Capital Gearing Share Discussion Threads

[twix386] 20/3/2014 14:19

Gengulphus,

Yes, good spot, 2nd line meant to be "/". Just a typo and there is no rounding in my spreadsheet.

[twix386] 20/3/2014 14:07

david77,

so how do I begin. I have hundreds of trades over 10 years and start each new tax year with a c/fwd shareholding total and c/fwd Cost figure. It says The first entry on a security's list of deals is the closing pool figure from the previous tax year with date of last deal. When I do that or what I think it requires, I get an error which is probably true. lol

It does feel to me that I am going round the houses when what I need is a knowledgeable guy to look at what i've done and advise. Still, I can try to populate your website, but one mistake and I will be mislead or non the wiser.

Hours of fun(!) already spent, but thanks for the help none the less.

[gengulphus] 20/3/2014 13:52

Example: sell 74,544 shares
shares sold as %age of total = 74,544*4,935,247=1.51%
1.51% of Cost figure = GBP 259,565.68*1.51%=GBP 3,919.44
shares valued at 1p, so GBP 745.44 received.
GBP 745.44 minus GBP 3,919.44 = loss of GBP (3,174)

Hopefully you agree that.

As a minor issue, no, sorry, I don't. It's close, but slightly out due to you having rounded the result of the division on the second line (I'm assuming the "*" on that line is just a typo and was intended to be "/").

Do such calculations with only a rounding of the resulting cost figure:

GBP 259,565.68 * 74,544/4,935,247 = GBP 3,920.59

And so the resulting loss is bigger than you've calculated by about a pound.

The point is that there is a natural place to do that rounding of the resulting cost figure - i.e. to the nearest penny - but there isn't for percentages.

On to the more important point:

What I don't follow is in my 104 holdings list of trades the average price remains static throughout at 5.2594p never changing, so it will never show a profit until my selling price goes higher than this (all excluding charges etc). ...

That is exactly how average cost prices on sales are supposed to work in CGT calculations. If e.g. you buy 1000 shares at 100p, then later a further 1000 shares at 200p, you now have 2000 shares bought for a total of £3,000. Your average cost price is £3,000/2000 = 150p. That basically says you could alternatively have obtained that holding and CGT cost basis by buying 2000 shares at 150p each. And unless your pattern of trading is such that the same-day and/or 30-day rules have applied at some point, the S104 rules basically say that you do your CGT computations just as though that actually is how you obtained the holding.

So if you then sell 1000 of those shares, the 1000 shares you sell are treated as though they'd been bought for 150p each (causing you to subtract 1000*150p = £1,500 from whatever you sold the shares for to arrive at the gain or loss you realised) and the 1000 shares you keep are also treated as though they'd been bought for 150p each, so your S104 pool becomes one of 1000 shares with a cost basis of 1000 * 150p = £1,500 - and quite naturally the average cost of the shares in that pool is still 150p.

If later (and after 31 days or more have elapsed, so that neither the same-day rules nor the 30-day rule apply) you were to buy another 1000 shares at 50p each, that pool would become 2000 shares bought for a total of £1,500 + £500 = £2,000, and the average cost would drop to 100p per share. Or if they were instead bought for 250p each, the pool would become 2000 shares bought for £1,500 + £2,500 = £4,000, and the average cost would rise to 200p per share.

More generally, as long as the same-day and 30-day rules don't apply (i.e. as long as you never buy on the same day as a sale or within the next 30 days after a sale), what you can expect is that:

* On an initial purchase (i.e. with no pre-existing holding), the average price of the S104 pool is set to the average price of the purchase.

* In a follow-up purchase (i.e. with a pre-existing holding), the average price of the S104 pool becomes something between its previous average price and the average price of the purchase, and closer to the average price of whichever of the previous S104 pool and the purchase contained more shares.

* In a sale, the average price of the S104 pool doesn't change.

By the way, I've excluded trading costs from the above examples to keep the numbers simple, and you say "(all excluding charges etc)" - but in reality CGT computations should be done with all the trading costs included as costs (which acts in your favour - costs reduce gains and increase losses in the computations, so that either way, there are fewer net gains to be taxed after offsetting losses against gains (or more net losses to be carried forward into future tax years to potentially reduce CGT in those years).

One other point I would make is that CGT computations are generally simpler if you work with pools and trades on an "N shares at total cost/proceeds of £X" basis, not an "N shares at average cost/proceeds of £X per share" basis. The latter basically has the same rounding issue as using percentages did - how accurately do you need to calculate the average figure per share? - whereas the former has the obvious answer of rounding the total to the nearest penny.

