and calculate the purchase price of my entire holding.
If i use HAP I simply calculate the cash physically paid (i.e. at £5.05 and £3.08) and distribute that across the 2 holdings (PRU & MNG) - how?
Can anyone confirm the above?
Andy 308GTB said:
I hold a modest amount of Prudential shares that I want to move into a Share ISA. I should have done this years ago and I dread to think of the amount of unnecessary tax that I have paid.
I bought the initial holding at a price of £5.05, I then bought more on a rights issue at £3.08. All dividends have been automatically reinvested to buy more PRU stock. (2 dividends a year over 20 years). A few months back they split into PRU shares and MNG shares.
My understanding is that i can use FIFO (first in, first out) or HAP (historic average pricing) to calculate my CGT - provided that I am consistent.
If I use FIFO I will have to go through all my dividends and calculate the purchase price of my entire holding.
If i use HAP I simply calculate the cash physically paid (i.e. at £5.05 and £3.08) and distribute that across the 2 holdings (PRU & MNG) - how?
Can anyone confirm the above?s
I was in a similar situation last March when I decided to sell a portion of a shareholding acquired over several years. I used what you describes as the HPA method rather than FIFO. I wanted to ensure that I did not create any CGT so had to stay within the then allowance of £11,700, nor did I wish to report the sale and the calculation of CGT so I needed to ensure the total realised by the sale was less than the then amount of £46,800.I bought the initial holding at a price of £5.05, I then bought more on a rights issue at £3.08. All dividends have been automatically reinvested to buy more PRU stock. (2 dividends a year over 20 years). A few months back they split into PRU shares and MNG shares.
My understanding is that i can use FIFO (first in, first out) or HAP (historic average pricing) to calculate my CGT - provided that I am consistent.
If I use FIFO I will have to go through all my dividends and calculate the purchase price of my entire holding.
If i use HAP I simply calculate the cash physically paid (i.e. at £5.05 and £3.08) and distribute that across the 2 holdings (PRU & MNG) - how?
Can anyone confirm the above?s
There's a need to establish what is called a section 104 holding.in order to note the total number of shares held and their acquisition cost. Then its a matter of deciding how many shares you want to sell and apportion the acquisition costs to these shares being sold and continue with the calculations.
When making subsequent sales you go through the same process. In my case I had acquired further shares so needed to adjust my section 104 holding figures to allow for these shares and their acquisition costs. I will be repeating this process every year until I no longer have these shares.
I found the CGT pages on HMRC's website very helpful and reasonably easy to understand and follow, particularly the bit about the section 104 holding, selling shares, subsequent acquisition of further shares and adjusting the section 104 holding each UK income tax year as the share activity occurs.
In my case the situation is more complicated because the shares are denominated in US$, trade on the NYC Stock Exchange, there has been USA withholding tax as part of the acquisition costs, and then there is the currency issue throughout, of course.
I shall retain all the details of my calculations in case HMRC come calling later for whatever reason.
R.
That is what I did.
I sold a portion of shares at the end of March in one tax year and then sold another portion of shares early May in the next tax year, ensuring that both trades did not incur CGT or the need to report the trade to HMRC. This was a one time opportunity to effect two trades quite close to one another.
My intention is to sell further portions of my total shareholding, likely to take place shortly after the start of each tax year, each time keeping below the CGT allowance and the reporting limit each tax year until I have no shares remaining.
R.
I sold a portion of shares at the end of March in one tax year and then sold another portion of shares early May in the next tax year, ensuring that both trades did not incur CGT or the need to report the trade to HMRC. This was a one time opportunity to effect two trades quite close to one another.
My intention is to sell further portions of my total shareholding, likely to take place shortly after the start of each tax year, each time keeping below the CGT allowance and the reporting limit each tax year until I have no shares remaining.
R.
The Leaper said:
As your capital gain will exceed £12,000 for this tax year, you will have to report the transaction and your calculation of the CGT as well.
Good luck.
R.
I'm moving the stock into a Share ISA, so I intend to sell only enough to stay within the threshold.I'll move the rest in due courseGood luck.
R.
Andy 308GTB said:
IMy understanding is that i can use FIFO (first in, first out) or HAP (historic average pricing) to calculate my CGT - provided that I am consistent.
Most often the averaged approach must be used, which could be a nightmare in your case, https://www.gov.uk/tax-sell-shares/same-companyJust calculate an answer good enough to ensure you stay under the annual CGT-free allowance.
Andy 308GTB said:
I'm moving the stock into a Share ISA, so I intend to sell only enough to stay within the threshold.I'll move the rest in due course
It's a shame that in order to do this you have to sell and then repurchase the shares, as I understand things. You cannot simply transfer shares from their current place into the ISA, and thus not have a CGT liability. I may be wrong on this so could be corrected. I would ideally like to transfer in one transaction my entire shareholding into an ISA without incurring CGT.I think that there are share administration companies that have systems that automatically will make a trade from the share account to an ISA account annually ensuring there's no CGT liability.
R.
The Leaper said:
Andy 308GTB said:
I'm moving the stock into a Share ISA, so I intend to sell only enough to stay within the threshold.I'll move the rest in due course
It's a shame that in order to do this you have to sell and then repurchase the shares, as I understand things. You cannot simply transfer shares from their current place into the ISA, and thus not have a CGT liability. I may be wrong on this so could be corrected. I would ideally like to transfer in one transaction my entire shareholding into an ISA without incurring CGT.I think that there are share administration companies that have systems that automatically will make a trade from the share account to an ISA account annually ensuring there's no CGT liability.
