How to calculate Capital Gains on shares?
Discussion
Guys,
A Q about how to calculate Capital Gains (CG) on share purchases.
Imagine I buy 10 shares in a company for a given amount - perhaps £10/share. Total £100.
I later buy another 20 shares at £15/share in the same company. This is another £300, so total £400 paid for the shares.
Later again, I sell 10 of these shares for £20 each. What is the gain that I have made on those 10? Is it deemed that I have sold from the second batch of shares that I bought, meaning that the gain is £50? Or have I sold from the first batch of shares, meaning the gain is £100?
Does it make a difference if they have been purchased through the same broker, or different brokers? (In practice they are all through the same broker, but this question is for curiosity).
ALSO, what if I ALSO buy some shares in another company and sell them at a loss, within the same tax period as I sold the shares in the first company (mentioned above). Can I offset the loss on the shares in the second company against the profit made on the shares from the first company.
Thanks!
A Q about how to calculate Capital Gains (CG) on share purchases.
Imagine I buy 10 shares in a company for a given amount - perhaps £10/share. Total £100.
I later buy another 20 shares at £15/share in the same company. This is another £300, so total £400 paid for the shares.
Later again, I sell 10 of these shares for £20 each. What is the gain that I have made on those 10? Is it deemed that I have sold from the second batch of shares that I bought, meaning that the gain is £50? Or have I sold from the first batch of shares, meaning the gain is £100?
Does it make a difference if they have been purchased through the same broker, or different brokers? (In practice they are all through the same broker, but this question is for curiosity).
ALSO, what if I ALSO buy some shares in another company and sell them at a loss, within the same tax period as I sold the shares in the first company (mentioned above). Can I offset the loss on the shares in the second company against the profit made on the shares from the first company.
Thanks!
In most cases you use the average purchase cost, as per this: https://www.gov.uk/tax-sell-shares/same-company
If you've got two separate transactions with one making a profit and one making a loss, then the latter should be able to offset the former.
If you've got two separate transactions with one making a profit and one making a loss, then the latter should be able to offset the former.
The underlying message is that to keep your CGT position simple it's best to buy holdings once and once only, otherwise the averaging process can distort your overall picture if/when you want to realise some gains/cash.
In the world of Funds this is generally easy to achieve as there are so many different funds which are fundamentally similar.
If it's CGT on funds, particularly Acc funds, don't forget that accumulted taxed dividends increase your "cost" and any equalisation received decreases your "cost".
Holdings of Inc units with "income reivested" can be particularly awkward in CGT calculations. Best avoided IMO.
Another nuance: Switching between Inc and Acc units (or vice versa) of the same fund is NOT a disposal forCGT purposes.
In the world of Funds this is generally easy to achieve as there are so many different funds which are fundamentally similar.
If it's CGT on funds, particularly Acc funds, don't forget that accumulted taxed dividends increase your "cost" and any equalisation received decreases your "cost".
Holdings of Inc units with "income reivested" can be particularly awkward in CGT calculations. Best avoided IMO.
Another nuance: Switching between Inc and Acc units (or vice versa) of the same fund is NOT a disposal forCGT purposes.
Panamax said:
The underlying message is that to keep your CGT position simple it's best to buy holdings once and once only, otherwise the averaging process can distort your overall picture if/when you want to realise some gains/cash.
I wouldn't go that far, the rules might be a little unintuitive at first but it's not rocket science. You can track it easily enough in a spreadsheet, or there are websites like http://www.cgtcalculator.com (don't use it myself but it seems pretty accurate and I've seen it recommended plenty) that take in all your transactions line-by-line and spit out all the calculations.Panamax said:
The underlying message is that to keep your CGT position simple it's best to buy holdings once and once only, otherwise the averaging process can distort your overall picture if/when you want to realise some gains/cash.
All well & good until you tick the box that says "reinvest dividends". Does the averaging rule still apply to any sales then?NowWatchThisDrive said:
Panamax said:
The underlying message is that to keep your CGT position simple it's best to buy holdings once and once only, otherwise the averaging process can distort your overall picture if/when you want to realise some gains/cash.
I wouldn't go that far, the rules might be a little unintuitive at first but it's not rocket science. You can track it easily enough in a spreadsheet, or there are websites like http://www.cgtcalculator.com (don't use it myself but it seems pretty accurate and I've seen it recommended plenty) that take in all your transactions line-by-line and spit out all the calculations.CambsBill said:
All well & good until you tick the box that says "reinvest dividends". Does the averaging rule still apply to any sales then?
Yes, the averaging rule applies - which is why my previous post strongly suggested that ticking the "reinvest dividends" box can be a bad idea for holdings in a general investment account. Unless you enjoy very detailed administration.Even with Acc units you need to keep track of taxable dividends to avoid over-paying CGT. The annual tax free allowance is now so low that many more people find themselves with CGT liability. The old trick of using your CGT allowance to fund your £20k ISA each year is now pretty much toast.
