How to deal with taxes when selling portions of your portfolio (for example, accumulating ETFs)?

[tax_moron]

These are all hypothetical numbers.. I'm just hoping to better understand how all this works from a taxation perspective.

For simplicity sake, we'll just use CSPX for this example, an accumulating ETF so no dividend taxes to worry about.

If we make several arbitrary purchases of this over a couple of months such as:

- January 2019 buy 10: €2,050 @ €205
- February 2019 buy 15: €3,555 @ €237
- March 2019 buy 10: €2,400 @ €240
- July 2019 buy: 14 €3,612 @ €258

Total invested: €11,617.

Lets say we want to sell 12 today (12/12/2019) @ €279: €3,348.

How do you go about calculating what tax is payable at this point? Considering you have sold more that the first transaction made in January. Would this calculation be the correct approach?

- Is it a first in first out approach?
- Well the 10 from January are worth €2,790 now, so the €740 gain is taxable.
- In addition to 2 from February are worth €558, so we take the original cost from this (which would be 2 x 237 = 474), leaving us with €558 - €474 = €84
- So totally: €740 + €84 = €824 taxable at 41% (€337.84 tax to be paid).

Would appreciate any guidance on this, and please let me know if this is the correct approach or not?

 

[jpd]

You have two options - FIFO or Average cost

The FIFO option is the simplest to account for and I would recommend that you use it

So your calculations above are correct

 

[tax_moron]

Thanks jpd, that's what I was hoping.

One or two other queries related to the 8 year settling tax, so lets say we leave the rest for the remainder of the 8 years.

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Hypothetically, the price on the day of the 8th anniversary in February 2027 is €400
- So the total valuation of remaining 13 (already sold two from the example above) from Feb 2019 would be: €5,200

Question: Do I calculate the tax to be paid based on the price on the day of the 8th anniversary?

Which would be:
- Initial cost for 13 @ €237 is €3,081
- Anniversary price minus the initial cost: €5,200 - €3,081 = €2,119 profit, taxed @ 41% = €868.79 tax owed

The second question(s) I have relates to leaving the investment untouched. I understand I don't need to actually sell the position to pay this, so lets say I leave it as be, and pay the €868.79 tax owed out of my pocket.

Question: If I leave these 13 shares from February for 8 more years, do I use the €400 as the initial price when calculating tax moving forward on the next 8th anniversary (in February 2035)?

Question: Or if I sell some of my position, lets say 10 years after the initial investment (2 years after paying the tax due from the 8th anniversary), do I use the €400 price from the anniversary tax as my base for calculating the tax similar to the first example in my original post?

Thanks for any help and guidance, it is greatly appreciated!