CGT on switching to new clean fund classes

koru

In many cases, many of us would be better off switching existing fund investments to the new clean versions of the same funds, because the AMC is typically 0.75% lower (because the clean class does not pay commission). However, does anyone know authoritatively whether selling the old class and immediately purchasing the same amount of the new class would trigger a gain for CGT purposes? Apparently, HMRC has issued guidance on this, but I spent an hour googling for this with no luck.

SnowMan

Conversions are not a disposal for capital gains tax purposes but switches are (?)

http://www.tisa.uk.com/publications/358_Recommendedpracticeonunitshareclassconversions.pdf

That's the best link I can find

SnowMan

I've been inquiring about re-registering some retail class HSBC trackers from Fidelity Fundsnetwork or HSBC Global Investment Centre with Sippdeal and whether they would be able to do the conversion to clean classes also. They tell me

Please be advised that in-specie transfer of this fund would be possible. Should you wish to convert to the clean class of the fund you can instruct us to do so and this will be carried out free of charge, providing the fund provider allows the transfer

I've no idea what they mean but will be trying to find out

koru

Thanks, I did find that in my Google efforts, but I found it difficult to believe what it seemed to be saying.

Sounds like conversion is where the platform does something behind-the-scenes to carry out the exchange. Whereas if you sell old class and buy new class, that's a switch and is a taxable gain.

If so, it is going to be pretty important whether your platform is willing/able to do conversions.

If you do a DIY switch, you could inadvertently trigger a taxable gain. I'll bet 99 out of every hundred people who do this don't realise they have triggered a gain. In some cases, it could be handy, because you can bed-and-breakfast without being out of the market.

SnowMan

koru wrote: »

If so, it is going to be pretty important whether your platform is willing/able to do conversions.

That is what confused me about the Sippdeal answer to my question.

There seems to be two strands to it

a) will the fund MANAGER allow conversions from dirty to clean classes
b) will the PLATFORM allow conversions from dirty to clean

It seemed to be that it requires both a) and b) to be true before conversions are possible.

If I move to clean HSBC classes with Sippdeal from the other platforms I am hoping I can avoid their dealing fees by re-registering and converting at the same time.

Certainly for my outside of an ISA funds I could do with triggering a capital gain (which conversion won't achieve).

mania112

Please be advised that in-specie transfer of this fund would be possible. Should you wish to convert to the clean class of the fund you can instruct us to do so and this will be carried out free of charge, providing the fund provider allows the transfer

SnowMan wrote: »

I've no idea what they mean but will be trying to find out

In-Specie means that the funds are simply 're-registered' they are not cashed in and re-brought.

That seems to be the way to do it.

Traditionally, as you seem to be aware, a cash-in and purchase is liable for CGT, but there must new rules to allow it (I don't know why the AMC's can't just be removed from the existing investment).

The trouble is that it could be considered 'bed and breakfasting' if the price of those shares have decreased since original purchase.

grey_gym_sock

that's a good question: whether it counts as B&B (a.k.a. the 30-day rule) if you sell 1 class of shares in a fund, and buy another class of shares in the same fund.

SnowMan

mania112 wrote: »

In-Specie means that the funds are simply 're-registered' they are not cashed in and re-brought.

That seems to be the way to do it.

Traditionally, as you seem to be aware, a cash-in and purchase is liable for CGT, but there must new rules to allow it (I don't know why the AMC's can't just be removed from the existing investment).

The trouble is that it could be considered 'bed and breakfasting' if the price of those shares have decreased since original purchase.

Should have said more clearly the bit I didn't understand was

Proving the fund provider allows the transfer

I am assuming that Sippdeal mean by fund provider, HSBC, for HSBC trackers held say on Fidelity Fundsnetwork which are being re-registered to Sippdeal and converted by Sippdeal?

So does a platform that is willing to do fund conversions such as Sippdeal go to the fund manager HSBC and say 'will you do some conversions from dirty to clean classes for us for some of the investors on our platform?'. And HSBC then say yes or no.

Will HSBC give a different answer to different platforms, so they might say 'yes' to Hargreaves Lansdown but 'no' to Sippdeal?

Might they say we don't allow conversions for anyone?

Are HSBC likely to say we are going to have a lot of people selling and rebuying if we don't allow conversions and that is going to rack up a lot of un-necesasry SDRT for the fund?

How do I as an investor find out if HSBC will allow Sippdeal to do fund conversions from dirty to clean classes? Do I ring up HSBC and say 'Hey HSBC if Sippdeal ask you to convert some of my dirty class HSBC trackers to clean classes will you say yes?'

When they say fund provider do they really mean fund platform?

koru

grey_gym_sock wrote: »

that's a good question: whether it counts as B&B (a.k.a. the 30-day rule) if you sell 1 class of shares in a fund, and buy another class of shares in the same fund.

If you switch from accumulation units to income units of the same fund, or vice versa, this is not treated as repurchasing the same class of shares, so (as I understand it) the bed-and-breakfast rules do not apply. https://www.hmrc.gov.uk/manuals/cgmanual/CG57755.htm

However, this does not mean that a gain is triggered, because HMRC applies some other rules relating to share reorganisations, so the new units are considered to have been bought for the same cost as the old units. https://www.hmrc.gov.uk/manuals/cgmanual/CG51700.htm

By analogy, you would expect the same thing to apply when switching from dirty class to clean class. It would appear to depend whether you do a conversion or a sell/buy, but this seems like a silly distinction and one that should be publicised much more widely if it is correct.

koru

There is now a categoric and explicit answer to the question of whether switching from one class of a fund to another class of the same fund can trigger a capital gain:
http://www.candidmoney.com/askjustin/808/will-switching-to-clean-fund-units-trigger-cgt.aspx

The short answer is that it normally will, but there is a new rule coming in May, which will help, provided your platform is willing to assist.

SnowMan

Sippdeal are in the process of converting my HSBC retail class trackers to their C (clean) class equivalent.

The process if moving from another provider to Sippdeal, is to first re-register the dirty class funds over to Sippdeal.

When the re-registration has completed you ring up Sippdeal and provide them over the phone with the SEDOL codes for the old (dirty) and new (clean) share classes and they arrange it from there. There is no charge for conversion.

It can take a few weeks or more (depending on the fund manager) and the conversion itself is dependant on the fund manager agreeing to the conversion (HSBC allow conversion so I'm OK).

No tax issues in this case as the holdings to be converted are all held in an ISA wrapper.