Your browser isn't supported
It looks like you're using an old web browser. To get the most out of the site and to ensure guides display correctly, we suggest upgrading your browser now. Download the latest:

Welcome to the MSE Forums

We're home to a fantastic community of MoneySavers but anyone can post. Please exercise caution & report spam, illegal, offensive or libellous posts/messages: click "report" or email forumteam@. Skimlinks & other affiliated links are turned on

Search
  • FIRST POST
    • MrWizard
    • By MrWizard 14th Mar 17, 9:22 AM
    • 12Posts
    • 1Thanks
    MrWizard
    S&S ISA acc to inc
    • #1
    • 14th Mar 17, 9:22 AM
    S&S ISA acc to inc 14th Mar 17 at 9:22 AM
    Hello,

    So i put some money into a S&S ISA. It is Vanguard acc. Typically afterwards i have one concern

    As with a acc all interest is reinvested. If my initial investment grows to a point I'd like to take it as income can i change it easily?

    Half of me thinks i did it wrong and should of taken an income account and picked reinvest option.
Page 1
    • talexuser
    • By talexuser 14th Mar 17, 9:34 AM
    • 2,169 Posts
    • 1,645 Thanks
    talexuser
    • #2
    • 14th Mar 17, 9:34 AM
    • #2
    • 14th Mar 17, 9:34 AM
    Depends on the platform you used. If each reinvest costs, then it is a waste of money if you don't need the money straight away. If it is free then it should not matter too much in the long term. But to change from acc to inc units should be painless and only cost one sell and buy trade.
    • dunstonh
    • By dunstonh 14th Mar 17, 10:50 AM
    • 87,315 Posts
    • 52,496 Thanks
    dunstonh
    • #3
    • 14th Mar 17, 10:50 AM
    • #3
    • 14th Mar 17, 10:50 AM
    As with a acc all interest is reinvested. If my initial investment grows to a point I'd like to take it as income can i change it easily?
    It can usually be changed easily. Conversion is easiest but not all platforms do that. So, switch can be used with those. If you go with a fixed regular withdrawal, then it doesnt matter if its inc or acc.
    Last edited by dunstonh; 14-03-2017 at 12:03 PM.
    I am an Independent Financial Adviser (IFA). Comments are for discussion purposes only. They are not financial advice. Different people have different needs and what is right for one person may not be for another. If you feel an area discussed may be relevant to you, then please seek advice from a Financial Adviser local to you.
    • jdw2000
    • By jdw2000 14th Mar 17, 11:35 AM
    • 415 Posts
    • 108 Thanks
    jdw2000
    • #4
    • 14th Mar 17, 11:35 AM
    • #4
    • 14th Mar 17, 11:35 AM
    I was once with TD. I wanted to change my Fund from ACC to INC. I had to sell and then re-buy. It could not be switched.
    • Sean473
    • By Sean473 14th Mar 17, 12:46 PM
    • 49 Posts
    • 22 Thanks
    Sean473
    • #5
    • 14th Mar 17, 12:46 PM
    • #5
    • 14th Mar 17, 12:46 PM
    Yup, you usually have to sell and rebuy from what I've read...Not worth the hassle, might as well get Income from the beginning.
    • bowlhead99
    • By bowlhead99 14th Mar 17, 12:52 PM
    • 6,197 Posts
    • 10,923 Thanks
    bowlhead99
    • #6
    • 14th Mar 17, 12:52 PM
    • #6
    • 14th Mar 17, 12:52 PM
    I was once with TD. I wanted to change my Fund from ACC to INC. I had to sell and then re-buy. It could not be switched.
    Originally posted by jdw2000
    Effectively, you were doing a "switch" because you were redeeming your money out of one fund and subscribing it into another (though processing that switch of money from one holding to the next might need to be a multi-stage process depending on how the platform chooses to set up).

    The distinction that dunstonh was making was between

    - switching your money between funds (coming out of one fund and going into another... which might be a manual or semi automated process depending on platform) versus

    - a "conversion" where (as long as the platform and manager both agree to accommodate it), the manager of the fund literally converts your ACC units into INC units in the same collective investment scheme and the units in the new class are a straight replacement for the old ones, handled internally for you by the manager.

    Assuming conversion requests are not an easy freebie on your platform, you would need to switch your ownership using the standard process on your platform of choice. Going out of and coming into the two different classes might or might not involve a fee and in some cases, a day out of the market while the platform provider waits to see what proceeds you got from redeeming before accepting an order of that amount to subscribe into the other class.

    But it's not a big deal and straightforward to arrange as and when you get to the point you want to take income. For now it saves you needing to reinvest income (and paying fees to reinvest income if your platform has those).

    With it being an ISA there are no tax consequences of disposing of one class of holdings and buying another.
    Last edited by bowlhead99; 14-03-2017 at 12:55 PM.
    • badger09
    • By badger09 14th Mar 17, 12:57 PM
    • 4,711 Posts
    • 3,897 Thanks
    badger09
    • #7
    • 14th Mar 17, 12:57 PM
    • #7
    • 14th Mar 17, 12:57 PM
    Hello,

    So i put some money into a S&S ISA. It is Vanguard acc. Typically afterwards i have one concern

    As with a acc all interest is reinvested. If my initial investment grows to a point I'd like to take it as income can i change it easily?

    Half of me thinks i did it wrong and should of taken an income account and picked reinvest option.
    Originally posted by MrWizard
    Who is your S&S ISA with? Which 'Vanguard' is it?

