Bed and Breakfasting (UK)
Bed and Breakfasting (UK)
The United Kingdom has its own version of the wash-sale rule, colloquially called "bed and breakfasting." It operates under the same principle as the US wash-sale rule—if you sell at a loss and repurchase within 30 days, the loss may be disallowed—but the mechanics and exceptions differ in important ways. UK investors using ISAs (tax-free accounts) and SIPPs (self-invested pension plans) have different constraints. Understanding the UK-specific rules is essential for British investors harvesting losses.
Key takeaways
- UK capital gains tax (CGT) disallows losses if you repurchase the same security within 30 days of sale; this is called bed and breakfasting.
- The key difference from the US rule: the window is 30 days after the sale only, not before and after.
- Share pooling under the "section 104 pool" or "matching rules" determines which shares you are deemed to sell; last-in-first-out (LIFO) is no longer allowed for equities.
- ISAs and SIPPs have their own CGT exemptions (ISAs are wholly tax-free; SIPPs are tax-deferred), changing the harvesting calculus.
- Investors can use substitute securities within the same sector or asset class, just as in the US.
How the UK 30-day rule differs from the US
In the US, the wash-sale window is 61 calendar days: 30 before the sale, the sale date, and 30 after. In the UK, the re-acquisition rule is narrower: you cannot repurchase the same or "substantially the same" security within 30 days after the sale. There is no lookback; a purchase 31 days before the sale does not trigger the rule.
This matters for harvesting strategy. If you anticipate a loss this autumn, you can purchase the security in late summer without fear of a wash-sale violation; you only need to avoid repurchasing the exact same security after you sell it at a loss.
Specifically, the disallowance applies if you sell at a loss and then reacquire the same or a "substantially identical" security between the date of sale and 30 days later. On day 31 after the sale, you are free to repurchase.
Share pooling and the matching rules
Before 2022, UK investors could use "bed and breakfasting" to select which shares to sell, similar to the US "specific identification" method. The investor could sell high-cost shares (realizing a larger loss) while holding low-cost shares, thus deferring the loss on cheaper purchases. In April 2022, the UK rules changed.
Now, capital gains on UK equities are calculated using the section 104 pool ("share pooling"), which treats all shares in the same security as a single blended pool. When you sell, you are deemed to sell the oldest shares first (FIFO rule), not the most expensive or most recently purchased.
Example: You own 100 shares of a FTSE 100 company, acquired at three times:
- Lot A: 40 shares purchased at £100 per share = £4,000
- Lot B: 30 shares purchased at £125 per share = £3,750
- Lot C: 30 shares purchased at £80 per share = £2,400
If you sell 50 shares at £75 per share today, you first sell Lot A (FIFO) entirely (40 shares × £75 = £3,000 proceeds), then 10 shares from Lot B (£1,500 proceeds), for a total of £4,500. Your loss is £4,500 − (£4,000 + £1,250) = £(750) on the first 50 shares.
You cannot elect to sell Lot B first (the highest-cost shares) to realize a larger loss. The pooling rule enforces FIFO.
This change reduced harvesting flexibility compared to the pre-2022 system, but it also eliminated manipulation risk. The rules are now more uniform and less prone to gaming.
Substantially identical security in UK context
As in the US, the rule forbids repurchasing "substantially the same" security. The IRS interpretation applies broadly to UK HMRC as well: different fund families, different indices, or different structures are acceptable substitutes.
Safe substitutions in the UK:
- Selling Vanguard FTSE All-Share (VUSA) and buying Ishares Core FTSE All-Share within 30 days.
- Selling an active UK equity fund and buying a passive FTSE 100 fund (same sector, different strategy).
- Selling a US total market ETF and buying a different US total market ETF.
Unsafe substitutions:
- Selling the same unit trust and immediately buying the same unit trust under a different name or within the same fund family.
ISAs and SIPPs: tax status changes the harvesting calculus
UK tax-free and tax-deferred accounts change the harvesting equation significantly.
ISAs (Individual Savings Accounts): These are wholly tax-free. Capital gains, dividends, and interest inside an ISA incur no UK CGT or income tax. Because the account is already tax-free, there is no loss to harvest. The concept of tax-loss harvesting does not apply to ISAs. If you sell a loser inside your ISA, the loss cannot be offset against gains or income outside the ISA, and it cannot be carried forward.
SIPPs (Self-Invested Personal Pensions): These are tax-deferred, not tax-free. Capital gains and income inside the SIPP are not taxed until you withdraw from the account (and then only as income, not as capital gains). For this reason, losses inside a SIPP are not currently deductible; they are deferred. Once you withdraw from the SIPP at retirement, you will owe income tax on the balance, but capital losses inside the SIPP do not reduce that liability. Tax-loss harvesting is not applicable to SIPPs.
This means harvesting is only relevant for investors with substantial holdings in taxable (non-registered) brokerage accounts in the UK.
Bed and breakfasting decision flowchart
Related concepts
Next
Whether you are in the US managing wash sales or in the UK managing bed and breakfasting, the strategy requires choosing substitute funds in advance. Substitutes must track similar—but not identical—indices or sectors, and they must be cost-efficient enough to justify the replacement. We turn now to the mechanics of selecting substitute funds.