RE: HMRC31 Jul 2021 17:55
The 30-Day Rule of 1998
"A bed and breakfast strategy allows investors to minimize the amount of capital gains taxes they must pay. The 30-Day Rule of 1998 banned the practice of "bed and breakfasting," forcing investors to wait 30 days before being allowed to repurchase the security they had just sold."
Before 1998, the CGT annual exempt allowance was around £6,000.
So, if you had say Lloyds shares outside an ISA/TESSA/PEP, which grew in share price, you would lock in the gain by selling on Monday, then buying back on Tuesday, aka bed and breakfast.
E.g.
You bought 10,000 shares at £2 in July 1996 for £20,000
You sell 10,000 shares on 1st July 1997 at £2.60, for £26,000.
You have crystalised £6,000 in capital gains in the tax year 1997/98,
but it is within the exempt allowance, so you pay NO TAX.
You buy back 10,000 shares next day, 2nd July, for around £2.60, so it's £26,000, plus the 0.5% stamp duty £130.
With a little dealing charge, the base for CGT purposes is now £26,150 for the 10,000 shares.
You repeat the operation in July 1998, selling at £32,000, the gain is
£5, 850 = £32,000 - £26,150
Yet again, the gain is less than the exempt amount £6,000, so you pay no tax.
What the heck is going on here, all these peasants getting away with NOT paying CGT!!!
so the Inland Revenue clamped down on it, with the 30 Day Rule.
So, if you THINK you can sell SAR on 3rd August (2nd is Bank Holiday),
and then buy them back on 4th August, and make use of the £12,3000 allowance for 2021/22,
you will have a nasty surprise.
Let us say you sell on 3rd August for 8.8p,
and buy back on 4th August for 9.1p, the 30 Day rule will force you to match the two trades,
so you bought at 9.1p , and sold at 8.8p, incurring a loss of 0.3p . Your original base price has not changed one iota.
The matching will not happen if you buy back 31 days or more later.
So, you sell on 3rd August for 8.8p, then buy back on 1st September for 40p!!!!
It is possible to do it, but you need to have lots of cash.
So, you sell say, 500,000 shares of SAR in your account, and simultaneously buy 500,000 shares in you wife's ISA and dealing accounts with cash you already have. Four days later, your sell trade settles, and you can pay her back.
Not ideal, really, because you lose on the offer/bid spread.
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