Bed & Breakfasting Shares

5th April 1998

On 5th April 1998 the Chancellor introduced new share matching rules, which restrict the ability of individuals and trusts to ‘Bed and Breakfast’ their quoted shares.

The new rules require a sale of shares, or other security, to be matched with acquisitions in the following order:

  • Same day acquisitions,
  • Acquisitions within the following 30 days (on a first-in first-out basis),
  • The “Section 104” holding (all other acquisitions, pooled).

“It is the second of the above rules which stops the traditional Bed and Breakfasting transaction from now working, and clients should take care not to be caught out by this rule unknowingly”, commented private client tax partner Barbara Nicholas. “Clients can quite easily sell some shares, then buy them back within 30 days, not realising that the latter purchase is matched against the sale”. In some situations, this rule can be utilised to a client’s advantage, to shelter what was thought to be crystallised gains, or to create a capital loss. Although the traditional form of Bed and Breakfasting shares is no longer possible, it can still be achieved by use of a self select ISA, by one’s spouse repurchasing the stock or by creating a trust.



 
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