Is flipping Vanguard Lifestrategy sufficient for 30 day CGT rule?

dwforum

I hold only VLS 40% and am maxed out on ISA limits both now and for many future years, so need to hold some non-ISA to be invested at the level I want to be. To keep control of CGT on the non-ISA account, will flipping some VLS 40% to VLS 60% be sufficient to satisfy 30 day CGT rule? (I'm only concerned with the CGT here ... quite happy to own a bit of 60% higher risk). I also have a queue of cash for future ISA years allowances, so bed & ISA doesn't work as each years allowance will be immediately used with queuing cash. There will be a non-ISA portion for many years and I need to control the CGT on it. Pension options are maxed out on AA's.

Apodemus

Others will answer for the legal technicality (although I would have thought it is ok to simply flip) but surely if you want the risk level of VLS40, then it is better to flip to another multi-asset fund with a similar asset mix and risk level?

As an aside, it makes me feel nervous when I realise just how much VLS has become the single go-to investment advised by many. Although there is no reason for me to think that it is not good advice, I always feel we are into “shoe-shine boy share tip” territory!

NotSkint

Why are you keeping a queue of cash ready to max out future ISA yearly contributions?
Ask yourself this question; If there were no ISA limit would you invest all the money you have queued up now?
If you are going to invest it anyway in the future, why don't you invest it now?
I treat my unwrapped investments as an extension of my ISA.
The only difference is that I only hold the INC version of units unwrapped to make life a bit easier for myself.
I then bed & ISA each year.
With regards to CGT; I keep an eye on it and if my unwrapped gains become too large, then I would sell enough of the fund to use my yearly CGT allowance and invest it in another fund in my unwrapped account. In your situation changing from VLS 40% to VLS 60% would be deemed as a different fund; because it is!

bowlhead99

Bed and ISA can work fine even if you have cash available - you can bed-and-ISA the unwrapped investments into the tax wrapper (getting you the disposal you want for CGT purposes) but then your unused cash would have to be spent on unwrapped investments - and if you buy the exact same one that you just disposed as part of the bed-n-ISA, you'd would hit the 30 day rule unless you don't mind being out of the market for 30 days or you are willing to pick a slightly different investment to get around it. But I do see where you're coming from.

I also see what notskint is saying re your queue of cash: you are willing to top up your total investments and reduce your cash by £20k per person on 6 April 2018, 19, 20 - but not willing to do that now? Why not? Still, I suppose if you have decided to pick the overall cash and portfolio mix "to be invested at the level I want to be" then it is none of our businsess.

I agree with the others that buying VLS60 instead of VLS40 just to avoid the tax rule is a bit of a strange decision because you're taking on extra risk. If you are doing that and don't actually want the extra risk, you could step down your ISAd investments at the same time in the opposite direction to keep the same overall mix across the overall wrapped and unwrapped wealth that you're managing.

Or, when you dispose of VLS 40 in the unwrapped account, spend the proceeds on equal parts VLS 60 and VLS20 for the same total equity exposure. The two parts will grow/shrink at different paces and diverge from being 50:50 over time so you might want to rebalance them later, but if it is for a month or so, it's not going to make a big difference on your overall wealth planning.

If it was me sitting there with VLS40 and I really wanted to keep it but was worried about CGT building up, I might just sell the Inc version and buy the Acc version, or vice versa. The two separate series are two separate financial instruments and so should not give you a 30-day-rule problem. However,
- some people are nervous about being so 'cheeky',
- some people (self included) don't like dealing with Acc units unwrapped where it's harder to see their dividend income and track their true purchase costs for CGT because of the ongoing reinvestment inside the fund rather than as highly visible cash distributions and manual reinvestments. So you may not want to be flipping between the 'Inc' versions and 'Acc' versions during the tax year unless you know it's for a short period in which there are no distribution dates.

