How are these matched? For example say you make 10 trades in a certain share in the same day - is the time during the day relevant when applying the inland revenue matching rules? The reason Im asking is that your tax charge may be different, and perhaps favourable, if you can re-order trades that happen in a certain day. As far as Im aware contract notes from my broker dont specify the actual time during the day the trade was made, only the date. Im wondering if there is a possible loophole here that can be exploited
How are these matched? For example say you make 10 trades in a certain share in the same day - is the time during the day relevant when applying the inland revenue matching rules? The reason Im asking is that your tax charge may be different, and perhaps favourable, if you can re-order trades that happen in a certain day. As far as Im aware contract notes from my broker dont specify the actual time during the day the trade was made, only the date. Im wondering if there is a possible loophole here that can be exploitedThere isn't any freedom to choose how to do the calculations, and the times of day of the trades don't matter. You must do the following calculations:1) Merge all the acquisitions on the same day into one. The merged acquisition has a number of shares, purchase cost of the shares themselves and other costs each equal to the total of the corresponding items of the individual acquisitions. (There are some exceptions for shares acquired from some particular types of share option scheme.)2) Merge all the disposals on the same day into one. The merged disposal has a number of shares, disposal proceeds and costs each equal to the total of the corresponding items of the individual disposals.3) If you've got both an acquisition and a disposal on the same day (either of them possibly merged by steps 1 and 2), match the acquisition to the disposal. If they are equal in size, this eliminates them both from the record before you move on to step 4; if they are not equal, the larger is split by apportioning it into a transaction that will match the smaller and a "remainder" transaction. The two matching transactions are removed from the record, while the "remainder" transaction goes into the record carried forward into step 4 for normal matching. 4) Do the normal matching process on the remaining transactions, working from the earliest disposal forward through the disposals and matching each one fully before moving on to the next. This will never encounter a "same day" case, as all such cases have been removed by steps 1-3.Source for the rule about merging the acquisitions: first bullet point near the bottom of the second column of page 1 of http://www.inlandrevenue.gov.uk/pdfs/2003_04/capital_gains/ir284.pdf . The same helpsheet also has the matching rules in the first column of page 2. Annoyingly, it does not mention the merging of disposals. (At least, I find it annoying, having done a big set of calculations last year after very carefully reading that helpsheet and following what it said, only to discover that I had to re-do them because I hadn't merged disposals on the same day...)One source for the rule about merging same-day disposals is http://www.inlandrevenue.gov.uk/bulletins/tb52.htm#anchor202819 . Another is in the Capital Gains Manual: http://www.inlandrevenue.gov.uk/manuals/cg3manual/html/CG50800/04_0003_CG50820.htm . This indicates that if you end up with an acquisition and a disposal on the same day, you always end up matching them, and if they are unequal in size, the unmatched part of the larger one is then treated the same way as it would be if it were a single acquisition or disposal on that day.On the other hand, http://www.inlandrevenue.gov.uk/manuals/cg3manual/html/CG50200/03_0087_CG50564.htm indicates that earlier disposals must be matched before later disposals, and includes the 'same day' rule at the start of its list of matching rules.This is a bit tricky, because the two don't always agree. For instance, suppose I have the following sequence of transactions (all dates in the same year):May 1st: Buy 1000 sharesJuly 1st: Sell 1000 sharesJuly 15th: Buy 1000 shares and sell 1000 sharesAugust 1st: Buy 1000 sharesIf you apply the rules on the first page above in priority to the second, the July 15th transactions match each other because they're on the same day, reducing the list to:May 1st: Buy 1000 sharesJuly 1st: Sell 1000 sharesAugust 1st: Buy 1000 sharesThen the July 1st sale matches the May 1st buy, since August 1st is more than 30 days later. You're left with capital gains from the May and July transactions and the August 1st buy to carry forward.On the other hand, if you apply the rules on the second page in priority to those on the first, you first match the July 1st sale. It matches the July 15th buy, reducing the list to:May 1st: Buy 1000 sharesJuly 15th: Sell 1000 sharesAugust 1st: Buy 1000 sharesNow you match the July 15th sale. The sale on the same day has already gone, so it gets matched to the August 1st buy. Net result is that you're left with capital gains from the July and August transactions and the May 1st buy to carry