Bed & ISA vs Bed & Breakfast

edited 30 November -1 at 1:00AM in Savings & Investments
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Terry_TowellingTerry_Towelling Forumite
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edited 30 November -1 at 1:00AM in Savings & Investments
Struggling to find rules on the way that HMRC views the difference between Bed & ISA and B&B.

More specifically, HMRC says a sale and repurchase (B&B) within 30 days does not constitute a disposal for Capital Gains purposes and you're still counted as having owned the shares continuously. Have I got that right?

I can't find anything that specifically says HMRC views Bed & ISA any differently. So, if I sell and repurchase within an ISA does HMRC still see that as a 'non-disposal'?

If so, I can Bed & ISA the full £20K ISA allowance, HMRC will not see that as a disposal and there will be no CGT liability. I don't need to worry about keeping my Bed & ISA transaction less than £11.7K.

Frankly, I can't believe I have got this right but I haven't yet found anything to say otherwise. Can anyone point me in the right direction?
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  • dunstonhdunstonh Forumite
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    Struggling to find rules on the way that HMRC views the difference between Bed & ISA and B&B.

    Bed & ISA is not something HMRC would recognise as it only involves a disposal. Not a purchase (the ISA does not exist effectively)
    If so, I can Bed & ISA the full £20K ISA allowance, HMRC will not see that as a disposal and there will be no CGT liability. I don't need to worry about keeping my Bed & ISA transaction less than £11.7K.

    It depends on your gain. I had one recently where the gains to bed & ISA £20k would have exceeded the annual CGT allowance. So, it still needs a check but its not that common.
    I am an Independent Financial Adviser (IFA). The comments I make are just my opinion and are for discussion purposes only. They are not financial advice and you should not treat them as such. If you feel an area discussed may be relevant to you, then please seek advice from an Independent Financial Adviser local to you.
  • ColdIronColdIron Forumite
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    The 30 day rule was introduced to stop people selling and quickly repurchasing the same security to benefit from their CGT annual allowance and increase their base cost. Now it doesn't count as a disposal so no benefit from the allowance, being out of the market for over 30 days discourages this practice

    You can Bed and ISA (sell and immediately repurchase without waiting) and the sale does count as a disposal

    You can sell to the value of £20,000 and it might or might not attract CGT depending upon your gain, essentially the difference between you original purchase cost and the sale value. If your gain is over £11,700 you owe HMRC, if not you don't
  • Terry_TowellingTerry_Towelling Forumite
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    Thanks, guys.

    I'm comfortable with my understanding of the B&B rules and why HMRC has chosen to take the stance it does but I can't understand how HMRC can 'pick and choose' when to apply its own rules without having something written down to explain why they are legally allowed to do that.

    How can they choose to only see a disposal? I understand they can't get at you once assets are protected in an ISA but what is the legal grounding for ignoring the immediate repurchase in a Bed & ISA transaction? It's obvious why they would want to see it as only a disposal because its their last chance to grab tax off you but how can they decide to ignore their own rules on what constitutes a disposal without providing guidance.

    Perhaps there is something written down in HMRC rules but I haven't found it - yet
  • MalthusianMalthusian Forumite
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    The shares bought within the ISA are exempt from capital gains tax (CG57600) so there are no new shares to attribute the old base cost to. There's no "picking and choosing".

    If you want chapter and verse from HMRC, HMRC's rules say "Disposals must be identified with acquisitions of shares *of the same class, see CG50203 *acquired by the same person in the same capacity *acquired within the 30 days after the disposal." (my emphasis)

    The example HMRC gives of a person selling and buying the same shares but not in the same capacity is of someone selling their own shares and buying the same shares in their capacity as a Trustee. But this part would seem to apply equally well to buying within an ISA.
  • dunstonhdunstonh Forumite
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    but I can't understand how HMRC can 'pick and choose' when to apply its own rules without having something written down to explain why they are legally allowed to do that.

    Its rules are clear and published. Bed & ISA only involves a sale. Not a repurchase. So, disposal rules apply.
    How can they choose to only see a disposal?

    Because that is the only chargeable transaction. The purchase is irrelevant as it is within a tax-free wrapper.
    but what is the legal grounding for ignoring the immediate repurchase in a Bed & ISA transaction?

    The same as any other where a different tax wrapper is involved (such as bed & pension). You are incorrectly linking a transaction between unwrapped and a tax wrapper by looking at rules that apply to unwrapped to unwrapped.
    I am an Independent Financial Adviser (IFA). The comments I make are just my opinion and are for discussion purposes only. They are not financial advice and you should not treat them as such. If you feel an area discussed may be relevant to you, then please seek advice from an Independent Financial Adviser local to you.
  • bundoranbundoran Forumite
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    I can't find anything that specifically says HMRC views Bed & ISA any differently.

    This is where you're going wrong.

    You can't find anything that specifically says that HMRC view Bed and ISA the same.