An alternative is to sell VLS40 and have the rebuy be of something entirely different from a different fund manager which has a broadly similar risk profile. If it is only for a month or so, no harm done.

A_T

you could flip 50/50 into VLS20 and 60 to keep the same risk level.

EdSwippet

bowlhead99 wrote: »

If it was me sitting there with VLS40 and I really wanted to keep it but was worried about CGT building up, I might just sell the Inc version and buy the Acc version, or vice versa. The two separate series are two separate financial instruments and so should not give you a 30-day-rule problem.

Unfortunately this is not useful. Although this will not trigger the 30-day rule, a switch between classes of unit may be treated as a 'reorganisation of share capital' and so will not crystallise any gain either. Switching instead into either a different VLS fund, or a matched pair of different ones that together retain the identical asset allocation, should do the trick.

This 30-day rule really should be consigned to the dustbin. It serves no real economic purpose, and for virtually all investors it functions only an artificial nuisance that frustrates legitimate use of an annual tax allowance.

ColdIron

EdSwippet wrote: »

Unfortunately this is not useful. Although this will not trigger the 30-day rule, a switch between classes of unit may be treated as a 'reorganisation of share capital' and so will not crystallise any gain either.

Discussed at some length here, post #10 onwards

http://forums.moneysavingexpert.com/showthread.php?t=5500004

EdSwippet

ColdIron wrote: »

Discussed at some length here, post #10 onwards...

At some length indeed! Thank you for the pointer -- hopefully that will save a rehashing of the same argument.

Blech. Personally I wouldn't do it unless there was absolutely no usable alternative. There are several here.

IanManc

EdSwippet wrote: »

At some length indeed! Thank you for the pointer -- hopefully that will save a rehashing of the same argument.

Blech. Personally I wouldn't do it unless there was absolutely no usable alternative. There are several here.

Personally I wouldn't do it because, as is pointed out repeatedly and at length in the thread quoted, you are right that it is a reorganisation of share capital and no matter how many times he WTFs on this thread like he did on the other one, in this instance Bowlhead is wrong.

bowlhead99

EdSwippet wrote: »

Unfortunately this is not useful. Although this will not trigger the 30-day rule, a switch between classes of unit may be treated as a 'reorganisation of share capital' and so will not crystallise any gain either.

It may be treated as a reorganization in the specific case where the fund manager reorganized his share capital by exchanging your holding of one type of his shares for another type, converting your investments from the former to the latter. If he exchanged your holding of class one to be a holding of class two instead, with exposure to substantially the same underlying assets with only minor administrative differences, the new shares inherit the old base cost of the old shares and there is no disposal or gain or loss crystallised.

However in the situation where you are not doing a share for share exchange directly with the find manager - but instead redeeming your holdings of one class from that manager and using the proceeds to buy another share class - that is a disposal event and it does make you do a CGT calc, with the amount you just paid for that second class being its own cost carried forward and unrelated to what you previously owned.

Per your link, they don't actually say X may apply, nor X will apply, they say X 'can' apply. Yes it can, in certain circumstances that give the result of a capital reorganization. Just like when I put on my walking boots and start to go up a hill I can end up at the top of Ben Nevis - but it has to be the right hill and I have to take specific directions and see it through until I'm there.

It doesn't help that in the link you gave, HMRC use the layman's language "switch" between classes when what they mean per the legislation is a share for share exchange. In layman's terms, yes you could call the exchange of one class for another a switch, but you might also call redeeming from Vanguard LS80Acc and subscribing into Blackrock Consensus 85Inc a switch, cf "yeah I phoned up my ISA platform provider and switched out my Vanguard for Blackrock".

Whereas, only the direct exchange of one holding for another arranged by the fund manager (at your request in certain circumstances or at the manager's instigation in other circumstances) can qualify to preserve the original cost with no CGT event. If you simply sell one financial instrument and buy another different one, they can't be matched under 30-day matching because the two transactions are in different financial instruments. Different classes count as different financial instruments, and HMRC have clarified that ACC and INC count as different classes.

