S&S ISA acc to inc

Rollinghome wrote: »

BH, should we understand from that that outside of an ISA there would be tax consequences or that in some circumstances there could be tax consequences?

Some backstory:

Shares or units in different classes of the same collective investment scheme are considered separate financial instruments, as per the CGT manual maintained by HMRC.

As such, when you redeem out of a share class and buy another share class of a collective investment scheme, that's a disposal and a purchase of something different, which might create a capital gain or capital loss, either of which might be useful, or bad, for your personal circumstances at the time.

If a fund manager re-organises a fund's capital structure and gives all the investors new shares instead of old shares, just like a listed company might do when converting its 5p ordinary shares into 5x new 1p shares for example, the new shares simply replace and take on the base cost of the old shares for CGT purposes and there is no disposal event.

It was clarified by HMRC around the time of RDR that this general concept applied to funds so that if the fund manager decided to convert all the "dirty" units of a fund into "clean"-priced units fur all their investors, it wasn't going to cause some massive CGT event for everybody even if the new holdings were separate instruments from what they had before. It is a capital reorganisation not a disposal or deemed disposal and purchase.

So, that sort of thing is all fine. But of course many fund managers weren't going to do a massive change of all their investors at the same time to accommodate RDR They would do it piecemeal for batches of investors at a time, or even for individuals on an ad hoc basis, which is not obviously a general capital restructure of the entity because not all the investors are participating or being invited to participate in those individual "conversion" transactions on those specific dates.

So, the regulations were rewritten around that time, to specifically accommodate the situation where an investor or group of investors have the manager convert their holding from one share class to another but the investors are left with basically the same underlying assets after as before, except for some difference which is purely administrative in nature (such as for example a different management fee arrangement, dirty to clean).

They had to add that exception into the rules because the default position would have been it was not a proper capital reorganisation and so could cause a CGT event to be triggered. But with the new rules in place, it is clear that managers can do individual conversions between classes without triggering CGT deemed disposals, if the class change is giving you substantially the same underlying assets and profit rights exposure with the difference in class name and price per shares being just due to an administrative difference.

Another example of an "administrative difference" between classes that isn't a management fee one, would be same underlying assets and right to profits except one physically pays out its net income as dividends and another internally retains it.

So, from the above long winded backstory you can see that due to the special exceptions in the rules, if you ask the manager to convert your interests in one class to another, and he does, you have no CGT consequences to worry about.

However, if the manager doesn't support that or the platform you are on doesn't allow you to even ask the manager to accommodate your request, you would have to do a "switch", involving a request via your platform administrator to redeem your existing holdings and then subscribe to newly created holdings in a different class.

Whether that happens same day or over a period of a few days, it is clearly not the situation of a manger converting your interests from one form to another. So, the exception does not appear to apply and you will have difficulty finding another exception that does.

So, to answer your question: outside of an ISA there would be tax consequences in some circumstances, such as choosing to sell a financial instrument such as fund X accumulation version and buy a different financial instrument called fund X distribution version. In the circumstances where the manager simply exchanged your existing accumulating shares for distributing shares, there's no tax consequences.

It seems a complicated area as outlined here: https://www.taxation.co.uk/Articles/2016/01/12/334184/readers-forum-trigger-event

I have written about this topic before here with links to relevant legislation that people were discussing in the past. I haven't got a lexisnexis taxation account so can't see how they answered the question on your link but if it is different to how I explained it, let me know and I'll do a free trial registration later to take a look.

One reason discussions about practical or controversial tax matters are often held behind paywalls and membership is because (a) tax advice is not cheap to create and (b) if you have a particularly good and simple practice to aid your clients' affairs, you do not want Martin Lewis's team of canny consumer champions putting a headline in the newsletter saying "get around anti-bed and-breakfasting rules by flipping your Acc shares to Inc for 32 days a year", nor the Daily Clickbait's 'journalists' publishing "How the Rich Disregard our Tax Rules with this One Neat Trick".

Because anything that goes out for mass attention in the public consciousness will eventually go across the desk of someone at HMRC who will say "hey, you know we said there might be unintended consequences of our last rule changes, well it seems every man and his dog is gaming the system with this Inc vs Acc stuff these days, couldn't we just stop it in its tracks and raise more revenue with a couple of lines of regulation changes?".

So, not much is published in the way of hard clarifications from tax professionals perhaps because of killing the golden goose. Why even ask HMRC to explicitly clarify the position if it is unclear and your gains from one result over the other are only modest so you don't have much to lose if challenged about a particular year's return? Better to have your tax advisor document your defensible personal position in case of later HMRC query and not talk about it much in public, let other people get their own advisors and find their own tax plans.

As such, maybe I have said too much but I expect this thread will get buried shortly as they usually do.