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30-day Bed and Breakfast rules and CGT

This article explains the capital gains tax implications for any individual selling and repurchasing these units within this 30 day window.

Until 17 March 1998 people could sell units (shares) and buy them back in a very short space of time. This allowed them to utilise their capital gains tax personal exemption each year and effectively re­set the base cost of these units at a higher value so that future gains would be based on the new price and therefore restrict any future gains made to this level.

From 17 March 1998 this opportunity was removed and a new rule brought in to apply other potential Capital Gains Tax (CGT) charges if the client sold and repurchased the same units within a 30 day window.

The 30 day rule now operates within a further set of rules, the Share Identification rules (also known as Section 104 Holdings rules), which were introduced on 6 April 2008.

The 30 day rule only applies when the client is buying and selling units within the same fund and class. 

The purpose of this rule is to ensure that people cannot excessively benefit from the process of rebasing unit prices for CGT purposes. To counter this process this rule applies a CGT calculation to the share transactions carried out in this 30 day window and then retain the original base price rather than reset it. This is done by a process of matching the shares sold to the new identical shares bought in this window and then, after matching, apply the original purchase price to any subsequent resale at a later date. The calculation for the transaction in this 30 day window is: 

Sale price at start of 30 days minus (units sold x re­purchase price divided by the number of units repurchased). 

For example, if a client holds 10,000 units bought 7 years ago at £1 a unit and then sells them today at £2.10 a unit, they will realise a £11,000 gain (potentially using almost the full CGT allowance of £12,000 for tax year 2019/20). The client then decides to repurchase the same units using the proceeds of this sale (i.e. £21,000) within 30 days. This will create a couple of scenarios, based on the rise of the unit price (scenario 1) or its fall (scenario 2) over this 30 day period, which will provide a calculated gain or loss. Scenario 3 covers additional shares purchased at the same time. If there has been no unit price movement there will be no need for a further calculation.

Scenario 1

Unit price has fallen to £2.05. £21,000 would now buy 10,244 units

The original sale price is £21,000 (10,000 x £2.10). Based on this the calculation for the interim gain/loss is:

21,000 – (10,000 x 21,000 / 10,244) = gain of £500

Scenario 2

Unit price has risen to £2.15. £21,000 would now buy 9,767 units 

The original sale price is £21,000 (10,000 x £2.10). Based on this the calculation for the interim gain/loss is:

21,000 – (10,000 x 21,000 / 9,767) = loss of £500

Once the gain or loss has been calculated and applied, any future sales of these units will then relate back to the original purchase price of £1 a unit.

If the client uses more capital than they have released via the sale to purchase units, only the capital relating to the sale of the units within the 30 day period will be tested for these purposes. The other “new” funds will not be tested for CGT purposes.

Scenario 3

The client buys 30,000 identical units within 30 days of the original sale at £2.05 a unit.

In this case the sale price of £21,000 will use the 30 day rule for further CGT calculations (scenario 1) and the additional £9,000 will be seen as a new unit purchase. 

This will create section 104 holdings based on the original purchase price of £1 per unit for those funds caught by the 30 day rule and £2.05 per unit for those funds treated as a new investment.

The information provided in this article is not intended to offer advice.

It is based on Old Mutual Wealth's interpretation of the relevant law and is correct at the date shown on the title page. While we believe this interpretation to be correct, we cannot guarantee it. Old Mutual Wealth cannot accept any responsibility for any action taken or refrained from being taken as a result of the information contained in this article.

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