CGT on switching to new clean fund classes

koru

@SnowMan, that's helpful to know. The same procedure would not be possible with ATS, because they are not accepting transfers in of dirty class funds. Sippdeal are not bad for holding clean classes, because they only charge £50 per annum custody charge if your portfolio includes funds that do not pay them commission.(I say "only", but of course £50 per year is not peanuts. However, for a reasonable size portfolio (big enough that you need to worry about CGT) it is a lot lower than the fees of around 0.35% that other platforms charge.)

I'm currently waiting for Interactive Investor to confirm whether they will be offering a conversion service. Given that rebated commission is now taxable in the hands of the investor, there is a much stronger requirement to be able to switch to clean classes, so if Interactive Investor can't do this in a way that does not trigger CGT, they will be losing some of my business, because I will use your Sippdeal procedure.

dunstonh

Only a handful of platforms currently offer share class conversions at no cost (or at all). It is an expensive thing to implement and whilst others will introduce it, there may be some that dont. With explicit charging, it may not be something offered free of charge.

koru

Thanks, dunstonh. Although I would rather not pay, I would be willing to pay, because it must involve some work for the platform. Any platform that does not offer this is going to look pretty poor.

SnowMan

SnowMan wrote: »

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.

To update, charge free conversion from HSBC retail class trackers to HSBC clean C class trackers took place about 1 week after I requested it, with the minimum of fuss.

Well done Sippdeal :T

SnowMan

koru wrote: »

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.

Press reports are saying that HMRC are now bringing in the new rules for example see this money marketing article and this FT adviser article says the rules were brought in from 17th June (which is confusing as it is 16th June today).

It is all a bit unclear but it looks like as expected if you switch from a dirty share class to an otherwise identical clean share class then from now on CGT isn't triggered but the accrued unrealised capital gain carries forward into the clean share class (?).

This seems to now apply to both switches and conversions even though we were expecting the HMRC rules only to apply to bulk conversions (?)

It is all very unclear and I can't find anything at the moment on the HMRC website.

Edit: this article is a bit more thorough and with a link to HMRC legislation but I don't claim to remotely understand it.

koru

The key bit seems to be:

103F Exchanges of units for units in the same scheme

(1) This section applies in the following cases.

Case 1

Where—

(a)a participant in a collective investment scheme exchanges units in the scheme for other units in the scheme (“new units”) of substantially the same value, and
(b)the property subject to the scheme and the rights of participants to share in the capital and income in relation to that property are the same immediately before and immediately after the event (ignoring any changes as a result of a variation in management charges).
....

(2) Where this section applies—

(a)sections 127 to 131 (share reorganisations etc) apply with the necessary adaptations as if the collective investment scheme were a company and the event mentioned in subsection (1) were a reorganisation of its share capital, and
(b)any distribution in relation to any new units is to be treated for the purposes of capital gains tax, corporation tax or income tax on the basis set out in section 127 (as adapted).
(3) In subsection (1), “management charges” mean the costs charged to the property subject to the scheme in respect of remunerating the parties operating the scheme, administrating the scheme or investing or safeguarding the property subject to the scheme.

So, you need to have an exchange. This sounds like the fund manager would have to participate in the exchange. Just selling dirty and buying clean might not be an exchange.

A_Flock_Of_Sheep

Does anyone actually pay CGT? Isn't it self declared? Or does the fund platform grass you selling of a fund to the tax vultures?

Aegis

A_Flock_Of_Sheep wrote: »

Does anyone actually pay CGT? Isn't it self declared? Or does the fund platform grass you selling of a fund to the tax vultures?

Yes, people pay CGT. While it is self declared, anyone found not to be paying the CGT due on their disposals in a random audit would be subject to some fairly severe penalties and would likely be on HMRC's watch list for a very long time.

Tax evasion isn't likely to be worth it in the long run.