forward.I think the answer is that the rules on the first page above take priority: you match same-day acquisitions and disposals with each other even if that involves matching the same-day disposal before an earlier disposal. But to see this, I had to go to the legislation. The two relevant sections are sections 105 and 106A of the Taxation of Chargeable Gains Act 1992, as amended by subsequent legislation, and can be found in http://www.inlandrevenue.gov.uk/taxes_act_2002/vol_03/tcgapt04/tcgapt04-01.htm and http://www.inlandrevenue.gov.uk/taxes_act_2002/vol_03/tcgapt04/tcgapt04-05.htm .As I understand these:* Section 105(1) says that same-day acquisitions are merged, same-day disposals are merged, and acquisitions are matched to same-day disposals as far as possible. This accurately reflects what the first page above says.* Section 106A(4) says that earlier disposals are matched before later disposals, and sections 106A(5)-(8) basically give the identification rules on the second page above for shares not bought on the same day, with section 105(2) providing the "Finally against acquisitions following the disposal..." rule.* Section 106A(9) says that sections 106A(1)-(8) are subject to section 105(1). This allows the "same day" matching rule to take precedence over the non-same-day matching rules in sections 106A(5)-(8), and crucially also to take precedence over the "match earlier disposals first" rule in section 106A(4).So I think the answer in the above example is that first the July 15th sell is matched against the July 15th buy, then the July 1st sell is matched against the May 1st buy, and the August 1st buy is carried forward.Gengulphus
Well many thanks for a fantastic reply. Im just wondering how much of a difference this will make to my capital gains calculation for last year and this year. I hope its not significant unless of course I can make a claim for paying too much tax.PS. The algorithm at http://www.cgtcalculator.com will be updated asap. And the above post will have a link.
There's another capital gains calculator here http://homepage.ntlworld.com/stonebanks/cgt.htmI'll compare figures when I get round to doing my CGT return.
In the capital gains section of your tax return you are asked to state the number of sell transactions. Referring to Gengulphus's post above would that mean that if there were say 10 sell trades in a single day for a specific stock , that they would be composited into a single trade and you would therefore consider it a single trade as regards your total number of sell transactions?PS. Ive changed the way single day trades are matched and my 70 grand capital gain for 2003-2004 has turned into a 67 grand gain. However Ive not tested thoroughly yet with different sets of data. It has been a pain implementing though especially when you want to display the calculation for each match.
In the capital gains section of your tax return you are asked to state the number of sell transactions. Referring to Gengulphus's post above would that mean that if there were say 10 sell trades in a single day for a specific stock , that they would be composited into a single trade and you would therefore consider it a single trade as regards your total number of sell transactions?I don't see anything on the tax return asking you to fill in the number of "sell transactions". What I do see is that on page CG8, it says "Enter from Page CG1 or column AA on Page CG2:" followed by various requested numbers, such as "the number of transactions in quoted shares or other securities".It seems pretty clear to me that they are therefore asking for how many lines have been used by each type of transaction on page CG1 or CG2 - I don't really see how else you can fill them in "from ... column AA on Page CG2". This could be less than the actual number of sales, due to same-day sales being amalgamated, or more than it, due to sales being apportioned - and of course, both changes might be involved for a given line.I'd be surprised if they meant anything else - the only real use I can see for those counts is as a quick check whether a copy of CG1 or CG2 has somehow gone missing. In any event, I've filled these numbers in in the past on the basis that they mean the numbers of lines used by each type of transaction, and had no trouble as a result. And if the Inland Revenue ever tell me that it should have been something else, I will politely point out that in that case, whatever they do want should be asked for more clearly, and in any event, the counts make no difference to the tax due.Gengulphus
HiFor those mad enough to use http://cgtcalculator.com just to say I have implemented and tested the same day trade matching as described and referenced by Gengulphus. Im pretty sure it works OK.The good news for those who use it is the difference in gain/loss is very small. I think in a previous post in this thread I said my gain had changed by several grand for 03-04. Well its actually changed by about 50 quid so I dont expect the IR to be knocking on my door. I dont believe anyone will have a signficantly different gain/loss. Ive also added a couple of other functions. cheers