Order of matching for the "bed and breakfasting" CGT rule in the UK
Order of matching for the "bed and breakfasting" CGT rule in the UK
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Paul Razvan Berg · External communityPost link
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Author: Paul Razvan Berg
Original post: https://money.stackexchange.com/questions/121243
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I understand that the "bed and breakfasting" capital gains tax (CGT) rule says that purchases that occur 30 days after an asset of the same class has been disposed of should be matched together, as opposed to against the pool, yet I struggle to find information on the
order
of the matching process.
Let's take the following scenario:
Buy 10 shares on the 1st of May
Sell 10 shares on the 2nd of May for a profit relative to the 1st trade
Buy 10 shares on the 11th of May
Sell 10 shares on the 20th of May for a loss relative to the 3rd trade
My initial thought was to match the 1st trade with the 2nd, but I realised that I should actually match the 3rd one with the 2nd to account for bed and breakfasting. Is this correct? If yes, would the 4th trade be matched with the 1st, assuming that there is no other trade of the same asset during the whole tax year?
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Bob Baerker · External communityPost link
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Author: Bob Baerker
Original post: https://money.stackexchange.com/a/121246
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The Bed and Breakfast Deal is somewhat similar to the Wash Sale rule that we have in the USA. It's purpose is to prevent an investor from selling a security on the last trading day of the tax year in order to realize a loss and tax savings and then immediately buying the security back the next morning on the first day of the new financial year.
Your first two transactions (buy then sell) achieved a profit so the rule would not apply. And even if it did, with all positions closed, no matter how you pair them, the net capital gain/loss would still be the same
I'm a Yank so don't take my word for it :->). Do you have an accountant?
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Ganesh Sittampalam · External communityPost link
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Author: Ganesh Sittampalam
Original post: https://money.stackexchange.com/a/121284
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The most useful references on the rule seem to be
government site about CGT and self asessment for shares
,
a specific page about 2019
and
the HMRC technical manual
.
In particular, according to the page about 2019, shares you dispose of should be matched up in this order:
Shares acquired on the same day as the disposal (the ‘same day’
rule).
Shares acquired in the 30 days following the day of
disposal (the ‘bed and breakfasting’ rule) provided the person making
the disposal was resident in the United Kingdom at the time of the
acquisition.
Shares in the Section 104 holding.
A "section 104" holding is just your current holdings of a set of things that are indistinguishable from each other. Basically it means you have to average out the different purchase costs when calculating a capital gain.
So it sounds like your proposed matching is correct in this case, as 2+3 follow the bed and breakfasting rule, regardless of whether there was a gain or a loss.
This all assumes that whatever you're trading is considered a "share or security".
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