The HMRC 30-day share matching rule explained

When calculating capital gains tax, UK investors have to allow for three important HMRC rules which affect the 'cost price' of the shares that you sold. The cost price is important because it is used to calculate the gain or loss...

The gain/loss is                NET SELL PRICE   -  NET COST PRICE

HMRC Order of Priority

HMRC identifies the COST PRICE of the shares that you have just sold in this strict order: 

1. Same-Day Rule: Cost of shares bought on the same day as the sale.
2. 30-Day Rule: Cost of shares bought in the 30 days after the sale.
3. Section 104 Pool: The average cost of all other shares you owned before the sale. 

The same-day and 30-day rule simply stops you from abusing the annual CGT allowance by selling your shares and then quickly buying them back again - thus crystalising a gain and using your tax free allowance. This was called 'Bed and Breakfasting'. Instead you need to wait 30 days before buying the same shares back again if you sold them just to use the CGT allowance

The Problem: "Bed and Breakfasting"

Before this rule, investors would sell their shares at the end of the day to "crystallise" a gain or loss for tax purposes and buy them back the next morning. This allowed them to:

• Use their annual tax-free allowance: They could trigger just enough profit to use up their yearly Capital Gains Tax (CGT) allowance, effectively resetting their "cost basis" to a higher level without actually leaving the investment.
• Manufacture artificial losses: They could sell shares that had dropped in value to create a tax loss to offset other gains, then immediately repurchase them. 

HMRC viewed this as a "pretend" sale because the investor never truly exited the market or gave up their stake in the company.

Some countries (not the UK) use a FIFO method to calculate the cost of the shares that you sell: e.g.

FIFO Calculation Example (not used in UK)
If you bought 100 shares in 2020 at £10 each, and 100 shares in 2022 at £20 each, and sell 100 shares in 2024 at £25 each:

• FIFO Method: Assumes you sold the 2020 shares (£10).
• Cost Basis: £10
• Gain Calculation: £25 (Sale) - £10 (Cost) = £5 gain per share.

In the UK however (not Republic of Ireland) we have these 'same-day' and '30-day' matching rule - we also average the cost price (or 'pool') of any shares bought previously if outside the 30 days.

Here is an example of how this can catch you out. Since you have a £3k gain allowance each year, you want to sell some shares and make £3k of gains and still pay no tax. 

Your plan is to sell some shares but then buy them back again...

30-day matching example: Impact on Capital Gains

Imagine you already own a "pool" of 500 shares bought years ago for £5,000 (£10 each). The current price is £25.

1. The Sale: On 22 March, you sell 200 shares for £5,000 (£25 each). You expect a gain of £3,000 (£5,000 sale - £2,000 original cost) to use your Annual Exempt Amount.
2. The Repurchase: On 29 March (within 30 days), you buy back 200 shares for £5,020 (£25.10 each).
3. The HMRC Match: Because you repurchased within 30 days, the 22 March sale is matched to the 29 March purchase, not your original £10 pool.
4. Revised Calculation:
• Sale proceeds: £5,000
• Cost basis (from 29 March buy): £5,020
• Result: A £20 loss, rather than the intended £3,000 gain.

Let us look at what cgtcalculator.com calculates when we buy just 7 days after the last sell...

Again a £20 loss in the 23/24 tax year. However, the overall CG is £3980 for the 200 shares sold.

Note that you haven't saved any CGT overall, because you will be more heavily taxed when you eventually sell the 300 shares you are still holding.

However, look what happens if there was more than 30 days before the buy... We will adjust the sell date

Now the overall CG is £5792 not £3980 for tax purposes.

However, in this  example we still hold 300 shares at the end and we will also be taxed on those 300 shares when we sell them, so overall we won't pay less tax unless we use the £3k CGT allowance.

So if you are selling just to use up your CGT allowance, you must wait 30 days before buying back the same shares - even if you are buying them back in a new tax year - e.g. sell on 29 March and buy them back on 8th April in the new tax year.

Example 2: Typical case when selling all shares and rebuying all shares within 30 days

Here we have a case where the share price goes up over several years. We buy shares at £10 and £15 and sell them later for £25 on 22/01. Now we buy the same shares again on 28/2 OUTSIDE the 30 days. In this example we eventually sell all the shares.

So we have to pay tax on £18500 of gains (assuming we have other trades and we are always over the CGT £3000 allowance).

Here we have the same transactions again but we have bought back the 500 shares WITHIN the 30 days...

As you can see it has made no difference to the overall Capital Gains we would pay over 2 years but the gain in 24/25 was 0 - we have pushed the gain into the next tax year by buying back the shares. Of course, we could have just never sold them in the first place!

Buying back some or all of the same shares within 30 days just pushes some of the gain or loss of that sale into the next tax year or whenever you eventually sell the remainder of the shares.

Taking advantage of the 30-day rule

If you realize you cannot afford the CG tax bill for a large sale you just made, buying back the shares within 30 days effectively moves the tax liability from the current year to whenever you finally sell the shares in the future.

The 30-day rule just prevents you from taking advantage of the CGT allowance when you buy the same shares within 30 days of selling them.

The simple way to work around this is to wait 30 days or buy a similar but different share. For example,  you could sell EQQQ and then immediately buy EQGB which is a hedged version of EQQQ.