B&B offers the cosiest option
Avoid tax on your assets by selling them now and rebuying on 1 April
Your support helps us to tell the story
From reproductive rights to climate change to Big Tech, The Independent is on the ground when the story is developing. Whether it's investigating the financials of Elon Musk's pro-Trump PAC or producing our latest documentary, 'The A Word', which shines a light on the American women fighting for reproductive rights, we know how important it is to parse out the facts from the messaging.
At such a critical moment in US history, we need reporters on the ground. Your donation allows us to keep sending journalists to speak to both sides of the story.
The Independent is trusted by Americans across the entire political spectrum. And unlike many other quality news outlets, we choose not to lock Americans out of our reporting and analysis with paywalls. We believe quality journalism should be available to everyone, paid for by those who can afford it.
Your support makes all the difference."Bed and Breakfast" is the stock market's traditional and colourful description of the technique for postponing, and possibly reducing, an investor's liability to capital gains tax.
It only works if the investor has not yet cashed in gains up to the annual limit, which goes up from pounds 6,000 in the current year to pounds 6,300 in 1996- 97, but the investor has made gains that are likely to exceed the annual allowance when they are eventually taken.
If so, it can pay to sell assets to crystallise gains up to the limit in the current financial year and to buy back the assets as soon as trading resumes in the next financial year.
Investors pay the cost of buying and reselling the shares but that establishes a new base price for the assets and reduces the size of the gain on which you may eventually be taxed.
Two points are worth remembering. CGT is due only on the difference between the purchase cost and the sale proceeds, so a disposal at pounds 20,000 is not liable if you paid more than pounds 14,000, but a sale at pounds 12,000 is liable if the cost was under pounds 6,000. And if you trigger liability to CGT, only the excess over the pounds 6,000 threshold is taxable.
Realised gains can also be scaled down by diluting the nominal profit by the rise in the retail price index since the assets were acquired, or a base date of 1982 if they had been held before then.
Bed and Breakfasting is unlikely to be relevant to small investors who are unlikely to want to cash in their entire holdings in one go. It could, however, be worth considering if there is a possibility you may have to realise an entire small portfolio of privatisation stocks in any one year - to cope with a sudden redundancy, for example - in which case a bill for CGT would add insult to injury.
Small investors could also be interested in a new version of Bed and Breakfast, known as Bed and PEP, which allows anyone holding shares outside a PEP to sell them and immediately buy them back inside a PEP wrapper where they will become tax-free. Some brokers are offering special cheap deals to do the deed.
Join our commenting forum
Join thought-provoking conversations, follow other Independent readers and see their replies
Comments