    Is it one of the Lifestrategy funds? If so, some platforms don't charge to buy & sell funds.

    If your platform does charge, another option would be to put new money into the inc version.

    Yup, you usually have to sell and rebuy from what I've read...Not worth the hassle, might as well get Income from the beginning.
    Originally posted by Sean473
    Hindsight is wonderful
    • coyrls
    • By coyrls 14th Mar 17, 1:44 PM
    • 747 Posts
    • 734 Thanks
    coyrls
    • #8
    • 14th Mar 17, 1:44 PM
    • #8
    • 14th Mar 17, 1:44 PM
    Hello,

    So i put some money into a S&S ISA. It is Vanguard acc. Typically afterwards i have one concern

    As with a acc all interest is reinvested. If my initial investment grows to a point I'd like to take it as income can i change it easily?

    Half of me thinks i did it wrong and should of taken an income account and picked reinvest option.
    Originally posted by MrWizard
    It seems to me that you've done it now and you don't want income yet. I would just stick with acc units until you do want to take income and make a decision then.
    • Rollinghome
    • By Rollinghome 14th Mar 17, 3:00 PM
    • 2,076 Posts
    • 2,263 Thanks
    Rollinghome
    • #9
    • 14th Mar 17, 3:00 PM
    • #9
    • 14th Mar 17, 3:00 PM
    With it being an ISA there are no tax consequences of disposing of one class of holdings and buying another.
    Originally posted by bowlhead99
    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? It seems a complicated area as outlined here: https://www.taxation.co.uk/Articles/2016/01/12/334184/readers-forum-trigger-event
    • MrWizard
    • By MrWizard 14th Mar 17, 3:45 PM
    • 12 Posts
    • 1 Thanks
    MrWizard
    My provider is HL and it is the VG LifeStratergy 100%.
    It's not a big deal as i will still gain money I'll just take it out when it's accumulated to what I'm happy with. I only put in 4k quickly before end of ISA year as an experiment before I open another fund, right now I'm a newbie as you might of been able to tell.

    I suppose I should always open an income account i didn't know you could reinvest into income account as in theory that turns it into a accumulation fund so why have that in the first place?
    • talexuser
    • By talexuser 14th Mar 17, 4:24 PM
    • 2,169 Posts
    • 1,645 Thanks
    talexuser
    so why have that in the first place?
    Originally posted by MrWizard
    Read the thread again. An income fund pays out for people who need the money now. An accumulation fund automatically reinvests for people who don't and want growth. If your platform charges for each reinvestment you get less from reinvesting an income fund compared with the same accumulation fund. Over many years it could make a reasonable difference.
    • bowlhead99
    • By bowlhead99 14th Mar 17, 4:40 PM
    • 6,197 Posts
    • 10,923 Thanks
    bowlhead99
    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?
    Originally posted by Rollinghome
    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.



    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.
    • Rollinghome
    • By Rollinghome 14th Mar 17, 5:42 PM
    • 2,076 Posts
    • 2,263 Thanks
    Rollinghome
    Some backstory:
    Originally posted by bowlhead99
    Thanks for that. I knew it was complicated.

    I asked because I was about to dispose of one of Mrs R's holdings to mop up her CGT allowance then found the earliest record shows it as a "switch buy" and I'm not too sure what it was switched from - more complicated because it was with a platform we moved from. Will have to do some more digging to make sure I've got the puchase costs right.
    • coyrls
    • By coyrls 14th Mar 17, 6:39 PM
    • 747 Posts
    • 734 Thanks
    coyrls
    Thanks for that. I knew it was complicated.

    I asked because I was about to dispose of one of Mrs R's holdings to mop up her CGT allowance then found the earliest record shows it as a "switch buy" and I'm not too sure what it was switched from - more complicated because it was with a platform we moved from. Will have to do some more digging to make sure I've got the puchase costs right.
    Originally posted by Rollinghome
    I think there would have been a capital gain / loss at the time of the "switch buy" and the purchase cost for the subsequent gain/loss calculation for the fund that you "switched" to would be the buy price of that fund at the time of the switch.
    • bowlhead99
    • By bowlhead99 14th Mar 17, 7:00 PM
    • 6,197 Posts
    • 10,923 Thanks
    bowlhead99
    Yes, however much money ended up in the new fund at the time of this "switch buy", would be considered the original purchase cost for purposes of CGT calc now - unless it wasn't any kind of "buy" and was simply a direct conversion by the fund manager of existing units in another class of the same fund with exposure to the same underlying assets.

    Hopefully her fund that you're selling is an Inc one so you can clearly see any additions/ reinvestments made into it over the years and won't have to go poring through paperwork or online reports to work out what dividends were accumulated and auto-reinvested inside the fund.
    • Rollinghome
    • By Rollinghome 14th Mar 17, 8:07 PM
    • 2,076 Posts
    • 2,263 Thanks
    Rollinghome
    I not sure yet what it is yet but that would help. It's an Acc and was with Fidelity/Cavendish who didn't give a running cost or gain figure and has 'Service fees Sell' and 'AMC Rebates' going in and out every month, transferred from pre-RDR to post-RDR accounts, before being transferred again to IWeb. I'll take another peak at it tomorrow. Thanks.
Welcome to our new Forum!

Our aim is to save you money quickly and easily. We hope you like it!

Forum Team Contact us

Live Stats

1,127Posts Today

6,416Users online

Martin's Twitter