Wholly agree and I recall having a pretty unsatisfactory exchange with FT on this a few years ago (already). FIFO is a deeply misleading methodology and makes it really hard to know your P/L position on distressed holdings where averaging down hasnât always worked out. Or maybe it did. FIFO will keep you guessingâŠâŠ
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What would be the point of this, is it useful for tax purposes?
So my original purchases of 3i at ÂŁ11.07p are excluded from my average after my recent sales?.
In fact at guess all my purchases up to ÂŁ13 will be excluded.
That gives a rather false impression of my gain. I certainly wouldnât want to tell the taxman I sold my ÂŁ11 sharesâŠif it was outside an ISA.
Annoying.
Really we donât need choices we just need averages because they are accurate for tax purposes (I assume?)
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Useful for some other countries. Worse than useless for the UK.
This is completely irrelevant in the UK. We donât differentiate between individual shares except is very specific time windows in non ISA accounts and only really for tax purposes as I remember.
In all other circumstances shares for any individual security is bundled and averaged. There is zero difference between a share you bought a year ago and a share you bought last month regardless of the change in share price.
Think of it this way.
You buy 5 apples in January
You buy 2 apples today
All the apples go into a bucket. When you sell 3 apples, you take apples out the bucket. It doesnât matter when they were bough because theyâre all the same apples
Why is it useless?
I do 90% of all my investment activity in an ISA so itâs purely academic for me.
But Iâd imagine for those using a GIA, this could cause problems.
Yes if you sell 100 shares at ÂŁ1.50 (150p)/share then you sell 100 shares at ÂŁ1.50/share.
But if you bought those shares in tranches, this creates a problem when calculating capital gains.
If you donât know which shares were sold, working out how much your capital gain is becomes far more of an arduous task then it needs to be.
If you have this scenario with shares of companies that trade at higher share prices, this becomes even more of a headache.
A key one is astra zeneca that has a share price that hovers currently at ÂŁ110 GBP.
Letâs say youâve have 1,000 shares and youâve sold 300 but you bought them over many years, all at differing share prices.
Oh my word, what an unbelievable hassle that would be to calculate the capital gain, and I I mention, the tax reporting system (self assessment) is a headache at the best of times, and thatâs when you have it all under control.
This is one reason why and ISA and SIPP is worth thier weight in gold. Not only do you not pay tax to HMRC, you also have none of the collosal headache which is the admin related to self assessment.
GIA has a specific timeframe relating to shares. after 30 days shares go âintoâ a section 104 holding and are held as I described just as a big bucket of shares, when you bought what shares become irrelevant.
before that shares are handled in two ways.
- shares acquired and sold on the same day
- shares acquired within 30 days of a disposal
and the third as mentioned, all shares after 30 days fall under section 104 holding
these rules donât apply for an ISA because no tax rules apply. so theyâre all handled the same, just one bug bucked for each security.
For a GIA this would only apply in relation to the above rules. if trances are bought and sold on the same day, or bought after selling with in 30 days. after 30 days they become a section 104 holding, and when you bought them doesnât matter.
In this example assuming a GIA, well make a more complex example.
todays date: 28th April 2024
shares bought and sold
- 28th Apr 2023: 250 shares bought
- 15th Apr 2024: 3000 shares sold
- 1st jan 2024: 1000 shares bought
- 25 nov 2023: 400 shares bought
- 12 Mar 2022: 3000 shares bought
in this case. we had 4400 shares, and sold 3000 shares on the 15th April 2024. we then bought 250 shares a couple of weeks later.
of the shares we had. the 4400 shares fall under a section 104 holding initially (held for more than 30 days)
selling 3000 shares and then buying 250 shares within 30 days of the initial disposal means that instead of the entire 3000 share sell falling under the shares held in the 104 holding, only 2750 fall under the 104 holding, and 250 shares from the sale fall under the bed and breakfast ruling in relation to tax. which ones are sold are largely irrelevant, the fact that some were brought and sold within 30 days is whatâs calculated for tax, regardless of which âspecificâ shares are sold.
As you can see even in this scenario where some shares are not considered in one big pot, selling âspecificâ shares you bought still isnât relevant to this scenario. the scenario is tax related and specific to UK tax laws.
and yes if your selling and buying a lot of shares frequently, this is one reason an ISA is useful
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Itâs scary that people think this is the case.
This isnât how CGT law works at all.
Get an accountant because if HMRC ever come knocking youâll be in trouble.
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I take back this statement. It would be helpful for trades that sit outside section 104.
But in practical terms, it sounds like most people would misuse it.
I almost missed this update.
Very happy that itâs being looked at
People should also remember that this is not just about gains on shares.
CGT rules also allows you to make a loss that can be used to offset against a gain somewhere else for tax purposes.
Itâs a good way to get rid of all those shares that have dropped 80-90% and are almost never going to recover and would require a lot of further investments to try and average down.
In any case Iâm just happy that itâs being looked at
@acamp has there been any news on when this might be getting addressed? Also only noticed this earlier today, sold some shares and at a break even point, but the FIFO system is indicating a current unrealised profit of almost 80%, which is very misleading as there is no actual profit.
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What a crap policy when they could just force platforms to track blocks of shares like Fidelity does; but I guess it was created to try and maximise CGT. bed and breakfast ruling is a different matter; the US also has rules against selling for losses & re-buying too quickly
im not sure what you mean by this? are you saying youâd rather have a US based tax system in relation to share holding? you also have to keep in mind we have an extremely generous tax shelter for shares that places like the US just donât have access to anything close as good.
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