The only way I would personally let average-per-share figures into my CGT computations would be as a check on accuracy - i.e. to make certain that they really do behave as described in the three bullet points above. And even that has to be treated with care, because the rounding of the total cost to the nearest penny and rounding in the actual computer arithmetic will often cause the average-cost-per-share figure to change very slightly on a sale - not by enough to be noticeable in the figures displayed in your spreadsheet unless you display silly numbers of decimal places, but nevertheless enough to make the figures compare as not equal to each other...

... My actual average price is now a little over 1p, so how can it be correct that the average price in my spreadsheet as excerpt below remains at 5.2594p through each trade detail to the end of my trade list?

And later:

The average never changes after numerous buys and sells and price changes, so I wanted to try to find out if I have made an error in the calculations. Over 200 buys and sells and average is the same.

As I indicate above, the average price per share of the S104 pool should change on buys - increasing or decreasing depending on whether the new shares are being bought at a higher or lower average price than the previous average price per share of the S104 pool, and only staying the same if they happen to be being bought at the same price as that revious average.

The most likely explanation I can think of for what you're seeing is that you're increasing the total costs of the S104 pool by the number of shares bought times the existing average rather than times what was actually paid for them. It would be easy to do that if you did the buy and sell lines too much by analogy with each other - they do actually need to be fairly different from each other...

For a simple spreadsheet that will only work properly if there are no cases that need to use the same-day or 30-day rules, you need formulae along the lines of:

A B C D E F
1 Trade Trade Trade costs S104 pool S104 pool S104 pool average
type shares /proceeds shares costs per share
2 Init (blank) (blank) 0 £0.00 =IF(D2=0,"",E2/D2)
3 Buy (data) (data) =D2+B3 =E2+C3 =IF(D3=0,"",E3/D3)
4 Buy (data) (data) =D3+B4 =E3+C4 =IF(D4=0,"",E4/D4)
5 Sell (data) (data) =D4-B5 =ROUND(E4*D5/D4,2) =IF(D5=0,"",E5/D5)
...

Column G (which I haven't shown there because it would cause lines to wrap) would then be the gain/loss figure, which would be blank for the Init and Buy lines, and set by the formula =C5-(E4-E5) on the Sell line. (E5 having been set to the reduced total cost for the reduced S104 pool, rounded to the nearest penny, so that E4-E5 is the total cost of the shares removed from the S104 pool, and C5-(E4-E5) is what they were sold for minus their total cost, i.e. the gain or loss.)

That's only a very simple spreadsheet - one which is not capable of handling quite a variety of things, such as buys on the same day as a sale or in the next 30 days, corporate actions, etc. But hopefully it gives enough of the basic formulae for dealing with S104 pools for you to track down your problem. (The simplest way I can think of for things to be wrong and cause a never-changing average price is if the Buy lines had the same formula in column E as the Sell lines, with a special case to handle the previous number of shares being zero: that would cause the average to be set from the first buy and then never to change again.)

I should say of course that use of IF() functions will allow you to use the same cut-and-pasted formulae on Buy and Sell lines. E.g. in practice I would probably write something like =IF(A2="Init",0,IF(A2="Buy",OFFSET(D2,-1,0)+B2,IF(A2="Sell",OFFSET(D2,-1,0)-B2,"???"))) in cell D2 and then be able to just copy it into the rest of column D from cell D3 downwards, and similarly for other lines. But it would have made the above far too wide and incomprehensible!

Gengulphus

[david77] 20/3/2014 10:40

The stonebanks calculator shows all the steps of the calculations so you can see where yours differs. Why don't you do just a few trades?

[twix386] 20/3/2014 10:33

It may well show me different results, but I fail to see how it would point out what I need to amend in my spreadsheet as that needs knowledge applied to the procedure I am doing and it will not come imo from a calculator. I have looked at them and I cannot apply anything worthwhile from them to my own calcs.

imho The remedy is someone to look at what I am doing and point out the error/issue. I can't figure it out and a calculator just wastes my time if I am trying to use it to isolate my own issue in a different model. It does not work for me at least.

Thanks for suggestions and I must dash now. Back later

[miata] 20/3/2014 10:24

In your case, the purpose of entering some trades into a calculator is to show you where the errors arise in the logic of your spreadsheet so you can correct it.

[twix386] 20/3/2014 09:49

ok

first I want to continue to use existing method and not to start entering it all in a calculator

I have a spreadsheet to post here. Don't know how?

The average never changes after numerous buys and sells and price changes, so I wanted to try to find out if I have made an error in the calculations. Over 200 buys and sells and average is the same.

EDIT: Back later today TIA

[david77] 20/3/2014 09:44

I wrote the calculator on www.stonebanks.co.uk
The average price of the remaining pool never changes by selling - it will only change if you buy more shares at a higher or lower price and then it won't change by much unless the qty bought is significant compare with your pool qty.

