Capital Gearing Share Discussion Threads

[rahosi] 09/8/2019 14:30

£3300 taxable is my understanding

[jacobsdad] 28/7/2019 13:19

a quick query-
if in the tax yr 18/19 I had made say £5k gains but also £5k losses-does the £5k loss carry forward?
also just to clarify
if in tax yr 18/19 I had made say £20k gains but also £5k losses-would that have meant
£20k-£11700 allowance=£8300 taxable gain,then-£5k loss=£3300 then taxable ?

[gengulphus] 09/7/2019 21:35

finkwot,

With regard to the small number of shares, I've thought of something that I think worth checking: you have taken account of the terms of the merger that formed CGNU, haven't you? According to they were 48 CGNU shares per 100 Norwich Union shares, so 150 Norwich Union shares would have become 72 CGNU shares.

With regard to the dates, there are generally quite a lot of different dates associated with corporate actions, and I wouldn't be at all surprised about someone being confused about exactly which one applies for CGT purposes - indeed, I don't know myself in many cases! I generally don't worry unduly about that - it only makes any difference for CGT purposes if the uncertainty affects which tax year the corporate action is treated as being in, and I only have to be able to truthfully declare that my tax return is complete and correct "to the best of my knowledge and belief" (not "to my certain knowledge") and that I'm not underpaying tax (I'd prefer not to be overpaying either, of course, but I can hardly get into trouble for it!).

A final comment related to that is that if all else fails, a tax return based on the shares having no acquisition cost can hardly get you into trouble for the same reason: it's reasonable to rely on the record you've got if you can't find anything to contradict it, and zero acquisition cost can only result in overpaying CGT, not underpaying it.

Gengulphus

[finkwot] 05/7/2019 12:20

Thanks, that's an interesting idea which hadn't occurred to me.

Two things argue against it - the minimum windfall was 150 shares, and the number acquired here is less than that (conceivably some may have been sold, but for such a small number it seems unlikely); also the demutualisation seems to have finally gone through in June, rather than May.

So it's possible, but on the whole I think the other explanation is more likely. (Which is a slight relief as the tax bill will be fractionally lower if I can establish a cost for the shares). Still, if nothing else adds up I may revisit it.

[gengulphus] 04/7/2019 18:26

finkwot,

I'm working from a list of Commercial Union share acquisitions from 1982 to 1997, giving number of shares, month of acquisition and total cost for each. What puzzles me is that one entry, for May 1997, gives only the number of shares acquired; the cost column is left blank. The totals of all shares acquired and of cost for the whole series of acquisitions have been added up carefully, with no allowance for the cost of the May 1997 acquisition. Apart from this, the record was prepared conscientiously (there are multiple pages of other records for other shareholdings; this is the only lacuna I've found). There are two possible explanations I can think of - either there was some complication and the person who kept the records was unsure how to calculate the cost, so left it blank intending to add it later, or for some reason he thought the cost was nil.

As someone who tries to be pretty conscientious about such things myself, uncertainty sounds more likely to me - if I had genuinely decided the cost was nil for some reason, I would enter zero, while leaving it blank would mean not yet known. As for reasons why it's not yet known, there is a similar omission in my records, due to a contract note from the early 1990s that I've mislaid. I know I've never deliberately destroyed it, but it's been missing for a very long time now. Hopefully it will eventually turn up...

I do tend to mark such known omissions on spreadsheets with a red background, as a general warning that something needs changing before it's used. But that sort of precaution could easily have been inadvertently left not done, or simply not thought of.

And of course there's no guarantee that one person's conscientiousness takes exactly the same form as another's! So all this is about is suggesting which answer I think more likely, not anything definite about what it is.

So my question now is, are there any circumstances in which shares can be acquired at nil cost for CGT purposes?

Yes - if someone gives you shares that are genuinely worth nothing at the time of the gift. A gift generally brings the 'market value' rule into play and so the shares are deemed to have been acquired at their market value at the time, but if that market value is zero...

