Dan sells 4,920 shares in ABC UK Equity fund on 1 March at £4.74 a share. The pooled acquisition cost for those shares was £2.24 a share, which would ordinarily realise a capital gain of £12,300 (£4,920 x £2.50).
However, Dan repurchases a further 4,920 shares in the same fund on 25 March when the share price was £4.84. As there has been a sale and repurchase of the same share within 30 days, the capital gain is calculated by substituting the pooled acquisition cost for the price paid for the new shares.
Disposal proceeds £4.74
Acquisition cost £4.84
Capital loss - £0.10 x 4,920 shares = £492
So rather than crystallising a gain which utilises his annual CGT exemption, he has created a capital loss of £492 and the opportunity to reduce the gains within has portfolio is wasted. The loss can, however, be used to offset other gains Dan may have.
There are several options which allow investors to crystallise gains to use their annual exemption and still remain invested in a particular fund without being out of the market for 30 days:
Bed and SIPP
Shares can be sold and the same shares immediately bought back in a pension, such as Sipp, which allows self-investment. This will not trigger share matching for capital gains tax as the shares are being purchased by the SIPP trustees/administrator and not personally by the investor.
Bed and ISA
Another way to avoid being out of the market for 30 days is to sell funds and buy them back in an Isa. Shares held within an ISA are generally free of both income tax and CGT.
Bed and spouse
This is where the shares are sold by an individual and bought back in the name of their spouse or partner. The disposal of shares crystallises the gain and allows the individual to make use of their CGT allowance. Of course, to buy back the shares, this may require a gift of the disposal proceeds to the spouse/partner.
Buy a similar asset
Share matching rules mean that the gain won’t be crystallised in the normal way if the investor buys back into the same fund within 30 days. However, this can be overcome by buying assets in a similar fund and means the investor is not out of the market.
Dave Downie is technical manager at Standard Life
