Is flipping Vanguard Lifestrategy sufficient for 30 day CGT rule?

bowlhead99

EdSwippet wrote: »

The thing is, this 30-day rule doesn't actually achieve any part of its intended purpose. It is so trivially bypassed as to be entirely ineffective. A restriction that restricts nobody might as well not exist. That is why it should be dumped.

Bypassing it is non trivial if the assets in question are not fungible with an equivalent asset you would replace it with.

Example, if you own £200k of Apple or Amazon shares with £10k of embedded gain. You want the investment for the long term. Are you going to sell them all and stay away for a month by which time the share price may have moved by 15% when you want to get back in, to avoid your £2-4k tax bill? Quite probably no. Whereas if you could sell them and buy the exact same assets back same day or next day, claiming you'd crystallised a gain on your Apple investment and now bought a new Apple investment, you would probably do that.

Or if the shares are in a private company or an illiquid company, you are not going to want to find a buyer and then make arrangements to buy them back in a month just to get the tax saving on £11300 of your gain, when you have risks in giving up those shares for anything more than a few hours.

Where it is "trivially bypassed" is where your asset that's carrying the gain is highly liquid and has a ready replacement which will give a return less costs over the 1 month plus period which does not risk a materially worse result from the result you would have got on the original asset after paying the CGT. So, people with index funds and ETFs are more likely to find an easy replacement than people with specialist OEICs or investment trusts or single-company Investments.

When the 30 day rule was first conceived and implemented, fewer retail investors had the ability to easily research and find suitable alternative investments, log into their broker account and quickly flip their holdings from one product to another. So, it's true that 'getting around' the rule is easier than it was.

If the government really wanted to stop people using an annual CGT allowance then they could have done something more effective to make that happen. They did not.

That's a question promoting a "something more effective, such as...?"

In the past, we have had systems that apply indexation allowances based on how long you've held the asset. A pain to use. In the US they also have a differentiation between tax rates on short and long term gains to incentivise longer term holdings. Compared to tracking the exact purchase dates of multiple tranches of regular investments in the same stock to be able to see which pools of shares have high rates and which lows, our system of flat rate based on your tax bracket without looking at short vs long is not too bad .You only need to look at the anti avoidance stuff if you keep selling out of and then buying back in to the same stuff.

Other countries aside from ours have gains exemptions or allowances on the first X of any gains reported for a particular year. That's quite handy for small investors and the less wealthy who only have the odd thousand of gains here and there on stock investments or property and get it exempted. It's not really designed to give someone buying £50k or £100k of stock the ability to get a £55k or £110k gain on it within five or ten years tax free by engineering his transactions.. That investor might "game the system" to achieve that result if he can, but many will not be bothered due to not wanting the hassle or not wanting the risk of being out of their first choice asset and finding it expensive to get back in.

If it's not fit for purpose due to financial advisers and folks here being willing to guide you how best to improve your personal position within the limit of the rules - even though a lot of people don't or can't make use of that advice - what other new tax law do you have in mind for HMRC to bring in that would better fill the brief?

I guess defining the brief in the first place, is the tricky part

EdSwippet

bowlhead99 wrote: »

Bypassing it is non trivial if the assets in question are not fungible with an equivalent asset you would replace it with. ... Example, if you own £200k of Apple or Amazon shares with £10k of embedded gain ...

Sell and then buy options (or use spread betting contracts) instead of buying back the shares. Simple.

bowlhead99 wrote: »

If it's not fit for purpose due to financial advisers and folks here being willing to guide you how best to improve your personal position within the limit of the rules ... what other new tax law do you have in mind for HMRC to bring in that would better fill the brief?

In short, none :-) Because of the competing aims here, the situation that the government would apparently like cannot be constructed in any realistic way. Meanwhile, a regulation that is broadly ineffective deserves a bullet to the neck.

bowlhead99

EdSwippet wrote: »

Sell and then buy options (or use spread betting contracts) instead of buying back the shares. Simple.

Well, if you are going to bring spreadbets into it, or are comfortable with the cost of options, you would perhaps not have bought the physical shares in the first places. One logical extension to that being a good way of getting round the 30-day rule, is that instead of repealing the 30-day rule, simply extend tax to profits from spreadbet contracts.... and I wouldn't be a fan of that.

In short, none :-) Because of the competing aims here, the situation that the government would apparently like cannot be constructed in any realistic way.

Much as it pains me to say it, they should at least try to construct the system they want. Obviously, if another political party comes out and suggests a great solution I would be happy to listen, but there are not loads of them waiting in abeyance to rip up the system and come in with something designed completely differently and workably from the ground up.

I agree there's no point beating a dead horse and ending up with a tax regime that takes a lot to administer and doesn't get the tax you want from the people you want. That doesn't necessarily mean you shouldn't try. A lot of people complain that the tax rules are many thousands of pages long and need to be simplified. But the thousands of pages comes from the fact that whatever basic point they start from, some bright spark will say "ok that's fine as a basic concept but what about people who will just do this; or couldn't we help out this group by making a rule extension to cover that; or what about trying to discourage the behaviour of people doing the other..."

EdSwippet

bowlhead99 wrote: »

I agree there's no point beating a dead horse and ending up with a tax regime that takes a lot to administer and doesn't get the tax you want from the people you want. That doesn't necessarily mean you shouldn't try.

Perhaps not, but common sense suggests that if you didn't do your homework first and so put in place a half-measure that clearly fails on several metrics -- hard to administer and yet with none of the intended effect -- you should admit that it is worthless, cut your losses and scrap it.

My hunch is that 99% of investors can sidestep this 30-day rule, and for the remaining 1% it is no barrier because they own investments that are so illiquid that they cannot sell to record a capital gain in the first place, so the 30-day rule never comes into things.