IMO the smooth move in GIA is to buy Income units, receive the cash dividends and then from time to time buy a stand-alone investment which can in due course have its own simple calculations.
In a world where many things are possible I tend to favour the simplest solution.
NowWatchThisDrive said:
never had any issues or been pulled up on anything.
CGT is a very hard tax for HMRC to police, especially where detailed holdings are concerned. They're much happier raping BTL landlords and second home owners under the "report and pay" regime where their big computer in the sky can easily keep an eye on things via SDLT returns and so on.The best they can usually do is random review of a few submitted CGT returns, and even if they find a wobble the chances of a cost-effective outcome are pretty small unless someone's seriously been taking the proverbial. I suspect the bigger enforcement question is whether things get reported at all rather than whether the calculations are 100% correct.
Panamax said:
Yes, the averaging rule applies - which is why my previous post strongly suggested that ticking the "reinvest dividends" box can be a bad idea for holdings in a general investment account. Unless you enjoy very detailed administration.
Even with Acc units you need to keep track of taxable dividends to avoid over-paying CGT. The annual tax free allowance is now so low that many more people find themselves with CGT liability. The old trick of using your CGT allowance to fund your £20k ISA each year is now pretty much toast.
IMO the smooth move in GIA is to buy Income units, receive the cash dividends and then from time to time buy a stand-alone investment which can in due course have its own simple calculations.
In a world where many things are possible I tend to favour the simplest solution.
Any online broker I have used has reported an averaged purchase price when I've made multiple dividend reinvestments, so I haven't found admin for dividend reinvested Income units so bad.Even with Acc units you need to keep track of taxable dividends to avoid over-paying CGT. The annual tax free allowance is now so low that many more people find themselves with CGT liability. The old trick of using your CGT allowance to fund your £20k ISA each year is now pretty much toast.
IMO the smooth move in GIA is to buy Income units, receive the cash dividends and then from time to time buy a stand-alone investment which can in due course have its own simple calculations.
In a world where many things are possible I tend to favour the simplest solution.
Holding Acc units in a GIA is my personal idea of hell, Inc units every time.
I still aim to harvest 3K of CGT allowance each year. Sometimes I have to sell more than £20K to do so, sometimes I sell far less, but it's at least reducing the future tax liability.
I have a question about calculating gains on share sales and the first part of the answer here was quite useful and confirmed most of what I thought but I have a follow up. I only plan to sell some of my shares and I expect to receive some new shares from my employer in future. I have all the details available from when I received the shares on several different occasions and I can easily work out a weighted gain from this but what would happen next time I want to sell some. Irrespective of calculating the average weighted gain I could choose to specifically sell the shares with the biggest gain now and then next time these shares would no longer be in my account and the "fresh" average weighted gain would be much less. Or do I have to keep some sort of ongoing average weighted gain, that assumes that I sold a weighted mix of shares this time even if I didn't. Also I'm in France rather than the UK and all of the CGT is this and put them in an ISA aren't relevant but it seems the gain is calculated in the same way. And there are no dividends so the reinvestment comments aren't relevant here.
Edited by zbc on Tuesday 21st July 16:17
Interesting thread. Is each individual share in a company identifiable in some way with its own serial number? Presumably this was the case in the old days with paper share certificates. I would have assumed that when you buy some shares in a company, the company needs to keep track of who its shareholders are, so each share is registered somehow. Therefore in the OP's situation, it could be tracked whether the individual shares that he sold were from the first batch he bought, or from the second. But I expect in modern electronic trading, there is no such identification of individual shares?
It was even more complex in the 'old days', which is why I have always taken dividends as cash and never reinvested.
Yes, I know reinvestment is best for returns, if a business prospers, but not so good for mental well being.
Initial purchase cost was noted along with the RPI inflation number.
Imagine quarterly dividends, each one counting as a separate additional purchase and every RPI figures had to be recorded.
Then when selling, trying to adjust all those costs by the inflation change.
At least there was no CGT payable on inflation (unlike now).
Wonder if all that brain activity might be of help fending off dementure ?
I suppose we could forget the whole thing and hold until we are put in a box.
No CGT applicable then (THOSE ARE THE RULES AT PRESENT, BUT JUST WAIT).
Jon39 said:
It was even more complex in the 'old days', which is why I have always taken dividends as cash and never reinvested.
I don't know if I'm up to date with current dividend tax allowances?....
£500 annual allowance
10.75% (Basic rate tax payer)
33.75% (Higher rate)
39.35% (Top rate)
Edited by The Gauge on Tuesday 21st July 17:46
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