[miata] 20/3/2014 09:42

Why don't you enter your trades into one of the calculator programs - see links in header.

[twix386] 20/3/2014 09:33

understood,

I will try to explain......

Here is the principal behind the formula I use in Excel to calculate my net CGT gain/loss to report to the I.R.

Example: sell 74,544 shares
shares sold as %age of total = 74,544*4,935,247=1.51%
1.51% of Cost figure = GBP 259,565.68*1.51%=GBP 3,919.44
shares valued at 1p, so GBP 745.44 received.
GBP 745.44 minus GBP 3,919.44 = loss of GBP (3,174)

Hopefully you agree that.

What I don't follow is in my 104 holdings list of trades the average price remains static throughout at 5.2594p never changing, so it will never show a profit until my selling price goes higher than this (all excluding charges etc). My actual average price is now a little over 1p, so how can it be correct that the average price in my spreadsheet as excerpt below remains at 5.2594p through each trade detail to the end of my trade list?

[gengulphus] 20/3/2014 08:51

twix386,

I'm afraid I only do this sort of stuff on a bulletin-board basis, not by email. No exceptions, sorry - I'll look at anything posted and respond if I feel I can usefully do so, but emails are out.

Gengulphus

[twix386] 20/3/2014 07:12

Thanks Gengulphus,

For now at least I am going to take it that there is no new methodology I need to adopt that actually changes the existing effective procedure and so all in S104 pool, ignoring the deferred shares.

[gengulphus] 19/3/2014 23:54

twix386,

Your link does indeed give the right general procedure - what you're dealing with is a share split rather than a rights issue or bonus issue, but it does involve you ending up with shares of different classes and the same general method of calculation is used.

There are two different steps to the procedure - a reorganisation of the company's shares by splitting them into Ordinary shares of 0.1p and Deferred shares of 0.9p, and then the open offer in which you can buy more Ordinary shares of 0.1p.

To deal with the reorganisation, step 1 in the link says you work out the values of your new holdings. The value of the new holding of Ordinary shares of 0.1p is your original number of shares times the market price of such a share. I'm not certain whether that means the market price on the first day of trading after the split, or the market price when you sell the shares - AIM shares have some strange rules about when they count as "listed" and when not - but as it happens, it's not actually going to matter.

The value of the new holding of Deferred shares is zero: they are carefully designed to have no conceivable market value while still actually making them technically shares in the company, by giving them no right to income, no right to capital until the Ordinary shares have each received a preposterous amount, no right to vote or speak at shareholder meetings, and just to provide a back stop for all of that, the company can forcibly transfer them away from shareholders for nothing or essentially nothing. There's also nothing saying they're going to be admitted to trading anywhere, so there will be no convenient way to trade them even if you did for some reason want to...

So the new holding of Ordinary shares of 0.1p has some positive value and the new holding of Deferred shares of 0.9p has zero value. Step 2 in the link therefore says that 100% of your original cost goes to the new holding of Ordinary shares of 0.1p and 0% goes to the new holding of Deferred shares of 0.9p, whatever the market price of the former turns out to be.

As a result, the effect of the reorganisation is basically that your new Ordinary shares inherit the costs of your old Ordinary shares, and you can forget about the Deferred shares: they have no cost allocated to them and you will never get anything for them, so your gain or loss on them will turn out to be a big fat zero. (Essentially, the Deferred shares are a technical device to get around a company law restriction, that the company cannot issue shares at below nominal value - they get around it by diverting 90% of the nominal value into shares of zero market value. The CGT calculations work on market value, not nominal value... About the only real effect of the nominal value of shares on shareholders is that messing around with it like this requires the company to get shareholder approval!)

After the reorganisation, there's the open offer to deal with taxwise. I think that's dealt with as it would be for a rights issue, with the extra shares and their costs essentially enhancing the S104 pool asset rather than counting as a separate purchase. That's in accordance with what says:

"The basic CGT rules that apply to share reorganisations are:
• the issue of any new shares is not treated as an acquisition
• the loss or alteration of any old shares is not treated as a disposal.
Because a share reorganisation is not treated as an acquisition, any new
shares of the same class that you receive are added to the existing holding
of shares.
...
Because you are not treated as acquiring the new shares, the same day rule
and the bed and breakfasting rule (see the section 'How to identify the shares
disposed of' in Helpsheet 284 Shares and Capital Gains Tax), do not apply."

