With potential Capital Gains Tax (CGT) changes on the horizon, many investors are thinking about realising gains on their investments before the budget announcement on 30 October 2024. However, if you plan to repurchase the same investments afterwards, it’s crucial to understand the “bed and breakfast” anti-avoidance rules to ensure you’re acting within both the spirit and letter of the law.
These rules prevent individuals from realising a capital gain, selling shares, and then repurchasing the same shares within 30 days to create an artificial tax advantage. If this happens, the shares bought back will be matched with those sold, and the capital gain you’re trying to realise could be negated, as the base cost of the shares would remain the same.
For example, if you bought 1,000 shares in Company A for £2 per share several years ago and sell them on 29 October 2024 for £4.50 a share, you’d realise a gain of £2,500. This gain may be covered by your 2024/25 annual CGT exemption if it hasn’t been used yet. However, if you repurchase the same shares on 5 November 2024 for £4.45 per share, you’d instead generate a £50 capital loss, and the base cost of the shares would remain at £2 per share due to the 30-day rule. This eliminates any tax advantage that would have come from manipulating the timing of transactions.
To avoid any unintended consequences, and in keeping with ethical tax planning, it’s better to consider alternative strategies, such as purchasing different shares or using your ISA or pension fund, where CGT does not apply. For couples, another ethical option could be for your spouse to purchase the shares (“bed and spousing”) without exploiting loopholes.
We always encourage responsible and ethical financial strategies that comply fully with UK tax law. If you’re concerned about CGT changes or want to discuss ethical ways to manage your investments, get in touch with our team for expert guidance.