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While watching the lectures, I came to know that disposal of shares are matched against acquisitions in the following order-
1 – Shares acquired on the same date
* 2 – Shares acquired within 30 days following the sale *
3 – Shares from share pool
But I didn’t understand that why did they introduce such a weird rule of matching acquisitions against shares acquired within 30 days FOLLOWING the sale. (Rule 2)
Thanks in advance
Firstly of course, tax is a series of rules made up by individuals and which change from time to time and hence do not always have a why, they just are! You will never be asked why – just to do!
In this situation however the rule was introduced to stop the then well used technique of “bed and breakfasting” as it was known.
As you know every taxpayer has an AEA available each tax year, which if you don’t use it – you lose it! Therefore taxpayers with a portfolio of quoted shares (readily saleable assets) that had increased in value and the taxpayer wanted to keep those shares longer term, could sell off sufficient shares at the end of one day to crystallise sufficient gains to utilise their AEA and buy the shares back again at probably the same price on the market the next morning – hence bed – sell – and breakfast buy back. The acquisition had to be the following day because of the first rule matching acquisitions and disposals of the same day.
You can still bed and breakfast but you’d have to stay in bed for 30 days during which time the share price might fluctuate considerably!
Thanks a lot, sir. 🙂
Yes, sir. Now I understood that I won’t be asked but actually in the lecture, you told that you would give the reason. I watched the whole lecture but I guess you forgot to give the reason.
Your explanations are very good sir. Thanks.