3

Please consider below hypothetical example scenarios in UK.

Scenario 1:
Capital allowance £10,000.

  • Stocks bought for £1000 in year 1.
  • Stocks bought in year 1 are valued as £7000 in year 2.
  • Stocks bought in year 1 are valued as £13000 in year 3.
  • All stocks are sold for £13000 in year 3.

Scenario 2:
Capital allowance £10,000.

  • Stocks bought for £1000 in year 1.
  • Stocks bought in year 1 are valued as £7000 in year 2.
  • All stocks are sold for £7000 in year 2.
  • Same stocks are immediately bought for £7000 in year 2.
  • Stocks bought in year 2 are valued as £13000 in year 3.
  • All stocks are sold for £13000 in year 3.

I'm expecting below CGT for each scenario:

Scenario 1:
Capital gain in year 1 is £0

  • CGT: £0 (0 < 10000)
  • Capital gain in year 1 is £0
  • CGT: £0 (0 < 10000)

Capital gain in year 3 is £13000

  • CGT: £3000 (13000 > 10000)
  • Total 3 years CGT: £3000

Scenario 2:
Capital gain in year 1 is £0

  • CGT: £0 (0 < 10000)

Capital gain in year 2 is £7000

  • CGT: £0 (7000 < 10000)

Capital gain in year 3 is £6000

  • CGT: £0 (6000 < 10000)

Total 3 years CGT: £0

Is above the correct understanding of how CGT applies?

9

I think there are two significant errors in your analysis:

Firstly, the Capital Gains Tax is not all of the Capital Gain above the allowance: for individuals it's generally 18% or 28% of the gain. So after calculating £3000 as your gain, you would only pay a percentage of that as tax. (Also note that the allowance is actually a little over £11,000 at present).

Secondly, unfortunately you can't spread out your gains in the way you describe, because there are rules in place to avoid precisely this kind of "bed and breakfasting". The overall rules are quite complicated, but broadly you need to wait 30 days before repurchasing, otherwise your "Scenario 2" will actually be charged tax as if it were "Scenario 1".

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  • Thank you. Yes, I made a mistake and said 100% CGT. – Griffin Jun 21 '17 at 11:03

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