Guidance on investment funds

hyposmurf

Will the latest changes to the captial gains effect my investment bond I have just purchased last week?I invested £1500 in the Allainz BRIC invesment bond Via a mini stocks & shares ISA.Also have some saving in a cash ISA.The new regulations arent exactly that clear,but if they do effect my investment maybe I'm best to shift it to a unit trust.

Aegis

Do you mean investment bond or investment trust? It sounds like you mean investment trust (i.e. a company whose shares you buy that invests in other companies as a means of making profit), which won't be affected in the slightest by the new tax rules because of being held in the ISA, exempting it from CGT.

dunstonh

hyposmurf, investment bond is a tax wrapper just like ISA. You cannot put an investment bond in an ISA. Aegis is probably right when you are talking about investment trust. Although the fund you mention is also available in unit trust form.

hyposmurf

I actually have a investment fund, not a bond.This one:
http://www.h-l.co.uk/fund_research/security_details/sedol/B0WDH72.hl
I had a feeling that this would be exempt as its in a ISA.So any investment funds that are outside my ISA allowance would be effected by the changes to CGT?I am only at this stage of thinking of just using up to my allowance each year in stocks and shares.So if I just keep within my ISA allowance I should be fine?
Thanks for your help Aegis.

munk

I believe that's the case - CGT is only payable on gains made on outside ISA investments (UTs/OEICs) which are over the £9200 threshold - ie if you'd made £10,000 profit on your investment then you'd pay CGT on £800 (£10000-£9200) at 18%.

What I'm not sure about is what happens if you make a profit of £10,000 on a single fund and then redistribute that £10k to other funds in your portfolio to rebalance - would you have to pay CGT on that £10k?

I'm guessing the answer to this is 'yes'... but what about if you make say £1k on each of 10 different funds and then say sell that 10x1k worth of holdings... do you pay CGT then? Apologies for not having read up on CGT, I really should get to it, any suggested reading that simplifies CGT as it relates to UT/OEIC investments?

jem16

munk wrote: »

I believe that's the case - CGT is only payable on gains made on outside ISA investments (UTs/OEICs) which are over the £9200 threshold - ie if you'd made £10,000 profit on your investment then you'd pay CGT on £800 (£10000-£9200) at 18%.

What I'm not sure about is what happens if you make a profit of £10,000 on a single fund and then redistribute that £10k to other funds in your portfolio to rebalance - would you have to pay CGT on that £10k?

Yes you would as you are selling then rebuying.

I'm guessing the answer to this is 'yes'... but what about if you make say £1k on each of 10 different funds and then say sell that 10x1k worth of holdings... do you pay CGT then?!!

I would think yes to this too as your total gain is £10k.

debbie42

munk wrote: »

What I'm not sure about is what happens if you make a profit of £10,000 on a single fund and then redistribute that £10k to other funds in your portfolio to rebalance - would you have to pay CGT on that £10k?

I'm guessing the answer to this is 'yes'... but what about if you make say £1k on each of 10 different funds and then say sell that 10x1k worth of holdings... do you pay CGT then? Apologies for not having read up on CGT, I really should get to it, any suggested reading that simplifies CGT as it relates to UT/OEIC investments?

I'm a bit unsure as to what you are asking here.

If I give a hypothetical example to clarify it in my head:

You buy 10K worth of funds. You picked a good-un, and it doubles in value to 20K. If you only sell half of it, i.e. 10Ks worth, then you'd have made an actual paper profit of 5K on your original (now sold) investment. If that was your only sale for the year, then you'd still be below the CGT threshold. It's only if you sold the whole lot (20K) that you'd be over it.

It's fairly irrelevant as to whether your funds are split into 10K x 1 or 10 x 1K in this case. Does that make sense?

Note: unfortunately, CGT is something that I haven't had to worry about yet, myself, so this is all theory for me (at the moment)!

musehead

If you cash in your fund investment and then invest in another one, but the money stays inside the fund account (outside any tax wrapper of course) do you still pay CGT on any sale amount above the annual allowance? Or is the fund account treated as one investment and you only get taxed when you withdraw profits in cash to your bank account (this would be much simpler!).

If it's the former, this would seem to be a reason not to undertake rebalancing if you have a large portfolio, as you'll end up paying CGT despite not actually getting your hands on the cash (assuming it all goes back into other funds).

jimatko

If you sell any unit trust, oeic or investment trust it is a sale for CGT purposes and you would pay CGT (if above allowance).

It doesn't matter if it's on a platform, in a trading account etc.

munk

debbie42 wrote: »

I'm a bit unsure as to what you are asking here.

Mmm, I'll try a simple example too.

Fund A cost £5000 and turns £5000.
Fund B also cost £5000 and turns £5000.

So in total that's £10000 profit - but do you pay CGT of 18% on £800 (ie is the cgt calculation made on the combined 2x£5000) or would you class it as 2 seperate CGT 'events' - ie no CGT to pay because the profit is less than the threshold in both 'events'? Sorry, maybe this isn't making things any less confusing!

debbie42 wrote: »

If I give a hypothetical example to clarify it in my head:

You buy 10K worth of funds. You picked a good-un, and it doubles in value to 20K. If you only sell half of it, i.e. 10Ks worth, then you'd have made an actual paper profit of 5K on your original (now sold) investment. If that was your only sale for the year, then you'd still be below the CGT threshold. It's only if you sold the whole lot (20K) that you'd be over it.

It's fairly irrelevant as to whether your funds are split into 10K x 1 or 10 x 1K in this case. Does that make sense?

Note: unfortunately, CGT is something that I haven't had to worry about yet, myself, so this is all theory for me (at the moment)!

Argh! I nearly got stuck at the bit where you said:

You buy 10K worth of funds. You picked a good-un, and it doubles in value to 20K. If you only sell half of it, i.e. 10Ks worth, then you'd have made an actual paper profit of 5K on your original (now sold) investment.

I had to stare at that for a few seconds to follow it! I think I see what you're saying - if you only sell a proportion of the investment that made the profit then in turn CGT calculations would only be applicable to a proportion of the profit(!?).

Ack, and that's just a fairly 'simple' example... working all of this out on a portfolio of 18 funds will be a nightmare... the govmt sure doesn't make it easy to turn a profit does it?