Cannot get definite answer

franklytom

To change from holding accumulation units to income units.
The fund platform says they do not offer a "switch" service. But they will take an instruction to sell the Acc units and purchase the same number of Inc units. No cash consideration will credit the client's account. The the new units are placed in the client's trading account.

Does that meet the criteria for not giving rise to capital gains tax disposal chargable event?

ColdIron

It's a disposal so it is a chargeable event for CGT purposes. I assume it's not held within an ISA or a pension. Would your gain be more than the £12,000 Annual Exempt Amount?

bowlhead99

If it's not a switch of one type of units directly into the other and instead it's a sell instruction where the proceeds of the disposal due to be received one day pay for the cost of the purchase which needs to be settled on the same day, then it sounds like there is been a chargeable event as you sold something you used to own and then acquired something else with the proceeds. If your goal was to 'not give rise to a taxable event', I expect you would fail to meet that goal, especially as you have said they do not offer a switching service.

Directly *exchanging* one class of share for a different share class in the same sub-fund without a cash settlement is the only way to get your 'not a chargeable disposal event' treatment.

However, something has been lost in translation, as if you instruct to sell ACC units and purchase the same *number* of INC units, there will be net cash proceeds to credit your account because ACC units don't have the exact same price per unit as INC units - they are typically higher.

franklytom

bowlhead99 wrote: »

If it's not a switch of one type of units directly into the other and instead it's a sell instruction where the proceeds of the disposal due to be received one day pay for the cost of the purchase which needs to be settled on the same day, then it sounds like there is been a chargeable event as you sold something you used to own and then acquired something else with the proceeds. If your goal was to 'not give rise to a taxable event', I expect you would fail to meet that goal, especially as you have said they do not offer a switching service.

Directly *exchanging* one class of share for a different share class in the same sub-fund without a cash settlement is the only way to get your 'not a chargeable disposal event' treatment.

However, something has been lost in translation, as if you instruct to sell ACC units and purchase the same *number* of INC units, there will be net cash proceeds to credit your account because ACC units don't have the exact same price per unit as INC units - they are typically higher.

Yes maybe they meant that the same value of Inc units would result at the end. The platform is Vanguard. Does that mean Vanguard cannot do a proper "switch" of their own funds?

bowlhead99

franklytom wrote: »

Yes maybe they meant that the same value of Inc units would result at the end.

I guess there's no point speculating what they meant - so unfortunately the question needs to be put to them again.

The platform is Vanguard. Does that mean Vanguard cannot do a proper "switch" of their own funds?

Generally (other than ACC and INC) they don't offer multiple classes of funds to consumers on their platform, they just have one class you can invest into and an institutional or institutional plus version that you can't. So perhaps they don't get the question very often and it is not worth their while to create an admin process to allow a tiny investor on a several billion pound sub-fund to exchange unit types as a 'switched' restructure.

Perhaps they mean there is no facility to request a 'switch' by clicking a button online, but instead you are able to call them up and instruct that they action an order to exit one class and have the equivalent amount be put into the other, which they call a buy and sell order - but treat as one transaction and don't show any in-n-out on your cash account statements, helping you to support your position (in case of query by HMRC) that you had effectively just exchanged one for the other.

But if they are telling you you must place an instruction online to sell and then you must create a second instruction to buy the same value: that's not going to work for a full exit of your existing ACC units because you can't know yourself how many Inc units (or what value of Inc units) you would be able to buy with the proceeds, until the pricing point, by which time you have missed the cut off for placing the buy order.

If you ask them to explain how that would work in practice (the process of you placing two matching orders when you don't know in advance the sales proceeds or subscription price) they may articulate more clearly how they can achieve the desired effect for you. If they will handle the process from end to end without you needing to guess the share prices or sales proceeds at time of your instruction, then they may be effecting a switch or exchange for you but simply not calling it that because they have different internal terminology.

You could ask them the tax implications (i.e. will I qualify for no CGT disposal and treatment as an exchange of shares) but I would expect their front line staff to simply say they are not qualified to give tax advice. A request in email or secure message that could be passed to someone higher up the food chain might help you find out more on how they work it, if you're not confident with their initial responses.

MK62

Which fund is it?

You may find the detail you are looking for in the Fund's prospectus blurb which you should be able to download from Vanguard's UK website.
The Lifestrategy fund series prospectus, as an example, contains details of how to switch (by ca!ling the Fund Registrar's dealing dept on 0800xxxxxxx) and does state that a switch between share classes in the same fund will not give rise to a CGT charge event (if you switch using this process)......I haven't used this process myself though, so can't comment on it's use in actual practice.

Reed_Richards

franklytom wrote: »

Does that meet the criteria for not giving rise to capital gains tax disposal chargable event?

Some time ago there was a long discussion on this forum as to whether a switch between INC and ACC units (or vice versa) constitutes a Chargeable Event for CGT purposes. My recollection is that the most authoritative answers were that it does not.

bowlhead99

Reed_Richards wrote: »

Some time ago there was a long discussion on this forum as to whether a switch between INC and ACC units (or vice versa) constitutes a Chargeable Event for CGT purposes. My recollection is that the most authoritative answers were that it does not.

The answer was that if it was a 'switch' (being used as a term for an exchange of units performed by the fund manager) it does not ; whereas if you arrange to sell one class and buy a different class with the proceeds, it does.

Thus the OP's question about whether what his platform administrator was willing to offer would meet the criteria, or not.

Malthusian

If it's that important you could transfer them in-specie to a platform that will offer Acc>Inc unit class conversions, convert them, then transfer them in-specie back.

I don't know which direct-to-consumer platforms offer this facility.

franklytom

MK62 wrote: »

Which fund is it?

You may find the detail you are looking for in the Fund's prospectus blurb which you should be able to download from Vanguard's UK website.
The Lifestrategy fund series prospectus, as an example, contains details of how to switch (by ca!ling the Fund Registrar's dealing dept on 0800xxxxxxx) and does state that a switch between share classes in the same fund will not give rise to a CGT charge event (if you switch using this process)......I haven't used this process myself though, so can't comment on it's use in actual practice.

This is from the Prospectus:

"Shareholders are entitled to convert or switch some or all of their Shares of one Class (“Original Shares”) for Shares of another Class within the same Fund or for Shares of any Class within a different Fund (“New Shares”).

A switch involves the redemption of the Original Shares and the purchase of the New Shares. The number of New Shares issued will be determined by reference to the respective purchase prices of New Shares and redemption prices of Original Shares established with reference to the Valuation Point applicable when the Original Shares are redeemed and the New Shares are issued.

Shareholders subject to U.K. tax should note that a conversion or switch of Shares within the same Fund will generally not be treated as a disposal for the purposes of capital gains taxation. Switches of Shares between different Funds may be treated as a disposal for purposes of capital gains taxation and so may give rise to a capital gains tax liability. "

The transaction involves the sale of units and puchase of new units. The client support desk says the process takes 2 days with a buy and sell order showing in the client account at the end. Are they right that this is not creating a CGT event?

coyrls

The prospectus says what is possible but it appears your platform doesn't offer the switch facility; they can only sell accumultation units and then buy income units. A switch would not be subject to CGT a sell followed by a buy would be subject to CGT.