Every year, UK- based investors benefit from a capital gains tax (‘CGT’) allowance. This allowance means that up to a certain value (£12,300 in the 2020/21 tax year), UK individuals do not pay any capital gains tax on any profit they make on disposal of assets. If unused, the capital gains tax allowance cannot be carried forward to the following tax year.
This ‘use it or lose it’ style rule meant that investors holding assets such as individual shares or holdings in funds would sell their assets prior to the end of the tax year before quickly repurchasing them in the new tax year. This was known as a ‘bed and breakfast’ share deal. By following this approach, investors could utilise their CGT allowance and reset the base value of their assets. This meant that in the following tax year, the acquisition cost for CGT purposes would be the latest acquisition cost.
To effectively navigate the complexities of the capital gains tax, understanding key rules like the 30-day rule is crucial. This regulation impacts how quickly investors can repurchase sold assets without tax penalties, shaping their strategies for both gains and losses.
This was an acceptable approach until March 1998, when the rules changed and the capital gains tax 30 day rule was introduced.
What is the capital gains tax 30 day rule?
The capital gains tax 30 day rule simply states that UK investors cannot use the bed and breakfast share dealing approach outlined above. Instead, investors must wait 30 days before acquiring the exact same share or same class of a specific fund.
By introducing this rule, HMRC was attempting to stop investors who intend to maintain ownership of specific securities from maximising their CGT savings.
If the same individual shares (or shares/units in the same class of a fund) are acquired within 30 days, then the share matching rules apply. These rules state that any shares newly acquired within 30 days of the disposal are matched with disposed shares in the following order:
- Any shares acquired on the same day as disposal (the ‘same day rule’)
- Any shares acquired within 30 days following disposal (the ‘bed and breakfast rules’)
- Any other shares on an average cost basis (sometimes referred to as the ‘Section 104 holding’)
The effect of these rules is that when the same shares are ultimately sold, the original acquisition cost rather than the repurchase cost will be used to calculate the capital gain.
Bed and breakfast 30 day rule calculation
Nigel acquired 10,000 shares in ABC Fund seven years ago. The cost per share was £1, but the shares have now risen in value to be worth £2.23 each, meaning the value of the entire holding has increased to £22,300. The capital gains tax allowance is £12,300 in the 2020/21 tax year. Nigel is keen to use this allowance to avoid paying CGT if the value of the shares in the fund continue to rise in price.
| Market value of shares | £22,300 |
| Acquisition cost | £(10,000) |
| Capital gain | £12,300 |
If Nigel decides not to repurchase the shares, the CGT allowance will cover his capital gain and no tax will become payable.
Example 1 – Share repurchase at a premium within 30 days
Two weeks later, the share price for the fund has risen to £2.40. Nigel now has to spend £24,000 to acquire the same 10,000 shares. The capital gain on the original disposal now needs to be recalculated, comparing the disposal proceeds with the cost of reacquiring the shares.
| Disposal proceeds | £22,300 |
| Cost of reacquiring shares | £(24,000) |
| Capital loss | £(1,700) |
A £1,700 loss has been created and if Nigel decides to sell his 10,000 shares at a later date, the original acquisition cost of £10,000 will be used as his base cost in the CGT calculation.
Example 2 – Share repurchase at a discount within 30 days
Two weeks later, the share price for the fund has fallen to £2.00. Nigel now has to spend £20,000 to acquire the same 10,000 shares. The capital gain on the original disposal again needs to be recalculated.
| Disposal proceeds | £22,300 |
| Cost of reacquiring shares | £(20,000) |
| Capital gain | £2,300 |
A £2,300 gain has been created and if Nigel decides to sell his 10,000 shares at a later date, the original acquisition cost of £10,000 will be used as his base cost in the CGT calculation.
Example 3 – Shares repurchased and share holding increased within 30 days
Two weeks later, the share price falls to £2.00 and Nigel decides that now is a good time to increase his shareholding. He purchases 20,000 units (10,000 more than originally held) at £2.00 each, costing £40,000.
In this scenario, £20,000 of the acquisition would be matched to the previous disposal, identical to scenario 2. This would give rise to the same gain of £2,300.
