When are Capital Gains realised?

nxdmsandkaskdjaqd

bowlhead99 wrote: »

Hope this helps you avoid a nasty surprise down the line.

Thanks for the information, yes I would have got caught out.

nxdmsandkaskdjaqd

bowlhead99 wrote: »

Or if you buy something different, they can't possibly match that new purchase to the sale because they are entirely different assets, and you are also fine. But these matching rules (which you can get on the HMRC website in the cgt section) exist specifically to stop you gaming the system in the way you proposed.

So yes, buy something else if you like. Or don't buy anything. There is no requirement for you to spend the proceeds on anything at all, as far as HMRC is concerned. A sale produces a gain or loss and that is a "chargeable gain" trigger event. Buying, is not. They only care about you buying if you buy back the exact same thing because then it is like you haven't sold at all and they are not going to let you use up an allowance or pay a nice low CGT rate this year if you haven't actually sold at all and intend for the 'real' sale to happen in a different tax year.

I just wanted to check if this was OK for the CGT rules.

Say you have £100,000 in 2 funds.

You sell Fund A (50k) and buy B (50k)
and
You sell Fund B (50k) and buy A (50k)

Is this OK?

grey_gym_sock

nxdmsandkaskdjaqd wrote: »

I just wanted to check if this was OK for the CGT rules.

Say you have £100,000 in 2 funds.

You sell Fund A (50k) and buy B (50k)
and
You sell Fund B (50k) and buy A (50k)

Is this OK?

it may not have quite the effect you're looking for.

where the money flows - e.g. that you used the £50k from selling fund A to buy fund B - doesn't matter for CGT. what matters is: for each sale, did you (regardless of where you got the money from) buy the exact same fund on the same day? and if not, did you buy it within the following 30 days?

so, for instance, if all the above transactions take place on the same day, then the £50k sale of fund A is matched with the £50k purchase of fund A on the same day, and hence you have realized a gain of about zero (or perhaps a small loss, after costs). and similarly for fund B.

what if it's not all on the same day, i.e. you sell £50k of fund A and buy fund B on 1 day, but you wait till a later day before executing the remaining transactions? if you wait no more than 30 days, then the sale of fund A will be matched with the later purchase of fund A, similarly to the same-day case, so you will only realize a small loss or gain (unless the price of fund A moves much before you buy it back). but if you wait at least 31 days, then you will have realized the gain you were expecting on your sale of fund A (i.e. using your original cost for buying fund A).

however (perhaps surprisingly), fund B is treated differently from fund A (in the case when not all transactions are on the same day). why so? first consider: are there any matching purchases on the same day as the sale of fund B? no, there aren't. then: are there any matching purchases within the following 30 days? again, no (and note that this is different from the answer for the sale of fund A). so in this case, the sale of £50k of fund B is matched with earlier purchases of fund B - but with which earlier purchases? because you bought £50k of fund B in the distant past, for (let's say) £45k; and you bought another £50k 31 days ago. suppose the price hasn't changed since the recent purchase. you're selling 1/2 of your total holding (£50k out of £100k total). your total cost is £95k for the total holding of £100k. so you set 1/2 of that, viz. £47.5k against this sale, realizing a gain of £2.5k. and the cost basis of your remaining holding (currently worth £50k) is £47.5k. ... which may be OK. but it's different from how your sale of fund A is treated. because if fund A's original cost was also £45k, then you sold all of your holding, realizing a gain of £5k (instead of £2.5k); and your cost basis for your remaining holding (after you've bought £50k again, 31+ days later) is £50k (instead of £47.5k).

so ... in order to realized a gain on fund A, you can sell it, switching to another fund, wait at least 31 days, and then switch back. however, it complicates the situation if you switch to another fund which you already hold (e.g. fund . it would perhaps be simpler to switch for fund A to a fund you don't already hold (e.g. fund C), and then switch back. ideally, fund C should invest in something very similar to fund A, so you don't mind holding it for 31 days. and if fund C meets your objectives as well as fund A does, you could just keep it, instead of switching back - until you've built up a bigger gain in fund C which you want to realize.

nxdmsandkaskdjaqd

grey_gym_sock wrote: »

it may not have quite the effect you're looking for.

it would perhaps be simpler to switch for fund A to a fund you don't already hold (e.g. fund C), and then switch back. ideally, fund C should invest in something very similar to fund A, so you don't mind holding it for 31 days.

Thank you for the detailed reply, so complicated, however I think I have an understanding that achieves the objective. So in real terms.

Fund A M&G Optimal Income
Fund B M&G Strategic Corporate Bond

Sell both Funds and buy Fund 3 HL Multi Manager Strategic Bond, then re buy back Fund A and Fund B after 31 days.

Reason for selecting the HL Multi Manager Strategic Bond is that it holds both Fund A & B.

Does this sound like a reasonable plan?

grey_gym_sock

nxdmsandkaskdjaqd wrote: »

Fund A M&G Optimal Income
Fund B M&G Strategic Corporate Bond

Sell both Funds and buy Fund 3 HL Multi Manager Strategic Bond, then re buy back Fund A and Fund B after 31 days.

Reason for selecting the HL Multi Manager Strategic Bond is that it holds both Fund A & B.

Does this sound like a reasonable plan?

yup, sounds good.