But those circumstances are hardly likely to apply here! And while I can also think of circumstances in which a share can have its base cost reduced to zero after purchase (it can happen as a result of using the 'small capital distribution' treatment on a share that has risen hugely after purchase, or that has made a whole series of small capital distributions), those also seem unlikely to apply here - and it would also require something esoteric to make it happen to one acquisition and not the rest as well...

I nearly submitted this post saying there might well be other ways to acquire shares with no acquisition cost and indeed had a nagging feeling I'd seen at least one more in the past, but couldn't remember any details. But it has now sprung to mind and it seems quite plausible - though obviously only you can be in any sort of position to tell whether it's what happened. It's to do with building societies, etc, that demutualised, and I've found a couple of HMRC Capital Gains Manual pages in the area:


(and possibly its next page as well)

If I read them correctly, when a building society demutualises and gives its members free shares, a share account in its original mutual version gets reorganised into a cash account in its new version plus the free shares. The normal rules about cash accounts say that the CGT value of the old share account and of the new cash account are both simply their cash balances, and the normal rules about reorganisations of financial assets preserving CGT value say that the initial CGT value of the free shares is the difference between them, i.e. zero. Or in other words, the acquisition cost of the free shares is zero.

I saw no reason why the same shouldn't apply to demutualisations of other mutual organisations, and I knew that some insurance businesses were mutual organisations (and indeed some still are). So that did seem to be a reasonably plausible reason for the shares in your case to have zero acquisition cost.

And a little bit of digging on Wikipedia said that Aviva was a renaming of CGNU, which was formed by CGU and Norwich Union merging in 2000. Chasing those further, I found that contains the sentence "In 1997, its bicentenary year, Norwich Union demutualised and floated as a public limited company on the London Stock Exchange." So there is a plausible-looking source for the odd, not very large number of shares acquired with no acquisition cost in May 1997.

I emphasise that all I can say is that it looks plausible. I'm not certain that my understanding of the Capital Gains Manual is correct even with regard to building societies; if it is, I'm not certain whether it extends to other mutual organisations as well, I don't know which mutual organisations that demutualised the owner of these shares belonged to, I don't know whether Norwich Union's demutualisation produced free shares, etc, etc, etc! I'm also pretty certain the HMRC material I very dimly recollect seeing many years ago is not the manual pages I've linked to above - it would have had to be in a much more easily-found place and written in a much more user-friendly way to have come to my attention back then! But I've not managed to find it again...

So treat what I've said about Norwich Union as a suggested line of enquiry, not a definite answer!

Gengulphus

[finkwot] 01/7/2019 21:45

Gengulphus,

Thanks. I've found some of the information I need, still looking for some.

I'm working from a list of Commercial Union share acquisitions from 1982 to 1997, giving number of shares, month of acquisition and total cost for each. What puzzles me is that one entry, for May 1997, gives only the number of shares acquired; the cost column is left blank. The totals of all shares acquired and of cost for the whole series of acquisitions have been added up carefully, with no allowance for the cost of the May 1997 acquisition. Apart from this, the record was prepared conscientiously (there are multiple pages of other records for other shareholdings; this is the only lacuna I've found). There are two possible explanations I can think of - either there was some complication and the person who kept the records was unsure how to calculate the cost, so left it blank intending to add it later, or for some reason he thought the cost was nil.

So my question now is, are there any circumstances in which shares can be acquired at nil cost for CGT purposes?

It's an odd and not very large number of shares, so I doubt it was a straightforward market purchase. There was a dividend payment in May 1997, so it might have been a scrip dividend. The value of the shares acquired is rather higher than the value of the dividend (it would add up if the share price had been 570p, but it was in a range either side of 700p in May 1997), but at the 1996 AGM a motion was proposed to allow scrip dividends to be paid at a higher level than the cash dividends (for reasons to do with Advance Corporation Tax). The example given in the 1996 proposal is for an increase of 25% over the cash level, which would give a price of 712.5p, so this may be a possible explanation for the origin of the shares. I don't believe it could justify an acquisition at nil cost, but it might explain uncertainty about what the correct figure was. However, the notes with the 1996 AGM letter have a fairly clear explanation of the tax implications, and the record-keeper has done much more complex calculations elsewhere without apparent difficulty, so I'm still puzzled. Also, I haven't yet discovered if there was in fact a scrip alternative for the May 1997 dividend, and if so, whether it was at a higher level than the cash dividend.

