Selling enough shares to make a profit of 1270 and then buying them back straight away?

P

PaxmanK

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I have made some money from shares this year.
I dont really want to sell what I have, but should I sell enough shares to make a profit of 1270 and then buying them back straight away before the end of the year, to avoid CGT and start the clock again?
 
There's nothing stopping you -- the "four week rule" only applies to shares sold within four weeks of acquisition, or repurchased within four weeks of selling at a loss. You'll save €1270 x 33% in CGT, although relative transaction costs might be higher for such a small sale and repurchase. Sounds like a good idea to me.
 
This is standard practice in the UK, where the exemption is £11,300 (yes, £11,300), making such planning far more important.

Ireland is a ridiculously high-tax jurisdiction unless you’re a corporate.
 
Anyone fancy doing a short Key Post with examples on this as it's come up a few times?

I had mistakenly thought that selling and buying back the same shares immediately to use up the annual allowance was no longer allowed. I thought you would have to sell, say Ryanair shares and buy, say Kerry Foods.

Brendan
 
Gordon Gekko said:
This is standard practice in the UK, where the exemption is £11,300 (yes, £11,300), making such planning far more important.

Ireland is a ridiculously high-tax jurisdiction unless you’re a corporate.
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maybe the ridiculously low cgt allowance in ireland made the financial crash here much worse. Many people might have sold many more of their bank shares back in the early 2000s if they had of been allowed £11300 tax free as in uk. Id say people avoided selling them earlier as they didnt want to pay the capital gains tax then.
 
Brendan Burgess said:
How much was the CGT rate back then? 20%?

Hardly a deterrent to selling.

Brendan
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It was less of a deterrant than today's 33%, but many people then were sitting on substantial capital gains that they did not want to crystallize even to pay 20%. It is engrained in the irish psyche to avoid paying tax. In Uk you would have political lobby to voice concerns like this, can you imagine an irish politician standing up in the dail to campain for increase in cgt allowance, he would be torn to threads.
 
llgon said:
How would people selling bank shares have helped to alleviate the financial crash?
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I think that the poster is saying that had shareholders been able to de-risk to the tune of €11k a year, they mightn’t have been as badly burned.

Which is an astute observation in my view.
 
The poster has said that the CGT rate may have made the financial crisis much worse. I don't see the link.

Obviously individual shareholders would not have been as badly burned if they had de-risked. This is different and the main reason for holding on to the shares must have been that they thought they were a sound investment. Did anybody keep their shares so they would have less/no CGT to pay in the event of a crash?
 
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The poster referenced the CGT allowance (€1,270), not the rate (33%).
 
And how may the allowance have made the financial crisis in Ireland much worse?
 
llgon said:
Thanks for the reply but I can't see it. Must be too astute for me.
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If ireland had a cgt free allowance of 11000 like uk, then people with substantial holdings in for example bank of ireland in excess of 100000 euro might have been selling their bank of ireland shares throughout 1990s and 2000s and invested it in other shares and therefore not have been so badly hit by the crash. For example in 2007 I own 100,000 worth of boi shares, i have a capital gain of maybe 60000 or more on paper which was common.
If i sell all my shares I have a cgt liability of (60000 *20% - 1270) which is 10730 euros, therefore that was a powerful disincentive not to sell my shares. Even when the shares started plummetting in 2008 I probably would not sell as psycholigically i have already suffered a big loss and by selling now I also have a cgt liability (as they had not fallen so much then to wipe out the capital gains), therefore most people sat on their hands hoping it would all calm down. However in the uk many more people would have been selling their shares much earlier on the way up and down using up their 11000 cgt allowance.

I apologise for going off topic again
 
I understand where you're coming from but I don't think your own personal loss and those of similar investors contributed at all to the financial crash here although your loss was certainly a consequence of the crash. Your original point was that the allowance may have made the crash much worse.

I know a couple of people similar to yourself who had a high proportion of their savings/wealth invested in bank shares and I have great sympathy for their huge losses but this is a different point to the one made originally. The reason they had so much invested is that they thought the bank shares were a safe bet. That's why they had built up such an investment portfolio and 'de-risking' was not on the agenda. That obviously changed in 2008 when the shares were plummeting. At that stage I don't believe a higher CGT allowance would have made much difference to individual's outcomes.
 
No, people sometimes seem to assume the rules in Ireland are the same as in the UK. They are not. In the UK there is rule that applies to the repurchase of shares with thirty days of disposal whether you made a gain or a loss. The Irish four week rule only applies to shares on which you made a loss. It means that the loss can only be offset against future gains on shares of the same class. If you sell at a gain in Ireland there is nothing stopping you from repurchasing immediately.

This should also not be confused with the other four week rule in Ireland, which applies to shares sold within four weeks of purchasing. In that case, the shares sold are identified with those purchased for the purposes of calculating a gain or loss. FIFO rules do not apply.

To summarise:

  • Under normal circumstances FIFO ("first-in-first-out") rules apply -- the shares you sell are identified with shares of the same class that you have bought, in the order that you purchased them. Gains and losses can be offset among disposals of shares of any class.
  • If you sell shares within four weeks of buying them, the sold shares are identified with the ones you have just purchased and FIFO does not apply. Gains and losses can still be offset.
  • If you buy shares within four weeks of selling them, any loss on the sold shares can only be offset against future gains on shares of the same class. This only applies to losses: if you made a gain instead of a loss there are no implications.

There is an explanation of the Irish situation here (which answers the OP's question). The UK situation is discussed here and here.
 
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