When it comes to tax it's often a good idea for married couples to combine their non-taxable allowances.

For many years there was a practice in the stockmarket carried out at the end of the tax year called 'Bed & Breakfast' share dealing. The strategies aim is either of the following -

1. To lessen tax paid on capital gains, or
2. To maximize losses so tax paid on capital gains from other investments will be reduced

Bed & Breakfast With Selling Shares Is A Simple Idea

The tax year in the UK always finishes on the 5th April and the new one starts the following day. 'Bed & Breakfasting' share deals means you would sell the shares before the 5th April, then repurchase them on the 6th, the start of the new tax year. The following is an example of how it works.

If The Investment Is Profitable

Assume you have made no other capital gains on any other investments (stockmarket or not) in the current tax year.

• Everyone has a tax-free capital gains tax allowance (currently around £8,500)
  
  
• You may have bought some shares which have done well but have no reason to sell them as you expect the price to continue higher
  
  
• To bed & breakfast, sell the shares (or part of them) on the 5th April to crystallise a profit (under £8,500) which uses up your CGT allowance, then repurchase the shares the next day
  
  
• Following this strategy is smart personal finance

If The Investment Is Losing Money

• If you bought some shares and their value has gone down then sell them (on the 5th April) to crystallise a loss which can then be offset against capital gains made on other investments
  
  
• For example, if selling the shares results in a loss of £5,000 you would now have a CGT tax-free allowance of £13,500 (£5k + £8.5k)
  
  
• The shares would then be repurchased on the 6th April

The Inland Revenue Has Banned Bed & Breakfast Trades

However, the Treasury woke up to this tax planning tricks and so threw a spanner into the works. Now if an individual sells shares on the 5th April and repurchases them within 30 days they are judged to be a 'self-cancelling transaction'.

But an ‘individual’ is not a couple.

Use Your Wife Or Husband For Tax Planning

There’s nothing to stop a husband and wife teaming up to carry out these sorts of strategies. Here's one simple example of how it might work –

• The husband has made a tidy sum on Sainsbury's shares but wants to keep the investment
  
  
• He therefore sells the shares on the open market on the 5th April to make say a £6,000 profit
  
  
• His wife then buys the same number of shares on the open market on the 6th April
  
  
• Then if the husband wants the shares back in his name the opposite trades are done 31+ days after the tax year end (wife sells – husband buys)
  

There is a small risk with Bed & breakfast stockmarket trading in the price of the shares in question might open higher on the 6th April (they can also open lower). But unless they rocket in price the costs involved are immaterial versus the money saved via paying out tax.

Conclusion

Bed & Breakfast share dealing is still very much possible if you're married. The strategy is as simple as the above but as ever when it comes to tax planning it’s always a good idea to run your ideas past an accountant or tax planner.

See Also