Can I sell shares for capital gains tax and buy them back?

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I bought £10,000 worth of BP shares when the news of the Covid vaccines first emerged in November 2020 and have since made some big gains off the back of the vaccine rally and resurgent oil price.

However, as I wanted to do this quickly with some cash savings I was able to access and couldn’t put all the money into my Isa, I did it in my general investment account. I have other investments elsewhere in an Isa.

The BP shares that I bought at 200p are now trading at 380p, meaning that my original £10,000 investment is now worth £19,000.

With the end of the tax year approaching, I thought it would be a good idea to crystallise those gains and use this year’s capital gains tax allowance. I would then like to buy the BP shares back, as I think they are still worth holding.

Are there any rules on selling shares to use your capital gains tax allowance and then buying them straight back?

The 30 day rule prevents investors from buying and repurchasing the same shares to maximise the capital gains tax allowance

The 30 day rule prevents investors from buying and repurchasing the same shares to maximise the capital gains tax allowance

Angharad Carrick of This Is Money said: With the end of the tax year coming to an end it is good to hear you are using your allowances so you don’t have to pay more tax than is necessary.

Investors can benefit from a capital gains tax (CGT) allowance which means they don’t have to pay any CGT on any profit they make on the disposal of assets. The £12,300 allowance cannot be carried forward into the following tax year.

Once upon a time, investors holding assets like individual shares or holdings in funds could sell their assets before the end of the tax year and then quickly repurchase them in the new tax year.

The so-called ‘bed and breakfast’ deal was scrapped in 1998 and the CGT 30 day rule was introduced.

The new rule means investors have to wait 30 days before buying the same share.

Shaun Moore, tax and financial planning expert at Quilter replied: ‘The current CGT allowance stands at £12,300, and it is a case of use it or lose it, however this case shows just how simple it can be to be caught by it.

‘While your investment returns will be captured by the allowance, if you had held on for longer then you may have ended up exceeding the allowance and thus be landed with a tax bill on his gains. 

‘It does not take a large amount of money to end up triggering the tax and with allowances frozen over the coming years, more and more people could be caught out by it.

‘That said, there are rules in place to make sure you don’t sell shares to utilise the allowance and then simply buy them straight back at the same/very similar price. 

‘Essentially when you dispose of shares or a collective fund, and you buy the same shares back either on the same day or within 30 days, the gain you built up is not crystallised.

‘Instead, what happens is the cost of the purchase of new shares becomes your acquisition cost for the shares you sold, and the capital gain is very limited because of this. These are also known as the ‘bed and breakfasting rules’ to avoid people tactically selling in and out of assets to ensure they use up their allowance and keep the investment returns on offer. 

‘To enable this to be effective the shares could not be bought back for at least 30 days.

‘During the 30 day ‘window’ you could purchase similar assets. So while you can’t purchase BP again for 30 days, you could, for example, buy another company in that sector without having to wait.’

Sarah Coles, of Hargreaves Lansdown, replied: ‘Unless you’ve made taxable gains elsewhere this tax year, the gain you’ve made on your BP shares will fall within your £12,300 capital gains tax allowance, meaning you’ll have no tax to pay. If you’ve made other gains, then you may have tax to pay, depending on your personal circumstances.

‘If you’re looking to crystallise this gain to use up this year’s allowance and then buy the shares back in your general investment account, you’ll need to wait 30 days before you reinvest – if you buy them back sooner than this then it won’t count as a disposal for tax purposes.

‘Of course, the value of the shares will move while you’re uninvested, which could mean you end up buying them back at a cheaper price than you sold them for, but on the other hand, you’d miss out on any gains if they’re on the up.

But you can Bed and Isa 

Angharad Carrick said: ‘There are some ways to avoid the ‘bed and breakfast’ rules. As Shaun says, you could you buy another company in a similar sector but do make sure your portfolio is diversified so as to minimise risk.

‘You could also sell your investments in the general investment account and buy the same investments within a tax-free stocks and shares Isa, known as a Ben and Isa.

‘You could do the same with a ‘Bed and Sipp’ which would mean you’d sell your investment holdings before rebuying the same share in a Sipp. This might be a better option as it can be done on the same day and will avoid your investment being out of the market.

‘Finally, you can transfer shares between spouses meaning you can sell the shares and gift the proceeds to your spouse and allow them to make the repurchase.’

Sarah added: ‘Before you buy back, however, it’s a good opportunity to consider your overall portfolio. Do these shares make sense as part of a large and diversified portfolio? 

‘Or would other assets, shares or funds offer a better match for your objectives, risk profile and time horizon?’

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