(edited 1 July 22.18)

[gengulphus] 24/6/2019 22:43

finkwot,

I'm afraid I can't really help with questions about the 31 March 1982 rule - it predates all my experience with shares (though only by a few years in the case of my small number of BT shares held ever since the first round of privatisation).

On historical prices, I do have copies of the CGNU annual reports for 2000 and 2001 - I've never owned CGNU shares, but I downloaded them from Aviva's archived reports page years ago when they were still there. (now the only trace left of that on seems to be the statement "Please note that all presentations before the Group's name change to Aviva plc on July 1, 2002 will be branded CGNU plc." at the bottom of a list whose earliest entry is dated in 2004...). Unfortunately, they don't contain anything about CGT - some companies make a habit of putting CGT information into an end-of-report "Shareholder information" section, but apparent not CGNU/Aviva.

Apart from that, the only thing I can suggest for a share price that long back is that I know that years ago, the London Stock Exchange ran a paid-for service called something like the Historic(al) Price(s) Service - I've used it once around 15 years ago. Whether they still do, whether its charges are reasonable if it does, etc, I'll have to leave you to investigate.

Gengulphus

[bunlop] 24/6/2019 19:56

That's a very helpful answer Gengulphus. Many thanks.

[gengulphus] 24/6/2019 18:23

bunlop,

I know the rules for matching share sales to purchases for CGT purposes. However I find myself with two brokers at the moment with some common holdings in both accounts.
I assume that for CGT purposes they are merged and treated as if I just had one account. Is this correct?

Yes.

And if by any chance you have certificated shares as well, they get merged in as well. Basically, all shares of any particular type that you own outside tax shelters get treated as a single holding for CGT purposes. Note that the type of a share includes both the company that it's in and what class of share it is, which might occasionally be relevant, as there are some companies that have multiple publicly-traded types of share, such as Royal Dutch Shell with both RDSA and RDSB shares, Schroders and similar companies with both voting (SDR) and non-voting (SDRC) shares, and various companies with both ordinary and preference shares.

Also note that it's beneficial ownership that counts, not legal ownership. That mainly matters for nominee accounts, where the broker's nominee company is the legal owner (essentially as trustee for you) but that doesn't let you off the CGT hook as beneficial owner, and for jointly-held shares, for which (typically) spouses own half of the shares each beneficially and so are responsible for accounting for half of the gains and losses each.

Gengulphus

[bunlop] 15/6/2019 19:22

I know the rules for matching share sales to purchases for CGT purposes. However I find myself with two brokers at the moment with some common holdings in both accounts.
I assume that for CGT purposes they are merged and treated as if I just had one account. Is this correct? Many thanks.

[finkwot] 15/6/2019 18:27

Is it true that to calculate CGT on shares acquired before 31 March 1982 I have to use the price on 31 March 1982? Is this obligatory even if that is to my disadvantage? Do I take the original costs of acquisition and add them to the share price on that date? Is there any simple way to find out share prices for that date? I hope it would be easier than for other dates in 1982.

Also, when did this rule come into effect? I ask because I'm working from notes prepared by someone else, and I don't know if he has recorded the original price at acquisition, or the 31/3/1982 price. If I can't find out the relevant price I may have to assume he already updated his records when the rule came in, but that depends when it happened.

Thanks in advance for help with any of this.

[finkwot] 12/6/2019 09:29

Before I write a long question about tax implications of corporate activity going back into the 1980s, is there anywhere online I can find an archive of RNS announcements going back to 1993?

Alternatively is there anywhere online I can find annual reports for Commercial Union, which disappeared under that name in 1998 and eventually became Aviva? The Aviva website is useless, and my email to them has been ignored.

Edit: I have had a reply but not yet any information - I'm hopeful it will be forthcoming.

