Hypothetical question about CGT B&B rule

[minnow]

Hello all. This question is probably going to sound very random, but i've been trying to brush up my knowledge of the UK's CGT rules and this is something I find very puzzling. Hoping the Lemon Fool hive-mind can come up with something

Imagine you sell 10,000 shares of XYZ corp and buy them back in a couple of weeks. Under the 30 day CGT rule, I know that the sell should be matched with the subsequent buy (preventing naughty taxpayers from making use of their CGT allowances).

Question : what happens if there's a share reorganisation between the sell and the buy ? Suppose for example that there's a 5:1 share split. On paper, I sold 10,000 shares (pre-split) and then bought back 2,000 (post split). How do the B&B rules cope with this scenario ?

I have some ideas about how to deal with this situation, but I've been looking in vain for an actual worked example. HMRC's rules are disappointingly vague on this question. Has anyone had experience of this sort of thing ?

[pochisoldi]

Question : what happens if there's a share reorganisation between the sell and the buy ? Suppose for example that there's a 5:1 share split. On paper, I sold 10,000 shares (pre-split) and then bought back 2,000 (post split). How do the B&B rules cope with this scenario ?

Capital gains deals with gains and losses - i.e. money.
Look at total proceeds and total costs, then use those figures to calculate the gain.

The fact that there may have been a share split/merge in the meantime is not relevant - the pre and post split shares match each other for CGT purposes. Or put another way a share split/merge does not give any advantage/disadvantage when it comes to capital gains.

PochiSoldi

[minnow]

Thanks PochiSoldi. Sorry if I'm being dense, but which of the following would you agree with ?

(1) the 10,000 pre-split sells should perfectly match with the post-split 2,000 buys, -- or --
(2) only 2,000 of the pre-split sells should match with 2,000 post-split buys, leaving 8,000 unmatched sells to be matched against the S104 pool later

Method (1) seems more reasonable to me because, assuming no market move in the meantime, costs and proceeds should be evenly matched. But for this to work, the B&B matching rules have to "understand" that a split occurred in the middle of the period (ie that five old shares are equivalent to one new one). And I can't find any explicit mention of this in HMRC's CGT manual.

Does my question make sense ?

[genou]

(1) the 10,000 pre-split sells should perfectly match with the post-split 2,000 buys, -- or --
(2) only 2,000 of the pre-split sells should match with 2,000 post-split buys, leaving 8,000 unmatched sells to be matched against the S104 pool later

Method (1) seems more reasonable to me because,

I'm pretty sure (1) is the correct answer, just because it should be. I'm not going to trawl through the legislation, but have a look here - https://www.gov.uk/government/publicati ... x-purposes

3.2 addresses a bonus issue rather than a split, but the principle should apply.

[minnow]

Thanks genou. You had me excited there for a minute (well, as excited as I suppose you can get about tax rules !) 3.2 is close to what I'm asking, but unfortunately the example doesn't address what happens if you had actually bought back some of the 200 shares that were sold on 4 Feb, immediately after the rights issue.

Anyway, I won't go crazy with this, just wanted to make sure I wasn't overlooking something obvious. I agree that (1) is the most reasonable-sounding approach, so I'll go with that.

thanks for the help !