    They don't, because it isn't the same. Selling a stock and then rebuying it is not the same as selling a stock and then buying the same stock inside an ISA as you're not owning the same stock continuously with the same base cost like B&B, because for tax purposes in the ISA the wrapped stock has no base cost.

    In an ISA you are protecting the stock from any tax on capital gains and income that it will generate in the future, not from any gain it has made in the past when it was outside the ISA before you disposed of it.

    Really I think you're comparing apples and oranges and then saying that you can't find anything that says they're viewed differently. :)
  • Terry_TowellingTerry_Towelling Forumite
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    I understand the words you are all using and I understand exactly why HMRC only wants to see a disposal. I'm not trying to appear belligerent but am probably going to appear very ignorant - sorry.

    Most of what I am reading here sounds back to front. I'm hearing:- 'The fundamental process underlying Bed & ISA is not intrinsically the same as that underlying B&B. Now, let's try and interpret HMRC's words to justify that stance'.

    It should be, 'The fundamentals are the same. Now let's try and find something that properly identifies why HMRC is entitled treat them as if they are not.'

    Yes, I speak from a position of ignorance, but apples and oranges are both fruit:) and if selling and rebuying the same asset (in the same capacity) within 30 days is not a disposal on the one hand, then neither is it a disposal if I decide to stick the repurchase in an ISA.

    The wrapper is irrelevant, the ISA tax exemption is irrelevant and nothing I read makes it clear. It is all semantic interpretation.

    I know I'm banging my head against a brick wall here. I've even spoken to HMRC's CGT unit and their operator said they couldn't provide a legal understanding for the difference and that I should write in to have it investigated.

    I don't expect any more answers because I suspect you all think you are banging your heads against a brick wall trying to get through to me but if I could find anything that really explained why apples and pears are not both fruit, I'd happily go and read it.
  • edited 1 June 2018 at 6:11PM
    dunstonhdunstonh Forumite
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    edited 1 June 2018 at 6:11PM
    and if selling and rebuying the same asset (in the same capacity) within 30 days is not a disposal on the one hand, then neither is it a disposal if I decide to stick the repurchase in an ISA.

    It is not the same.

    Unwrapped, you are selling an asset and buying back the same asset.
    With bed & iSA, you are selling an asset but not buying it back. You are buying an ISA instead. What you hold in the ISA is irrelevant. it doesnt matter if its the same underlying asset or different.

    It is quite simple. Are you buying the same asset back? No you are not.
    I am an Independent Financial Adviser (IFA). The comments I make are just my opinion and are for discussion purposes only. They are not financial advice and you should not treat them as such. If you feel an area discussed may be relevant to you, then please seek advice from an Independent Financial Adviser local to you.
  • edited 1 June 2018 at 7:30PM
    bundoranbundoran Forumite
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    edited 1 June 2018 at 7:30PM
    I understand the words you are all using and I understand exactly why HMRC only wants to see a disposal. I'm not trying to appear belligerent but am probably going to appear very ignorant - sorry.

    Most of what I am reading here sounds back to front. I'm hearing:- 'The fundamental process underlying Bed & ISA is not intrinsically the same as that underlying B&B. Now, let's try and interpret HMRC's words to justify that stance'.

    It should be, 'The fundamentals are the same. Now let's try and find something that properly identifies why HMRC is entitled treat them as if they are not.'

    Yes, I speak from a position of ignorance, but apples and oranges are both fruit:) and if selling and rebuying the same asset (in the same capacity) within 30 days is not a disposal on the one hand, then neither is it a disposal if I decide to stick the repurchase in an ISA.

    The wrapper is irrelevant, the ISA tax exemption is irrelevant and nothing I read makes it clear. It is all semantic interpretation.

    I know I'm banging my head against a brick wall here. I've even spoken to HMRC's CGT unit and their operator said they couldn't provide a legal understanding for the difference and that I should write in to have it investigated.

    I don't expect any more answers because I suspect you all think you are banging your heads against a brick wall trying to get through to me but if I could find anything that really explained why apples and pears are not both fruit, I'd happily go and read it.

    It's what you're saying that's back to front! :)

    All gains are subject to CGT, unless they are below your personal allowance.

    There is an exception where those gains are made within an ISA.

    There is another exception where you sell assets outside and ISA and buy them again outside an ISA within 30 days, then the rules say you haven't made a disposal and a purchase at all, and your original base cost still applies.

    Your argument is that the exception is the rule unless someone can show otherwise. That's not the case.
  • eskbankereskbanker Forumite
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    if I could find anything that really explained why apples and pears are not both fruit, I'd happily go and read it.
    That's not a bad analogy, apples and pears are both fruit but they're different fruit!

    They just are.

    Sure, there are some similarities but there are also some differences - have you ever tried a toffee pear for example?

    Anyway, I suspect this thread has gone a bit apple-shaped now....

    :)
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