‘Bed and breakfasting’ with shares

Produced by Tolley

The following Personal Tax guidance note Produced by Tolley provides comprehensive and up to date tax information covering:

  • ‘Bed and breakfasting’ with shares
  • Why was it used?
  • Current share matching rules
  • Using the spouse
  • Using a SIPP or ISA
  • Use an industry replacement

‘Bed and breakfasting’ was the pre-1998 practice of selling shares and repurchasing them the following day. This technique can still be used in a modified form to achieve capital gains tax (CGT) savings for current or future tax years using:

  1. a spouse / civil partner

  2. a self-invested pension plan (SIPP), or

  3. an individual savings account (ISA)

There are, however, anti-avoidance rules that need to be considered, as discussed below.

When considering planning of the kind discussed below, the usual health warning applies: you cannot give investment advice unless you are authorised to do so. See the Regulated investment advice guidance note. You can tell the individual about the tax implications of utilising the annual exemption by ‘bed and breakfast’ type arrangements but you must not recommend disposals of specific investments.

Why was it used?

Before the share matching rules were changed in 1998 (see below), the acquisition cost of the new shares were not connected with the disposal value of the old shares. The cost of the new shares was matched with the subsequent disposal of those new shares perhaps many years in the future. The exercise of buying and selling shares of the same company and class thus would achieve an uplift in the base cost of those shares for CGT purposes.

This ‘bed and breakfast’ procedure was frequently used at the end of the tax year by taxpayers who wished to:

  1. utilise their annual exemption for the tax year

  2. realise gains that could be covered by unused capital losses, or

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