The other thread linked by Coldiron has some links and comments. I appreciate you've gone and read it since I started to reply, but it may help others.

Blech. Personally I wouldn't do it unless there was absolutely no usable alternative

As mentioned on the other thread if you wanted to avoid a 'grey area' rather than pay for advice and be worried it would come back to bite you... You could just buy and sell on different days. Then it's clearly not the sort of "switch" characterised as a reorganisation because you (or your broker or platform manager) had cash for a day in between.

This 30-day rule really should be consigned to the dustbin. It serves no real economic purpose, and for virtually all investors it functions only an artificial nuisance that frustrates legitimate use of an annual tax allowance.

I'm not sure I agree with that.

Investment in productive business with the result of capital gains is a positive thing that the government incentivise.

They do that by setting the tax rates lower than for other "unearned income" such as interest and dividends, and also by recognising through the annual exemption that many people making smaller gains would be happier to make those investments if they didn't pay tax on the first £x of gains in a particular year just like they can earn £y of income and not pay tax on that (like the personal allowance for income tax).

So, if you invest £50k for a decade and get back £100k, that's still profit you're getting that the govt wants to tax, but £100k in a decade isn't worth £100k now (inflation) and investing means capital at risk which could go wrong, so the sweetners for the investor come from the fact the tax rate is dropped to 10% or 20% and they only charge it on the last £39k of gains that you cash out in year 10 and not on the full £50k gain - you get that partial exemption of £11k or whatever number they allow from time to time.

However, some people left to their own devices would simply sell their whole portfolio last thing at night on 5 April and buy it back again on the morning of 6 April, being out of the market for a couple of business hours each year. Absent any specific legislation, that results in them paying no tax at all because their annual £10k of gains was always under the exemption even though they have in substance made 100% (£50k) profit on one ten-year investment hold.

So, they made the anti-bed-and-breakfasting rule.

It is not that they are denying you your hard earned tax breaks that you genuinely "deserve". They are saying you can invest for as long as you like and pay us 10-20% on the profits above the first £11k, but if you keep disingenuously selling the investment and then changing your mind and buying it back a few days later, so that in substance you held the investment a decade, we are not going to give you a tax break of £11k every time you do that, for £110k of tax breaks on your initial £50k purchase - as we are not compete idiots.

You are implying they are creating something "artificial" to "frustrate" people making legitimate investment activities and wanting tax breaks that are fair and reasonable. But what they are actually doing is responding to investors who had decided to supplement normal investment activities with interposition of "artificial" transactions just to grab extra tax breaks while keeping their original assets.

We sometimes hear that the public don't like people engaging in tax avoidance to grab every tax break and loophole under the sun, and wish that the government would "crack down". The 30-day rule is an example of govt recognising that left unchecked, people will take the mickey and do artificial stuff to chase tax breaks.

I do take the point that the rich and knowledgeable will try their best to push the rules to the limit and manage tax exposure, and inevitably sometimes still use "made up" transactions to minimise tax bills (eg you want Vanguard but will sell and replace with HSBC, not on basis of it being a better or lower risk investment, just to dodge a tax that's building up). It's to be expected. However, govt/ HMRC have to be seen to be doing *something* to stop blatant abuse of their tax rate structure. If you have to jump through hoops to grab an extra year's allowance, they perceive that will put some people off. So they made the system more complex, but for the explicit reason that it means people have to go to a lot of effort to avoid paying the "normal" amount due.

IanManc wrote: »

in this instance Bowlhead is wrong.

I guess we agree to differ, the rules haven't changed since the previous thread.

Keep_pedalling

Is this really a problem? you are going to have to make some spectacular gains, to have to pay any tax on selling enough LS40 to raise £20k to put into your ISA. We have been selling a lot more of our assets held in our GIA than than that over the last few years in order make use of our annual allowances.