ISAs, Funds and Tax

RubyBish

I have used up my isa allowance this year.
I want to buy some more funds.

1.) Do the fund supermarkets send you a statement of gains relating to CGT exposure annually?
2.) Is it worthwile to keep income funds in the ISA and growth funds outside the ISA for more tax efficiency (assuming capital gains will be below theshold)?
3.) Is it worthwhile realising gains? i.e. When approaching the CGT theshold, selling your holding and then rebuying. I assume the initial fee could be less than the tax.




Apologies if this should be in the Cutting Tax forum but it relates to both.

dunstonh

1.) Do the fund supermarkets send you a statement of gains relating to CGT exposure annually?

You will get a statement but it is upto you to monitor your own gains in relation to CGT.

2.) Is it worthwile to keep income funds in the ISA and growth funds outside the ISA for more tax efficiency (assuming capital gains will be below theshold)?

If you are a higher rate taxpayer then yes. Otherwise there is nothing in it.

3.) Is it worthwhile realising gains? i.e. When approaching the CGT theshold, selling your holding and then rebuying. I assume the initial fee could be less than the tax.

Yes it is. Although some of the fund supermarkets will allow you to transfer £7000 of the unit trust/oeic into the ISA on an annual basis at no cost whatsoever. This would in itself act as a disposal for CGT purposes.

Chrismaths

3.) Is it worthwhile realising gains? i.e. When approaching the CGT theshold, selling your holding and then rebuying. I assume the initial fee could be less than the tax.

Dunstonh plan for transferring into an ISA (called 'bed and ISA') works well, but simply selling on one day and buying the next day doesn't. You have to wait 30 days before rebuying (or buy a similar, alternative fund).

RubyBish

Yes it is. Although some of the fund supermarkets will allow you to transfer £7000 of the unit trust/oeic into the ISA on an annual basis at no cost whatsoever. This would in itself act as a disposal for CGT purposes.

Thanks dunstonh.
Would a simple switch into another fund, still outside an ISA also count as a disposal?

Dunstonh plan for transferring into an ISA (called 'bed and ISA') works well, but simply selling on one day and buying the next day doesn't. You have to wait 30 days before rebuying (or buy a similar, alternative fund).

Thanks Chrismaths.
Is this an Inland Revenue ruling preempting this CGT avoidance specifically?

EdInvestor

Dunstonh plan for transferring into an ISA (called 'bed and ISA') works well, but simply selling on one day and buying the next day doesn't. You have to wait 30 days before rebuying (or buy a similar, alternative fund).

Some people do "bed and spousing" to get around the 30 day rule.

Chrismaths

Yes, Gordon Brown did away with 'bed and breakfasting' (selling one day to buy the next to realise capital gains) as soon as he came to power. The way it works is that they match the sale of shares with the purchase within 30 days, so if you buy something for 5000, sell it for 10000 (realising a 5000 gain), then buy back the same share within 30 days for 10000, they match the sale with the later purchase, so you have not realised your gain. It's a pain, and if you are rich enough you can get around it using CFDs ([STRIKE]which are not liable to capital gains tax[/STRIKE]). Typical Brownite complexity and pointlessness.

cheerfulcat

Chrismaths wrote:

if you are rich enough you can get around it using CFDs (which are not liable to capital gains tax.

You don't need to be particularly rich to use CFDs - anyone can deal in them. But they are liable to CGT.

Chrismaths

Sorry, you're right. Was thinking of spread bets. The point I was making about being rich was that a) you have transaction costs. These melt into insignificance when you are talking a large gain. b) your average investor doesn't know about the tax usage of derivatives - where as most richer people have advisers to guide them through the use of such things.

So capital gains tax can become largely voluntary - and then there are EISs for deferring realised gains if necessary. Nice simple tax system we have in this country....