CGT on sale of shares - Bed and Breakfast rules

[Brendan Burgess]

This comes up a few times and I could not find an up to date clarification of it.

From the [broken link removed]

Here is the relevant section

Disposal of shares within four weeks of acquisition
The FIFO (First In First Out) rules are modified in any case where shares of the same class are bought and sold within a period of four weeks. Where shares are sold within four weeks of acquisition the shares sold are identified with the shares acquired within that period. Furthermore, where a loss accrues on the disposal of shares and shares of the same class are acquired within a four week period, the loss is not available for offset against any other gains arising. Instead the loss is only available for set off against any gain that might arise on the subsequent disposal of the shares so acquired in the four week period - this provision does not apply where there is a gain on the disposal.

This is the section which says that selling shares and buying them back within 4 weeks does not qualify the gain the for the annual exemption. But I am not sure where it says this?

 

[RedOnion]

This is the section which says that selling shares and buying them back within 4 weeks does not qualify the gain the for the annual exemption. But I am not sure where it says this?

Brendan - apologies, my incorrect early morning mumblings might have triggered this. I'm not aware of any restriction on the use of the annual exemption.

 

[Brendan Burgess]

Hi Red

I posted this in response to the question. It was before I had seen your answer.

I have always understood that the 4 week rule does apply to Bed and Breakfasts but I don't interpret the above as saying so.

Brendan

 

[RedOnion]

My very simple understanding is that it's down to the order of transactions. Say if I own a significant number 'Share A' which has increased in value. If I sell 100 units, and immediately rebuy them, I can use my exemption. The 'bed & breakfast' rule doesn;t apply.
However, if I first buy 100 units of Share A, and then sell some units (immediately or within 4 weeks), they are treated on a LIFO basis, so I won't have made a gain, and therefore can't use the exemption (or can only use the exemption to the extent there's been a gain in that window between buying & selling).

I should note that it's a long time since I studied Tax (or made a gain unfortunately!) so I am open to correction.

 

[Brendan Burgess]

Alan Moore explains it well here:

[broken link removed]

“Bed and breakfast” transactions

Toward the end of the tax year, you may have a taxable gain but have no loss to offset against the gain. If you have a holding of shares with in-built losses, you may dispose of those shares in order to crystallise the “paper” loss. You may even re-acquire the same shares a few weeks later at a reduced price.

In order to counteract such practices (particularly over a period that spans the last day of the tax year, i.e., 31 December), you may not set against other chargeable gains a loss generated by a disposal and acquisition within the same four-week period. You may set such a loss against the chargeable gain, which eventually arises on the reacquired shares.

This applies a LIFO (Last In First Out) rule to disposals within the four-week period, in contrast to the general FIFO (First In First Out) rule used to identify share disposals with share acquisitions. The end result is that the latest disposal will have a depressed acquisition cost closer to the disposal date, thus reducing or eliminating the paper loss.

 

[LoveTrees]

Thank you very much for posting Brendan, it's because if the unclear language in the revenue website not supported by very clear examples (thus leaving grey areas) that I decided that - each time I sell a share at a gain after more than 28 days after touching it - then I will wait another 4 weeks before buying it. Of course (most of all) same for a share sold at loss that I am declaring...

 

[paul00s]

If i want to sell a share which has appreciated in values in order to use up my CGT allowance am I allowed to buy it back straight away or must I wait 4 weeks?

 

[joe sod]

In order to counteract such practices (particularly over a period that spans the last day of the tax year, i.e., 31 December), you may not set against other chargeable gains a loss generated by a disposal and acquisition within the same four-week period. You may set such a loss against the chargeable gain, which eventually arises on the reacquired shares.

in order to keep everything simple because language is tricky here, if you just wait the four weeks between transactions so as not to get caught out with the intricacies of selling within the four week period.
If you have already realised capital gains on share A in say february,
you have paper losses on share B now on say october 30 , so I sell my entire holding in share B on october 30
then I buy back my entire holding of share B in november 30 (after waiting out the 4 weeks)
In this way I have used the losses on share B to offset the realised gains on share A and this is perfectly legitimate in my understanding because I have waited the 4 weeks between selling and re buying.
Even if I have losses on tranch 1 of my holding of say 1000 shares in share B, but I have gains on a later tranch of say 1500 shares in share B,
My understanding is that I can sell the first tranch of 1000 shares in share B, realise the capital loss and use that to offset the gain on share A as above.
That is all legitimate from my understanding once i wait out the 4 weeks from potentially re buying the 1000 shares in share B.
I think FIFO (first in first out) always applies once you always wait the four weeks between selling and buying.
Im not an expert or anything but thats my understanding from asking many questions before on this topic