Going forward, the base cost for the shares would be calculated in accordance with section 104 rules (i.e. the blended average cost of shares) using:
- 10,000 shares at £1.00 each (the original acquisition) = £10,000
- 10,000 shares at £2.00 each (the new acquisition) = £20,000
This would give rise to a base cost for CGT purposes of £1.50 per share (£30,000 / 20,000 shares).
What are my options if I can no longer bed and breakfast shares?
There are multiple legitimate strategies for avoiding the ‘bed and breakfast’ rules including bed and ISA, bed and SIPP, bed and spouse, utilising CFDs or buying similar assets.
Bed and ISA
There are currently no rules against disposing of the investments you hold in your general investment account and acquiring the same investments within a tax-free Stocks and Shares ISA. Many investors adopt this ‘Bed and ISA’ approach at the end of the tax year, disposing of their current investments and reinvesting in the new tax year once their ISA allowance has been renewed. The sale and repurchase could be done on the same day, or in the next financial year, depending on preference and/or the level of your current year ISA allowance remaining.
Bed and SIPP
The rules also currently allow you to ‘Bed and SIPP’ which means you can sell your investment holdings to utilise your annual capital gains tax allowance, before rebuying the same investment in a SIPP. This can either be done manually or automatically if you invest via certain brokers such as Hargreaves Lansdown. Taking this approach avoids your capital being out of the market, as it can be done on the same day. Further, depending on your personal circumstances, you may benefit from income tax savings of 20%, 40% or 45% depending on whether you are a basic, higher or additional rate taxpayer, and what other pension investments you have made in the year.
Bed and spouse
A share transfer between spouses is not currently considered a disposal for creating a taxable capital gain. This means that you can sell your shares and gift the disposal proceeds to your spouse, enabling them to make the repurchase. Again, the sale and repurchase can be done on the same day – there is no need to wait 30 days before repurchasing.
Buying a similar asset
If you are disposing of an investment in a fund, you will not be able to repurchase the same class of share within that fund within 30 days. However, there is nothing preventing you from either acquiring shares/units in a fund with similar underlying holdings or acquiring shares/units of a different class within the same investment fund.
Mimic bed and breakfast strategy using CFDs or spread betting
The final and most complicated option is to mimic the bed and breakfast strategy using leveraged products (CFDs or spread betting). This option will not be suitable for the majority of private investors, but is another way of remaining exposed to a particular underlying share or index whilst avoiding the bed and breakfasting rules.
10 Comments
I find the bed and breakfasting rule very confusing. What I cannot get my head around is in which tax year the gain or loss is accounted for. Is there a suspension until the ultimate sale?
So in example 2, where there is a £2,300 gain when Nigel buys back in for £20,000, is that £2,300 part of his CGT gains in the tax year in which he buys back in for £20,000? Or is the £2,300 a suspended gain that only becomes part of his annual CGT gains in a later tax year when there is the final disposal and the original acquisition cost is used as the base cost.
This is probably a very dumb question but I just can’t get my head around it.
@Jim It’s pretty simple. I liken it to an asset I’m pulling out of a wet liquid pool (a liquid/fluid market, where there is a lot of liquidity, and the price is moving around, right?). When you pull the asset out (so you’re selling it), the 30 day B&B rule implies it has to “dry out” and “crystallise” fully so that HMRC deem that you have fully come out of the market with that sell. If you decide to put it back into the market again (you buy back in) within 30 days, the B&B rules treat the original sell trade as if it never happened (so you never let it “dry out” and “crystallise”), for the purposes of CGT calculations. Obviously, the sell trade has happened, but in terms of CGT calculations, it HASN’T happened. It also get’s more complicated to keep track of this if you put half of the asset back into the market, or maybe you put double the asset back in – if you buy back in by half the original sell, you have to go back and match the original sell and adjust it so you sold half instead for that sell, for CGT calculations. If you bought back in the same amount or more, the original sell would disappear completely, but then you would need to check if there are any other prior sell trades to that one which has vanished which could be matched against the remaining quantity of the buy-in within the 30 day window, etc, etc, and you would have to adjust those sell trades too. Once you’ve done all this backtracking and adjustments, look at the final buys and sells across the tax year you’re dealing with, and consider the CGT calculation for those trades as you normally would.
