How stock lots will be sold


(Artur) #1

Hey everyone.

I just came across this article on my LinkedIn feed -> article.

It’s written based on US tax, and granted I know very little about UK/EU taxes, but I found it quite interesting. Does anyone know if the UK tax system also works in this way? And if so, will Freetrade have a similar sale process that Robinhood has?

Just a curious soul,
Artur


(Vladislav Kozub) #2

So to recap, a number of US brokers allow investors to pick which stocks to sell within one security for the sake of loss harvesting and CGT reduction (if you bought Netflix in 2005 and in 2015, you would theoretically prefer to sell the 2015 ones to pay less CGT in 2018).

But Robinhood does not. Will Freetrade let investors choose what lots within one stock to sell or will it be FIFO?


(Greg) #3

Hi Artur,
Good question, I was also curious about this so I asked around and it looks like this doesn’t exist in the UK. HMRC have a policy for determining how much capital gains you pay on a sell which is fairly complex, you can learn about it here: https://www.gov.uk/government/publications/shares-and-capital-gains-tax-hs284-self-assessment-helpsheet/hs284-shares-and-capital-gains-tax-2017

Of course it’s much easier to just keep it all wrapped in an ISA!


(Vladislav Kozub) #4

From the HMRC CGT notes:

The following disposal order will apply when selling shares:

First: Shares acquired on the same day as the disposal (the ‘same day’ rule).
Second: Shares acquired in the 30 days following the day of disposal (the ‘bed and breakfasting’ rule) provided the person making the disposal was resident in the United Kingdom at the time of the acquisition.
Third: Shares in the Section 104 holding.

Section 104 holding is:

From 6 April 2008 all shares of the same class, in the same company, are together called a ‘Section 104 holding’. You add together the costs of the shares in this holding: each share in the holding is treated as if acquired at the same average cost.

Section 104 simple example
  1. You bought 1 share of X for £100 in 2015 and it was up 50% in a year (£150)
  2. You bought 1 share of X for £150 in 2016 and it was up 20% in a year (£180) + 20% for your old share which is also £180 now.
  3. Your total capital is £360 in 2017.
  4. Your first share had 80% growth
  5. Your second share had 20% growth
  6. Your total growth was 44% (£250 to £360).
  7. If you sell 1 share, you would report* 44% gain for CGT purposes as it would fall under Section 104 holding
    *You do not need to report any gains under £11,700 within one year.

This would apply to the majority of people investing from 2008, but becomes more complicated if you owned shares since before 2008.

In any case, CGT is a very interesting topic to study, and if you plan to invest, that probably would be a great knowledge to possess!

But indeed:


(Andrew Clark) #5

Regarding the ISA comments. Is the intention that Freetrade will hold an ISA wrapper within which we’d invest (up to the annual amount) or to buy shares in a place that does support ISAs?

CGT is suddenly of interest to me as my Monzo shares are starting to get interesting and I have great hopes for my Freetrade shares. Is there a way of wrapping them in an ISA or is there a clever thing I can do before they really take off?


(Vladislav Kozub) #6

If you are talking about Freetrade as a company you partly own (not as a broker), when you invested in it through Crowdcube, you would have had EIS benefits in place.

In my understanding, you will be exempt from any CGT if you hold for 3 years or over. So do not sell yet. On the top of that, you will be able to claim 30% of Income Tax you paid this or last year (chose the ones you want).

According to HMRC, you will only get the CGT exemption if you claim your 30% tax relief. So it is essentially a case of “take all or nothing”.

And if you are talking about ISA wrapping for public companies traded on Stock Exhanges, most of them will be automatically eligible for ISA so not need for further consideration.