Have you bothered reading the full thread? The person in question has responded and set the record straight.
I don’t see how this is any of your concern?
This only makes sense when you don’t use your principal to buy back the same stock at the same point.
That’s at the discretion of the person themselves whatever they want to do with their earnings!
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Right back at ya, mate.
You can’t sell/buy back a stock to raise the average book cost to take advantage of any free capital gains allowance that you may have, as you have to wait a minimum of 30 days due to the ‘bed and breakfast’ rules.
If you sell/buy back a share within 30 days, the sale is essentially null and void for cgt purposes.
If wishing to maximise use the of UK annual £12,300 tax free capital gains allowance then it can be a good trick to switch between equivalent investments and lock in gains for tax.
Suppose I own 422 shares of VUSA S&P 500 ETF and have a gain of £4000. I can sell these shares and immediately buy 804 shares of IUSA S&P 500 ETF with the proceeds of sale. The savings in capital gains tax easily makes up for the small loss that is incurred due to the spread between buy and sell prices of the two ETFs.
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This is correct. But note that the reverse of “buy/sell back” is OK.
Suppose I own 100 AAPL in which there is gain of £3000. I could buy an additional 50 on Monday. As Tuesday starts, and if AAPL share price has not changed, then I have 150 shares with an average gain of £20 per share in my Section 104 holding.
If I can then sell those 50 on Tuesday for the same price, then I will have a taxable gain to declare of £1000 (or to enjoy tax free if this is within my allowance). The remaining 100 shares now have a higher basis cost. However, I have to wait until Tuesday to sell, as a buy and sell on the same day are matched no matter the order in which they occur. (If I am concerned that the AAPL share price might move significantly before I sell on Tuesday I could lock in Monday’s sale price with a CFD sale of 50 shares that is held overnight.)
Too much for my brain to handle.
Do you know does T212 operate under a FIFO system? I know shares, regardless of when bought are considered a single asset, but does the timing of the purchase come into play?
E.g.
I buy:
100 Apple shares in Jan
100 in Feb
100 in Mar
I sell:
100 Apple shares in Apr
Operating under a FIFO system, it would be the shares I bought in January which would be sold, therefore bypassing the 30 day anti-avoidance rule.
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If you are a UK taxpayer FIFO is irrelevant.
Shares bought at all prior dates are considered as one single undated pot. Any shares sold from the pot and repurchased within 30 days are matched for calculation of CGT. It is all explained with examples on HMRC webpages.
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I am not.
But I will look into it and see do the same rules apply.
The 30 day rule is there to prevent UK taxpayers “abusing” the tax free capital gains allowance. But if you have no such allowance then the rule is unnecessary. Countries differ a lot in how they compute and tax capital gains.
However, a UK taxpayer can still take advantage of capital gains tax free allowance by selling and then rebuying in ISA, or rebuying in spouse’s account. The idea is to make minimal change to one’s portfolio while increasing the basis cost of shares so that future capital gains tax when selling them will be less.
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Funny that I received a like on this comment today as I was thinking about this last night for some odd reason and the more I think about it the more I buy into @obrienciaran’s approach.
Unless someone can explain to me where a non-dividend-paying stock stops considering the initial investment and starts to compound the growth of year 1, year 2 etc…?
Example using Digital Turbine (APPS), a young company who DO NOT pay a dividend (hence no reinvestment to compound);
Scenario 1
- Invest £100 in APPS and it grows 100%
- Return: £100 + 100% = £200 (£100 original sum + £100 unrealised gain)
- No disinvestment takes place
- APPS goes on a tear and grows ANOTHER 100%
- Return: £100 + 200% = £300
Scenario 2
- Invest £100 in APPS and it grows 100%
- Return: £100 + 100% = £200
- Sell stock = £200
- Immediately reinvest £200 in APPS again
- APPS goes on a tear and grows ANOTHER 100%
- Return: £200 + 100% = £400
Admittedly I’ve really struggled to get my head round this from the beginning but the above seems clear cut to me. If an investment in a growth stock grows exponentially it grows the original sum linearly.
However if you sell and reinvest the original sum + profits, the compounding takes place due to the performance applying to larger sum. Obviously only works if the stock either continues to overperform, or you change stocks and fidn another grower.
Any takers…? 
PS. Sorry to dredge up a dead subject again but I’ve read through the chain again and don’t really see an explanation that covers that foggy patch in my understanding of the whole thing!
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I think your scenario 1 is off, the 100% from the first run is now £200, so when it increases by 100% again it’s the £200 that is going up by 100%.
What @obrienciaran approach is useful for is if it had a one time run that was not usual, e.g. stock normally increases by 5% per year, suddenly has 50% run up, then continues as per usual (5% growth per year) as if the run up never occurred. Also if it drops in between the selling after the unusual run up and the re-buy as you then get an extra chunk of stocks that will continue their normal behaviour (hopefully).
But that’s my point. In scenario 1, it is just one run (ie. no disinvestment and re-purchase), so the £200 consists of £100 initial investment and £100 unrealised gain. Therefore when the stock rises by another 100%, it is now a total growth of 200% of the initial sum, £100. Not a 100% increase of £200. Make sense?
Scenario 1 is a linear run with no action, watching the original sum grow progressively.
Scenario 2 involves the selling and buying again to realise gains and increase the original amount, ensuring that the next 100% is on a larger original sum and so provides more capital growth overall.
(I want to draw a picture so much!)
EDIT: cleaned up sceanrio 1 to read clearer
the problem here is you are comparing 2 different scenarios entirely.
put into proper maths and a format we all recognize. scenario 1 is - if my £100 position gains another £100 in value, before once more gaining £100 in value. scenario 2 is - if my £100 position gains £100 in value, I lock in this value and reopen the position fresh, now the position rallies another £200.
whether the underlying asset gains a further £100 or £200 has nothing to do with what action you took regarding whether to realise the gains or not.
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Precisely the point. But there are also consistencies;
I invest £100 in both scenarios.
The units or underlying asset don’t matter; this is about the sum invested and the growth
Scenario 1, I leave it be and it grows 200%
Scenario 2, £100 grows 100% and I sell and buy back, followed by £200 that grows 100%
In proper maths;
-
£100 x 300% = £300
-
(£100 x 200%) x 200% = £400
No because you are forgetting the unrealised gain, it would only be running up an extra 50% from that point to get to £300 (you already have £200 in there, £100+£100). Yes it’s 200% from the start, but you are saying 100% then 100%. It’s all about whether it’s one run of 200% or 100% then 100% from that 100% spot as that is different
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Andyou’re right, they are different scenarios. Of course they are.
My question is which is more beneficial financially: a 200% run on £100, or a 100% run on £100 + a 100% run on £200?
Breaks my brain writing it out, admittedly. Hopefully the maths explanation above paints a better picture!