R.
T
And I followed the information from your quoted website and found it straightforward. The key to using that information was to keep things simple and follow the advice step by step, and to keep good quality records so that I can refer to them in the future particularly when I want to repeat the processes.
As regards calculating "an answer good enough", personally I would not take the risk, preferring to have a calculation that I feel sure HMRC would accept, if that calculation was requested. They are not likely to request anything if the gain is below the CGT allowance AND the total proceeds are below 4 times the CGT allowance. If they do query anything and are not content with the answers, they are likely to pursue matters deeper which could result in something unpleasant.
Of course, if any of this creates a "nightmare" for you, you can always get an accountant to do everything for you.
R.
rockin said:
Most often the averaged approach must be used, which could be a nightmare in your case, https://www.gov.uk/tax-sell-shares/same-company
Just calculate an answer good enough to ensure you stay under the annual CGT-free allowance.
I think HPA is the simpler method and is consistent throughout.Just calculate an answer good enough to ensure you stay under the annual CGT-free allowance.
And I followed the information from your quoted website and found it straightforward. The key to using that information was to keep things simple and follow the advice step by step, and to keep good quality records so that I can refer to them in the future particularly when I want to repeat the processes.
As regards calculating "an answer good enough", personally I would not take the risk, preferring to have a calculation that I feel sure HMRC would accept, if that calculation was requested. They are not likely to request anything if the gain is below the CGT allowance AND the total proceeds are below 4 times the CGT allowance. If they do query anything and are not content with the answers, they are likely to pursue matters deeper which could result in something unpleasant.
Of course, if any of this creates a "nightmare" for you, you can always get an accountant to do everything for you.
R.
Andy 308GTB said:
I hold a modest amount of Prudential shares that I want to move into a Share ISA. I should have done this years ago and I dread to think of the amount of unnecessary tax that I have paid.
I bought the initial holding at a price of £5.05, I then bought more on a rights issue at £3.08. All dividends have been automatically reinvested to buy more PRU stock. (2 dividends a year over 20 years). A few months back they split into PRU shares and MNG shares.
I bought the initial holding at a price of £5.05, I then bought more on a rights issue at £3.08. All dividends have been automatically reinvested to buy more PRU stock. (2 dividends a year over 20 years). A few months back they split into PRU shares and MNG shares.
You have just reminded me, why I almost never take scrip dividends.
The CGT calculation used to involve an inflation adjustment calculation for every acquisition, including scrip dividends.
Think it was the Liberal coalition who changed that. They thought an inflation tax would be good for us., although it wasn't for them.
CGT is an interesting tax, because often when it has been increased, the Treasury tend to receive less revenue from it. Not surprising when you think that many of those transactions are voluntary decisions.
jeff m2 said:
You just have to establish your cost basis, your CG will be the difference between that and the net sale.
Initial gross cost, plus reinvested already taxed monies.
(Each reinvested dividend increases the cost bais)
Ah!Initial gross cost, plus reinvested already taxed monies.
(Each reinvested dividend increases the cost bais)
My thinking was that the cost of the shares would be:
Initial Purchase Cost + Money paid for Rights Issue
But you are saying that because the reinvested dividends were already taxed as income the cost of the shares will be:
Initial Purchase Cost + Money paid for Rights Issue + Cost of Reinvested Dividends
Is my understanding correct?
b
hstewie said:
hstewie said: How the hell is anyone "normal" expected to be able to do for a modest portfolio that they may have owned for years and simply ticked their platforms "reinvest dividends" box? 
Does HMRC expect that the layman has an accountant?
No, they expect and hope that the layman doesn't have an accountant, makes incorrect submissions, pays the wrong tax and then gets fined and charged interest.Does HMRC expect that the layman has an accountant?
bhstewie said:
hstewie said: How the hell is anyone "normal" expected to be able to do for a modest portfolio that they may have owned for years and simply ticked their platforms "reinvest dividends" box?
Does HMRC expect that the layman has an accountant?
Have you actually had to calculate a potential CGT liability arising from a sale of shares ? If so, have you used the HMRC website and the information it gives? From your comment, I suspect not. As I posted earlier, if you cannot cope with the reasonably straightforward calculation (if taken step by step as opposed to a quick glance) then get an accountant to do it for you.Does HMRC expect that the layman has an accountant?
R.
Just looking at the charts, how long ago did you buy them? Been a while since I looked but do you still index link the valuation over time (ie £5 in 1970 is now say £35)
Anyway, you might want to run some numbers about taking any CGT hit to put them into an ISA, your CGT allowance is £12k, your ISA allowance is £20k, does the benefit outweigh the drop going in especially if you’re making other investments. Can you take the dividend income on the shares and push that in to the isa as another option rather than automatically reinvesting in shares. The simplest calculation would be just sell £12k of shares and you know you won’t have CGT liability if you can make up the remaking £8k in other ways.
Anyway, you might want to run some numbers about taking any CGT hit to put them into an ISA, your CGT allowance is £12k, your ISA allowance is £20k, does the benefit outweigh the drop going in especially if you’re making other investments. Can you take the dividend income on the shares and push that in to the isa as another option rather than automatically reinvesting in shares. The simplest calculation would be just sell £12k of shares and you know you won’t have CGT liability if you can make up the remaking £8k in other ways.
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