'Sharing' an S&S ISA - Tracking

bowlhead99

RoyalSwank wrote: »

I was hoping there might be a more automated, software solution, but it looks like I'll have to decide between one of the 2 options above

Really your three choices are:

1) Have two separate accounts with the annoyances and potential tax inefficiencies that brings, but not insurmountable problems...

2) Have one account but spend each person's money on different Investments within the account so you know whose is whose...

3) Have one account and share everything fairly, which means every time someone puts some money in, you have to review what the account was worth before the new money went into it and determine what share of the account that money will get.

The way to do (3) is effectively what investment fund administrators do when they use a 'unit price' based on total value of fund divided by number of units already issued, to allocate someone a number of units when that person subscribes more money into the fund. Thereby changing that person's proportional ownership of the fund.

You can choose to do (3) by using very generic software such as a spreadsheet (or a piece of paper and a calculator) to calculate unit price and the number of units issued or redeemed each time new money is introduced or money is withdrawn. Or you could do what investment fund administration firms do and buy and implement bespoke corporate or partnership unitised accounting software. The latter choice, unless you find a really good accounting platform for free, might cost you somewhere between tens of thousands and millions to get something which handles rather more complexity than you actually have. . And even if it's free, you still need to "learn it" which is as much learning as you would need to make your own list of numbers and some formulae to add and divide in Excel or OpenOffice Calc or Google spreadsheets.

Building your own "fund accounting" within an ISA account with only two participants is pretty straightforward:

Say you start out with £500 each in an ISA account, there's £1000 total and you can just give yourselves 500 'ISA shares' each and say you own it 50:50. The shares are 'worth' £1 each because there's 1000 of them and the whole portfolio of cash and investments is valued at £1000 on day one.

Then over the next few months your investment funds give you some returns and the account now contains £1200 of value (perhaps £1190 of investment funds and a tenner of cash from some dividends received). You want to put some more money into the account for each of you. Right before you do that, you observe that the 1000 shares that you and your son own between you are worth £1200 in total so they are worth £1.20 each.

You want to put £100 into the account for you and £100 for your son and your son also puts in £50 from his granny for his birthday. So in doing that you will be 'issuing more ownership shares in the ISA'. You should issue them at £1.20 each because that's a fair price for whatever's already in the ISA. So your son's £150 of new money 'buys' him 125 ownership shares of the ISA. Your own £100 of new money on the same date only buys you 83.333 shares of the ISA.

So, right after you put that £250 into the ISA account (taking it up to £260 of cash and £1190 of investments, total value £1450), your respective ownership had changed. Instead of it being owned 50:50 (500 shares to 500 shares) you now have an ownership split of 583.333 for you and 625.000 shares for your son. The total shares in issue are 1208.333 and they are worth £1450 in total (the act of putting more money into the account has not changed the 'value per ISA ownership share' from the £1.20 per share).

You could repeat this as often as you like for various contributions as long as you issue new 'ownership shares' at a fair 'price' each time new money's introduced. But let's say no more money is introduced.

Then five years later you see the total value is £2900. There are still 1208.333 ownership shares in issue between you and your son at a ratio 583.333 to 625.000. From that value you can see each unit of ownership is worth £2.40.

You really need to buy a new TV, and decide to withdraw £480 from your share of the £2900 ISA value, to do it. How to do it without messing up your son's investments? Well, you are satisfied that each ownership share is worth £2.40. So, sell part of one of the investments and withdraw £480. You have 'cashed in' 200 of your ownership units. So now you only have 383.333 units instead of 583.333 units. Your son still has his 625 units. The remaining untouched ISA value is (£2900-480 = £2420). This value is beneficially owned in the ratio 383.333 to 625 between you and your son.

You can continue in this manner and over time your son can see that he "bought in" at £1 and at £1.20 and now owns something worth £2.40. Meanwhile the underlying assets can be going up and down all over the place. That is how real 'open ended investment funds' deal with people coming in and dropping out in all kinds of different proportions at different dates. They don't try to say that (e.g.) the first person to buy into the Vanguard tracker fund owns the underlying Microsoft shares and the second owns BP and the third owns their Facebook holdings. Everyone shares the returns from everything, but the number of fund ownership shares or 'units' that you each own will determine your entitlement to eventual profits and split of the cash if everything was liquidated.

This sounds complex but given you will be able to check the overall account value each time you log into it to add money, it's not much effort really. Just don't lose the piece of paper or spreadsheet. In that respect, cloud storage or a fireproof safe would be useful.

RoyalSwank

”Two reasons I can think of;
1. Because there are many many funds, many very similar, and realistically you cannot hope to pick "the best".
2. Your investing timescale might be quite different to his,

I appreciate there are many very similar funds, but ultimately I want to run a single strategy for the account as keeps things simple in terms of regular purchasing and re-balancing and I'm happy to work to the same timescale / risk for the 2 of us for the time being. I want to avoid having to find 'duplicate' funds.

You could hold it unwrapped under a designation and not in an ISA

Worried about the tax implications + duplication of administration etc

bowlhead99 wrote: »

...The way to do (3) is effectively what investment fund administrators do when they use a 'unit price' based on total value of fund divided by number of units already issued, to allocate someone a number of units when that person subscribes more money into the fund. Thereby changing that person's proportional ownership of the fund...

I won't quote your whole post, but thank you for taking the time to write such a helpful and thorough reply! :money:
I think, all things considered, this is the approach that will be best.
I'll have to start playing around with excel or google sheets and see what I can knock up. Hopefully keeping the payments regular and proportional will help.

dunstonh

Worried about the tax implications + duplication of administration etc

Are the amounts such that there would be tax implications?

eskbanker

RoyalSwank wrote: »

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Whatever royals choose to get up to in the privacy of their own homes is their business....

RoyalSwank

dunstonh wrote: »

Are the amounts such that there would be tax implications?

I'm not entirely sure, but who knows as is at least 11 years horizon and things like inheritances etc might come into play. Plus is an extra layer of duplication and his element of the regular monthly savings would be relatively low at the moment, making it more tricky to keep the portfolio reasonably balanced if his was 'stand alone'.