CGT - disposal and acquisition of shares in a short period..

gggg

Hello, I have shares which I bought 3 years ago and plan to sell at a loss of 2k. I plan to then buy same share back right once sold. Do I need to wait 4 weeks to do this or lose the 2k loss carry over? What are the rules? Do the revenue scrutinise this cloisely? Thanks

dogsears

Almost - if you buy within 4 weeks you don't lose the 2k loss but you can only set it off in future against a gain you make on selling the same shares. So if your reason for selling is to get the loss so you can set it off against some other gain, you'd need to wait the 4 weeks (and who knows what will happen to their value during that time!).

gggg

Thanks - its a bit unfair to be honest. And yes more than likely the market will go against me. It gets very complicated with the different tranches as I will only be selling some shares - so if buy back some more right away only the loss of the portion sold is allowed to offset against any gain on the shares bought within the 4 weeks.

What happens if I sell a tranche bought within 4 weeks e.g. at a loss next year? Is the loss on those sold before and the loss on the new tranche not allowed to carry forward at all!

dogsears

gggg wrote: »

Thanks - its a bit unfair to be honest. And yes more than likely the market will go against me. It gets very complicated with the different tranches as I will only be selling some shares - so if buy back some more right away only the loss of the portion sold is only allowed to offset against any gain on the shares bought within the 4 weeks.

That's right, subject to a small change above.

What happens if I sell a tranche bought within 4 weeks e.g. at a loss next year? Is the loss on those sold before and the loss on the new tranche not allowed to carry forward at all!

Loss on the new tranche is available to carry forward unless you re-buy within 4 weeks. Loss on those sold before may partially survive i.e. if the tranche sold is not all of the shares you re-buy now.

I assume your reason for selling now and rebuying would be to get at the loss so you can set it off against another gain. If you can't wait 4 weeks that's not going to work. But if the value continues to go down maybe you can wait 4 weeks.

NB If you think the value is going to continue to go down, and will still be going down next year, why not sell the lot and not rebuy!

gggg

''Loss on the new tranche is available to carry forward unless you re-buy within 4 weeks. Loss on those sold before may partially survive i.e. if the tranche sold is not all of the shares you re-buy now.''

Thanks again.. Cash you explain the bit about loss partially surviving?

dogsears

gggg wrote: »

''Loss on the new tranche is available to carry forward unless you re-buy within 4 weeks. Loss on those sold before may partially survive i.e. if the tranche sold is not all of the shares you re-buy now.''

Thanks again.. Cash you explain the bit about loss partially surviving?

Lets say you start with 200 shares. You sell them all now at a loss and then rebuy them all (although its still not clear to me why this would be worth doing considering the restriction on using the loss).

Then next year you sell 100 of them at a loss. You still have the other 100 and when you sell them, you might make a gain and the loss that arises now could be used against that.

But the over-riding question is why would you do this? Was the original idea to create a loss to use against a different gain? Now that you know that won't work, is there any other reason to sell and rebuy now?

gggg

OK thanks. I have some gains on other stocks and want to realise some losses to avoid paying tax. My thinking is that I would sell a stock which I am losing on. E.g I bought it at $50 a share and its now 25. I think it will go back to 50 in a year or 2. I want to buy it back because I don't want to lose out on the stock itself overall. And I want to do it immediately as I think it will rise soonish.

Cheers

barneystinson

gggg wrote: »

OK thanks. I have some gains on other stocks and want to realise some losses to avoid paying tax. My thinking is that I would sell a stock which I am losing on. E.g I bought it at $50 a share and its now 25. I think it will go back to 50 in a year or 2. I want to buy it back because I don't want to lose out on the stock itself overall. And I want to do it immediately as I think it will rise soonish.

Cheers

The unfortunate reality is that the tax code doesn't WANT to accommodate what you WANT. It WANTS to allow relief for CGT losses which are actually realised, rather than ones that are artificially created.

The whole point is you can't have your cake and eat it - if you WANT to take a loss then you have to actually take a loss.... and risk he price movement during the 4 weeks. There's nothing unfair about it.