[singh is king] 11/4/2019 17:55

Would appreciate a little help with the following.
Held shares in a company which was effectively taken over by the largest shareholder in May 2016.Incurred a significant CGT loss on the transaction.
Omitted to claim the loss when I did my CGT calculations for the 2016/17 tax year.
Would I be able to include this sale in my CGT calculations for the 2018/19 tax year or have I missed the boat here?

[rahosi] 21/2/2019 17:36

Could have died laughing....

[gengulphus] 20/2/2019 14:11

I think the best simplification of capital gains deferred by subscribing for VCTs (before 2004) is described in - but I'm in no hurry to use it! ;-)

Gengulphus

[rahosi] 20/2/2019 12:32

I thank you! I never understand why HMRC can't give an example of the simplest of situations! I just thought after all these years, since I wasn't using all my CGT allowance this year, to simplify my historic tax position.

Having said that, Trivest > IGV has been a spectacular investment.

Ralph

[gengulphus] 19/2/2019 17:53

Rahosi,

What you say looks correct to me, though I've never actually brought any of the gains I've deferred with VCT investments back into charge and haven't really looked at the rules for doing so properly since I made those investments. So my actual knowledge of the rules is at least about 15 years old, since CGT deferral relief for VCTs was abolished in 2004, apart of course from previously-deferred gains remaining deferred ever since.

I have however looked for HMRC material on the subject, and I'll mention the main source of it that I've found, which is and the pages it links to - worth mentioning just in case you haven't found them. I've skim-read them and as far as I can tell from that skim-read, they match your understanding and mine.

They look very complicated, but a lot of the complexity is due to them having to deal with a lot of unusual cases and vanishes if you disregard those cases. For instance, if you were to make a copy of them and cross out (or colour grey, or whatever other way you prefer of marking material as not relevant) everything to do with not having obtained Income Tax relief and/or CGT disposal relief on some or all of the shares, I suspect over half the text would go - and a lot more would go if you did the same with regard to companies losing their VCT status, being taken over by non-VCT companies, the investor transferring the shares to their spouse, emigrating, investing more than the limit in a tax year, being a director of the VCT, and other special cases that (presumably!) don't apply to you. What it boils down to without all that special-case stuff is very simple in comparison, and provided I haven't missed anything, does boil down to what you say.

Anyway, the net result of all the above is basically to say that I agree with you, but I'm not speaking from a position of vast experience on the matter. On this, regard me as someone with a similar amount of knowledge to you about the matter who has come to the same opinion, not as an expert!

Gengulphus

[rahosi] 18/2/2019 11:31

Gengulphus, can I please ask your advice on a VCT CGT deferral? Have read a lot of the HMRC VCT info and failing to comprehend. I invest in VCTs most years.

In Jan 2001 I invested £25K (£10K net) in Trivest VCT (now The Income & Growth VCT). This year I doubt I will utilise all my £11850 CGT allowance: probably ~£8250 unused.

Over the years I have received substantial dividends, but there was only an additional purchase in 2017, no disposals.

As far as I understand, simply, The original purchase has 40%, £8K CGT deferred tax which, If I sold the original FIFO quantity (adjusted by merger in 2010), would become taxable, but with no tax to pay as under my annual CGT allowance.

Have I got it right?

Thanks, Ralph

[gbh2] 30/1/2019 13:55

Many thanks for your reply,

Distaste it is, that's why I was wondering if the need was still there if all my trading was within a Share dealing wrapper.

[gengulphus] 25/1/2019 16:45

Well, tax shelters include not just ISAs, but also SIPPs (and others as well, but ISAs and SIPPs are the two types that most people can open). It's only when your investments are not in any of them that they become subject to CGT - it doesn't specifically have to be an ISA.

And the 4 x CGT allowance rule isn't a maximum on how much you're allowed to trade, it's just a requirement for you to complete more paperwork (or its online equivalent) if you go over it. What is stopping you from going over it is your distaste for that paperwork, not the rule itself.

By the way, I do think it's a very understandable distaste, and I'd probably let my similar distaste hold me back from going over the 4 x CGT allowance limit as well if I didn't usually need to complete SA108 anyway for other reasons!