I am however not 100% certain that an open offer counts as a share reorganisation, especially where excess applications are concerned, so it's possible that it should instead be treated as a separate buy... I should add that it only makes any difference if the same-day or bed-and-breakfasting (or "30-day") rule applies to the resulting buy - otherwise the buy just gets added into the S104 pool anyway. And of course, it's not very easy for the same-day or 30-day rules to apply for a class of share (Ordinary shares of 0.1p) that has only just been issued!

The net result is that in almost all circumstances (and quite possibly in all of them), you end up with a S104 pool of all your Ordinary shares of 0.1p, bought for the total of your original costs and anything extra you've spent on the open offer. And in theory also a S104 pool of all your Deferred shares of 0.9p, but as indicated above, you will never make either a gain or a loss on them!

Gengulphus

[smurfy2001] 19/3/2014 17:05

Has the allowance increase?

[twix386] 19/3/2014 08:55

I have a question regarding the recent open offer and capital reorganisation on Vialogy (AIM)

The Classification has changed from VIALOGY ORD GBP0.01 to VIALOGY ORD GBP0.001
Well that's my understanding although Hargreaves Lansdown state not.

Does this reorganisation and sub division details below constitute a class change?
"The Directors propose to subdivide each Existing Ordinary Share into one new ordinary share of 0.1p and one deferred share of 0.9p. The rights attaching to the Ordinary Shares and the Deferred Shares are summarised in the circular to shareholders.
Such subdivision would result in an issued share capital of 1,039,640,244 Ordinary Shares and 1,039,640,244 Deferred Shares. Shares to be issued under existing options and warrants will reflect the Capital Reorganisation."
In doing my Tax Returns I opted to do a trial run yesterday on the same basis as in past years. However, my Excel spreadsheet ended up having a final Cost figure total that was way off and in looking around for a reason I concluded it was due to a change in Classification as refered to here namely "Bonus issues and rights issues of shares of a different class".
OR is it of the same class? Either way do the previous CGT rules I have used - prior to this rights issue (open offer) - now change in line with applying different rights issue rules as per this link?
target='window'>http://www.hmrc.gov.uk/cgt/shares/co-reorg.htm#3
I would also like to check this a valid reason for my Cost figure anomaly?
The shares applied for in the Open Offer (quite a few along with market buys) would all have been on new 0.001p classification effective from 27/1/14.

Otherwise my question is what do I need to do on my spreadsheet to take this into account. My assumption is that I would need to divide the Cost calculation by 10 for trades done on/after new Classification came into effect (that would indeed get me a reasonable ball park total Cost figure at least to c/fwd). Then for sales that I need to report on, follow the I.R. guidance rules (above link) of working out the value of shares in each of the two classifications for this tax year and apply ratio to Cost etc. I have only 2 sales. One a 30 day and then a big one where I moved shares held into ISA last year and realised loss (104 Holdings).

TIA

[gengulphus] 13/3/2014 23:40

Slight correction: If it has actually been dissolved (check the exact company name on the Companies House website) then for CGT purposes you actually disposed of the shares for zero value on the date of dissolution - an asset ceasing to exist counts as a disposal. Don't make a negligible value claim for it in that case - just state the facts about the shares ceasing to exist because of dissolution of the company.

In the usually-more-likely case that the company is still in administration, a negligible value claim is probably reasonable - the exceptions are if the administrators have said there is likely to be a return to shareholders, or if it's too early for them to have said either that there is likely to be one or that there isn't.

Gengulphus

[david77] 13/3/2014 20:33

show as sold for zero value - and explain on your tax return that your are claiming that the share has negligible value and say why.

I am not qualified to give advice

[red nutter] 13/3/2014 13:14

Hi,

I am using CGT calculator.com

How do I input a share which has been dissolved or liquidated as I want to claim the full loss made on share?

Thanks

rednutter

[mdara] 13/3/2014 11:15

Ty Miata :)

[miata] 13/3/2014 08:32

1) Yes.
2) No.
3) N/A.

[mdara] 12/3/2014 22:56

I am sure if I were to go back over 679 posts I would find the answer to my question.

I would appreciate it however if someone would be kind enough to save me the effort.

I am resident in the UK. I have a loss in a share held in an ordinary taxable account. I dispose of it on the 1st and purchase same share in an ISA on the 1st.

Is the loss deductible?
Does the ISA purchase create any difficulty? If so is there any way to circumvent the difficulty?

Ty in advance for any helpful replies.

[riggerbeautz] 26/2/2014 20:58

Thanks for the reply Miata, I'm doubtful at this moment I could truly suggest they are of negligible value, as supposedly they are in dispute on assets - too long a story; thanks for responding though.

[miata] 26/2/2014 18:25

676, You can claim the loss on your tax return. Its not on the negligible value list yet ( ) so your tax inspector will (eventually) give you a decision.