 

[paul00s]

Hi Joe, thanks for the response, I'm not looking at a loss, I'm looking at a gain I want to realise. I have a number of 'paper' gains this year, I don't particularly want to sell any of them but am looking to use up my CGT allowance this year.

Looking at Brendan's post
Furthermore, where a loss accrues on the disposal of shares and shares of the same class are acquired within a four week period, the loss is not available for offset against any other gains arising. Instead the loss is only available for set off against any gain that might arise on the subsequent disposal of the shares so acquired in the four week period - this provision does not apply where there is a gain on the disposal.

Does that bold section suggest I don't have to wait 28 days to realise a gain and buy the shares back?

 

[Gordon Gekko]

No, you don’t. I remember when there was noise a few years back around the potential restriction of existing losses carried forward. People started selling and reacquiring shares to get value for their losses.

 

[declan11]

Can i ask a related question here?
Take a married couple that own different shares in separate accounts. Can one of the couple sell shares to the value of their CGT allowance and the other buy a similar amount of the same shares on the same day. In this way they could avail of the allowance while maintaining their shareholding overall.

 

[Stampduty]

Hi

Despite my best efforts in reviewing the posts here and documentation on Revenue.ie, I'm still at a bit of a loss on the 4 week rule and how it can be applied for gains and/or losses. I've put together 2 scenarios below which look show the types things I'm trying to understand

My questions here are simple

• Q1 - What is the CGT liability in Scenario A for ABC Ltd. and XYZ Ltd
• Q2 - What is the CGT liability in Scenario B for ABC Ltd. and XYZ Ltd

(assuming no other share transactions for year and assuming each scenario is standalone)
If I've missed a worked example of this issue elsewhere on this site - happy to be re-directed.

Thanks for your help.

Scenario A
Transaction #	Transaction	Date	Name	Quantity	Price	Value
1​	Buy	01/01/2019​	ABC	10​	5​	50​
2​	Buy	10/01/2019​	XYZ	10​	10​	100​
3​	Buy	12/01/2019​	XYZ	10​	12​	120​		Are the below calc's correct ? FIFO?, LIFO?
		2​	Days Gap
4​	Sell	14/01/2019​	XYZ	5​	7​	35​	===>	Sale Value	35​
								Purchase Cost	-50​
		2​	Days Gap					Gain / Loss	-15​
5​	Sell	16/01/2019​	XYZ	15​	15​	225​	===>	Sale Value	225​
								Purchase Cost	-50​
								Purchase Cost	-120​
								Gain / Loss	55​
6​	Sell	30/03/2019​	ABC	10​	10​	100​	===>	Sale Value	100​
								Purchase Cost	-50​
								Gain / Loss	50​

Scenario B
Transaction #	Transaction	Date	Name	Quantity	Price	Value
10​	Buy	01/01/2019​	ABC	10​	5​	50​
								Are the below calc's correct ? FIFO?, LIFO?
11​	Buy	10/01/2019​	XYZ	10​	10​	100​
12​	Sell	12/01/2019​	XYZ	10​	9​	90​	===>	Sale Value	90​
								Purchase Cost	-100​
		2​	Days Gap					Gain / Loss	-10​
13​	Buy	14/01/2019​	XYZ	10​	6​	60​
14​	Sell	15/01/2019​	XYZ	10​	5​	50​	===>	Sale Value	50​
								Purchase Cost	-60​
		64​	Days Gap					Gain / Loss	-10​
15​	Buy	20/03/2019​	XYZ	10​	11​	110​
16​	Sell	21/03/2019​	XYZ	10​	14​	140​	===>	Sale Value	140​
								Purchase Cost	-110​
								Gain / Loss	30​
17​	Sell	30/03/2019​	ABC	10​	10​	100​	===>	Sale Value	100​
								Purchase Cost	-50​
								Gain / Loss	50​