UNCRYSTALLISED LOSSES

4th Apr '22 by WarrantStar

7 comments 496 reads

What is the best way to think about one's own uncrystallised losses?

Eg are they real losses or not? My view is that they are real.

Are they only temporary? My view is that they are only temporary if one has reasonable grounds to believe that the share price will recover to one's purchase price within a reasonable period of time. This may be the case if the share price has dropped due to overall market sentiment. However, if there has been a profit warning, then it would be necessary to consider the trading statement before making up one's mind about the prospects of the share price getting back to the prior level in a reasonable time.

Who agrees or disagrees with the above? Are there any other useful ways of categorising uncrystalissed losses which helps people decide what to do about them?

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Effortless Cool

4th Apr '22

From a wealth perspective, uncrystallised loses are real; from a tax perspective, they are not.

Apart from managing your tax expenses, I'm don't understand why you would want to do anything about them. A share is either worth holding at its current price or it is not. If the latter, then it is a sell, regardless of whether it has produced an historical loss or profit.

Revs8

I ask myself would I still buy the share at the lower price? If the answer is yes then hold or average down.
if the answer is no then sell.

Also ask what you’d do with the cash if you sold? If there is another share that has better prospects then maybe adjust your holding. Or do you want more cash to reduce risk?

WarrantStar

Thank you for your reply. It's exactly what I was hoping for ie a different (and better) way of looking at the situation.

Revs8. Thank you for your reply. Originally I was looking at this from the point of view of whether or not I should sell and thus crystallise my loss. I don't need the cash for any other purpose. I think I have my way forward now. I will decide to sell or not based solely upon my assessment of what will happen to the share price going forward from this point. Historical profits or losses will not play a part in my decision making.

Glad to have helped. I just wish that this assessment was as easy as I have made it sound:

"A share is either worth holding at its current price or it is not".

GrahamF

5th Apr '22

If the share in question is not held in a tax free wrapper, such as an ISA or a SIPP, then as EC says there are potential tax implications.

A typical situation for someone who has significant gains outside of these wrappers is when to crystallise those gains as you may well exceed your CGT allowance in doing so.

So, as you can offset losses against gains when calculating the amount of CGT that you owe, it can be beneficial to crystallise a loss in some tax years as you won’t incur all that loss if you can offset it against gains that you would otherwise have to pay tax on.

Thank you for your reply. As it happens I am very fortunate that all my investments are in an ISA.

UNCRYSTALLISED LOSSES

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WarrantStar

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