Held Longer/Shorter than 4 Weeks

[Ironman 70.3]

I managed to pick up VW shares last week at 111 and hope to make a quick turn on them. i am a little confused about the 4 week rule.

If I held the shares for less than one month am i liable to be taxed at 41% Income and opposed to 33% CGT. I know if an asset is disposed off within one month at a loss it cannot be off set against losses but my question is does the alternative occur for profits?

 

[dub_nerd]

No, you only pay CGT on shares regardless. The only implication for you if you sell the VW shares at a profit within four weeks of purchase is that if you held VW shares from a previous purchase, the sale would be deemed to be of the recently purchased shares, not the original ones as would be normal under FIFO rules. There may be different implications if you sell at a loss (see below). I had reason to check out the four week rule myself recently in connection with a series of trades. Although the Revenue heading refers to "disposal of shares within four weeks of acquisition" it sneakily also covers "reacquisition of shares within four weeks of disposal". Here's the actual Revenue guidelines followed by the summary I wrote for myself to try to unpick it:

"Disposal of shares within four weeks of acquisition
The FIFO rules are modified in any case where shares of the same class are bought and sold within a period of four weeks. Where shares are sold within four weeks of acquisition the shares sold are identified with the shares acquired within that period. Furthermore, where a loss accrues on the disposal of shares and shares of the same class are acquired within a four week period, the loss is not available for offset against any other gains arising and instead is only available for set off against any gain that might arise on the subsequent disposal of the shares so acquired in the four week period - this provision does not apply where there is a gain on the disposal."

http://www.revenue.ie/en/personal/buy-sell/shares.html#section4

My summary:

The four week rule.

If shares are bought and sold "normally":

• gains are taxable at CGT rates,
• losses are offsettable,
• FIFO (first-in-first-out) rules apply.

EXCEPTION 1: Shares sold within four weeks of acquisition:

• deemed to be the same tranche of shares as purchased, no FIFO rules;

EXCEPTION 2: Shares sold at a loss and reacquired within four weeks of sale:

• Loss only offsettable against the reacquired shares

 

[Ironman 70.3]

Cheers Dub-Nerd,

i noticed the comment on tax statement for last year and wasn't sure. That explains it. Wont be selling the VW shares just yet. Think they'll get to 125 before I sell on. Thanks.

 

[Felics]

Hi Dub_Nerd
Could you elaborate on the sequence within the 4 week period - for example :
Day 1 - Buy 500 in XY corp at P1
Day 7 - Buy 500 in XY corp at P2
Day 14 - Sell 500 in XY corp at P3
No further transactions to Day 28
Is the gain/loss = 500 x (P3-P1) or 500 x (P3-P2)?
Many Thanks

 

[Silversurfers]

My understanding is if P3 is greater than P2, your cgt liability is on P3-P2.

If P3 is less than P2 and you do not acquire any more within 28 days of day 14, the loss can be set off against other gains, however if more are purchased within 28 days of day 14, the loss can only be set off against the future profitable sale of the final acquisition.

I am not a tax consultant and I am not giving tax advice.