Gengulphus

[gbh2] 23/1/2019 19:57

Outwith an ISA there's most certainly a x4 CGT max before the Tax office requires one to fill out a sa108, it's the reason I went into a Share dealing ISA.

[dcarn] 22/1/2019 22:55

To the best of my knowledge there are no HMRC restrictions on the number trades in any given year.

It may be possible that the provider may impose a limit but unlikly given they make their money from trade commission.

[gbh2] 22/1/2019 21:40

Would you please offer an opinion on the following question:

Having put ones maximum annual allowable amount into a Share dealing ISA is there any restrictions on the number of buy & sells one can carry out with that ISA during the financial year?

I ask because prior to having a Share Dealing ISA I had to limit the value of my total sells to a max of 4 x the CGT amount for that year or fill out a SA108.

[gengulphus] 19/1/2019 11:21

finkwot,

Incidentally, what counts as "enhancement costs" for a shareholding, or does that only apply to other types of asset?

I think that if one takes up a rights issue, one's payment of the subscription counts as an "enhancement cost" (which looking at HMRC's CGT worksheet, I should probably more properly have called an "improvement cost"). I've never seen HMRC say explicitly that it is one, but they're quite clear that it doesn't count as an extra acquisition, which can be relevant for the 30-day rule: if you sell shares on e.g. May 1st and then subscribe to a May 15th rights issue, the new shares you get from subscribing to the rights don't get matched to the sale. Specifically, their helpsheet is quite explicit about the facts that rights issue are share reorganisations, that share reorganisations don't count as acquisitions, and that the same-day rules and 30-day rules don't apply to share reorganisations. It also says that one should add the amount subscribed to the cost of the original shares, and gives an example (example 4) showing this being done at the date of the rights issue (*), not the date of the original purchase or anything like that (which almost certainly couldn't be made to make sense anyway in complex cases, given all the things that might have happened since the original purchase).

Anyway, that treatment of a rights issue subscription seems to me to be entirely consistent with the general treatment of improvement costs, and subscribing to rights is actually technically a matter of improving them from being 'nil paid' to being 'fully paid'. So I'm quite happy to treat rights issue subscriptions as improvement costs to the shareholding - but I can't say that HMRC have said that that's the right classification of them, nor that they've said any other classification is the right one. I'm quite happy to declare to them that the resulting tax returns are "complete and correct to the best of my knowledge and belief" - but the words "and belief" are definitely an important aspect of that!

(*) Though somewhat annoyingly, they're not clear about exactly which date it is. There are at least four different dates that it could be: the date the company becomes committed to the rights issue (which might either be the date it is announced or a later date when it ceases to be subject to shareholder approval and/or other conditions), the date the rights are split off from the shares (i.e. the shares go ex-rights and the rights come into existence), the date the shareholder actually commits to paying the subscription, and the date the rights issue closes. They're typically spread over at least a few weeks, and while the inapplicability of the same-day and 30-day rules makes the exact date much less likely to be important, it can still be so if it affects whether a share sale took place before or after the additions to the numbers of shares in and cost of the Section 104 pool.

I think the answer is that it's the date the rights are split off from the shares - but that's only because on detailed consideration of a quite a few hypothetical situations, it's the date that produces the most sensible (IMHO) results, not because I've found anything HMRC have said officially about the answer. But I'm not confident about that answer, since producing sensible results is by no means an infallible guide to questions about tax rules. So what I do in practice is give that date in my CGT computations, but carefully avoid making sales on the range of dates around a rights issue where the answer would make a difference to the CGT computations. I.e. the worst I get wrong in the computations is a date that is not the date of any capital gain/loss, not the amounts or dates of any gains/losses.

HMRC have never questioned me about any such dates, by the way, but I read very little into that, because the fact that CGT computations can be submitted in any format one feels appropriate very strongly suggests that they're only looked at by humans, not computers, and thus that they'll only be looked at at all if HMRC happens to pick one's tax return out for detailed examination by a human. There's definitely a nonzero chance of that happening, as HMRC pick some tax returns for detailed examination completely randomly - but their limited manpower means that it must be a pretty low chance.

Gengulphus