It can get pretty complicated to keep track of this, have no doubt about it, which is why I purposely try and avoid making myself liable to B&B. If I sell, I keep a record of when that was and when I could buy back in so as not to be subject to this craziness. So I guess I’m what you would call a long term investor, extremely sparse/low volume trader. I’m certainly not doing day trading, or buying/selling stuff on the scale of a few days/weeks.
Why oh why isn’t there a button to push that will calculate dates amounts assets bought or sold and tell you exactly how much you owe in CGT???
An investment trust has just repurchased by tendermore than half of my shares at close to nav, compared to market discount of almost 20%. 2-3 days after they bought from me, I bought them back in the market. Using the 30 day rule, I have added my repurchase cost to my initial investment cost, then deducted the tender proceeds, to derive a new net cost on which to base gains from future sales. It has been suggested that is incorrect and I need to declare a gain now at the difference between tender price (321p) and my repurchase cost (297p). Thoughts?
I’ve been buying and selling ETFs. I try to avoid buying the same ETF I sold within 30 days, but that sometimes does happen. I might buy and sell on the same day:
The 30 day rule caught me. Bought 5 July, sold 13 July. Repurchased 30 July. Resold 31 July. But since my repurchase is for a LOWER price than my original 5 July price, this renders my gain a NEGATIVE figure. Nonsense!
I rebuy the same ETF on 19 Aug. Which date should I take now for my acquisition value?
I hold class L units in a fund but I want to move the investment to another platform which will only allow me to hold class Z units. Z units are not available on my current platform so I cannot switch before transferring.
My only option, therefore, is to sell the L units, transfer the cash to the new platform and re-invest in class Z units. Would this be considered a disposal for CGT purposes (because of the change in unit class) even if I make the reinvestment within 30 days? Thoughts??
Question: If you have , say, shares currently worth £12,300 which have appreciated in value. If you bought another £12,300 of the same share, then sold the original holding, would there be CGT to pay when you eventually sell the second tranche; ie are you subject to the 30-day rule if you buy a matching asset BEFORE you sell the original rather than after it?
re. Bed and Spouse. So if I and my wife each had 200K in ETFs say. According to the text in this article we could both sell our ETFs (crystallizing a gain of say 30K each) then give each other the money and then we can each buy 230K of ETFs. Thus we both avoid any CGT.
But if we both sell with a gain of 30K the surely we each must pay CGT on 17.7K? If we transfer the shares without selling them (how?) then the original cost price must be used when they are eventually sold. So AFAICT, the only advantage is that we can both use the 12.3K CGT allowance each year but that is not what your text says?
‘A share transfer between spouses is not currently considered a disposal for creating a taxable capital gain. This means that you can sell your shares and gift the disposal proceeds to your spouse, enabling them to make the repurchase. Again, the sale and repurchase can be done on the same day – there is no need to wait 30 days before repurchasing.’
I’m confused!
HMRC say:
You and your spouse or civil partner are treated as separate individuals for Capital Gains Tax purposes. Each of you will pay tax only on your own gains and you will get relief only for your own losses. However, although you’re taxed separately, you may be treated as ‘connected’ with each other and with each other’s relatives for certain purposes.
If you and your spouse or civil partner are living together, any transfer of an asset between you is treated as giving rise to neither a gain nor a loss to the person transferring it. Any amount actually paid is ignored. If the person receiving the asset later disposes of it, they will be treated as if they had paid an amount equal to the total of your costs.
If you’re not living together or the asset involved is trading stock, any asset transferred between you is treated as transferred at its market value at the time of the transfer. So, in these circumstances, the person transferring the asset may make a chargeable gain or an allowable loss.
If I bed & ISA and the shares I’m selling from the regular trading account are at a loss, can I still carry that loss forward even though I’m buying the shares straight back via the ISA on the same day?
so I can sell my shares buy in a stock and shares Isa account and as long as it’s 30 days over, I can sell the day after buying them and avoid CGT