A now-defunct method of avoiding UK capital gains tax (CGT) was ‘bed and breakfasting’ shares by selling and repurchasing them overnight.
In the olden days, you used to be able to sell enough of your long term share holdings to use up your annual CGT tax allowance for the tax year, and then simply buy them back the very next day.
Often people would do this bed and breakfasting at the very end of the tax year.
Like this, you could make use of your annual allowance without having to lose exposure to shares that presumably you wanted to hold (since you only sold them for the tax benefits).
No more bed and breakfasting CGT
Bed and breakfasting was a very easy way to stop moderately-sized gains from becoming liable for tax (provided you didn’t need to use your allowance elsewhere) but it’s since been stopped by tighter rules about when you can repurchase assets for the disposal to count as a taxable sale.
In short, you can no longer sell and then buy back the next day. Instead you must leave a 30-day period between buying and selling the assets in order to crystalize the CGT gain.
Not so much bed and breakfasting, as bed and hibernating!
There remain alternatives to bed and breakfasting that you can use to exploit the same principle of using up your CGT allowance, however.
For instance, there’s nothing to stop you selling one asset to use up your allowance and then buying something else with the proceeds.
You could sell a company’s shares you’ve made a good gain on, and then roll the proceeds into an index tracker. After 30 days you could sell down your holding in the tracker and re-buy the shares if they still looked good value.
I discuss other alternatives – such ‘bed and ISA-ing’ and ‘bed and spouse-ing’ – in my article on avoiding capital gains tax.
