Woodford Concerns

ColdIron

Payment per unit class for those interested
https://citywire.co.uk/wealth-manager/news/trapped-woodford-investors-to-receive-74-of-their-cash-this-week/a1317635?

What is exercising me is how to account for this from a CGT point of view. I know how many units I have and their weighted average cost but after the distribution, a capital repayment, I assume I will still own the same number of units. How to establish the gain or, likely, loss?

bowlhead99

ColdIron wrote: »

What is exercising me is how to account for this from a CGT point of view. I know how many units I have and their weighted average cost but after the distribution, a capital repayment, I assume I will still own the same number of units. How to establish the gain or, likely, loss?

Given the amounts currently being distributed will be less than anyone has spent on their shares, there are 2 potential choices for handling a capital distribution:

a) The 'proper' way is: do a partial disposal calculation.

You will still have all your shares and won't have disposed of any of them, so you can't do a normal part disposal calculation and allocate your overall cost of investment over the number of shares that you have sold and not sold. Instead you would just look at the value distributed now by way of capital distribution, as a fraction of the total value. https://www.gov.uk/hmrc-internal-manuals/capital-gains-manual/cg57826

So if your capital distribution is £A per share and the value of the shares immediately after the distribution has been taken off them is £B per share, you would apportion your costs of buying the shares among A and B, and then compare the proceeds A with the cost of that A portion. The portion of the shares that you're deemed to have disposed of is A / (A+B).

For example if ZAcc shares are somewhere around 79 to 80p now, and they are distributing 59p leaving 21p in the next valuation.... the original purchase costs that you should apportion to your 59p proceeds would be 59/(21+59)ths of the total purchase costs. That would create a loss on 30 Jan or whenever the distribution happens.

b) Alternative: If it's a small amount, knock it off your costs

If the capital distribution is both small and less than your 'allowable expenditure' on all the shares which are providing you the distribution, you can use a simple approach - simply deduct the total value of capital being returned to you, fom that allowable expenditure (i.e. the amount you had paid for all he shares) rather than treating it as a part disposal. https://www.gov.uk/hmrc-internal-manuals/capital-gains-manual/cg57835.

In that way, you would not consider that you had any 'disposal proceeds'; you still have all the shares, and you would just knock it off the cost of those shares, meaning that the shares you're still holding have a lower carrying cost. Then then when you eventually get the rest of the liquidation proceeds you would compare those proceeds to your lowered cost.

Usually, 'small' means <5% of the current value, which the forthcoming distribution from Link will not be (it's more like 70%+ based on the latest published value), but the Inland Revenue clarified in Tax Bulletin 27 (February 1997)in an interpretation note: 'meaning of "small" in...' that to reduce their having to deal with excessive delays or expenses in trivially small cases they would generally consider any receipt of <£3000 as being 'small', even if it was more than 5%. If you need a reference for this you could find it at the national archives https://webarchive.nationalarchives.gov.uk/20110617054707/http://www.hmrc.gov.uk///bulletins/tb27.htm and it is also referenced in the CG manual used by HMRC workers at https://www.gov.uk/hmrc-internal-manuals/capital-gains-manual/cg57836

So, someone receiving less than £3k as part of this first distribution might decide they would like to follow that treatment, simply knocking it off their purchase cost to carry forward, and not worry about doing a computation for CGT as if it were a partial disposal. But even if it is small in the sense of being under £3k, you can do a proper partial disposal calculation if you want.

If the amount is under £3k you'll therefore have a choice.

Some people might prefer to do it as a partial disposal because then they will get a bit of a loss this tax year which might be useful to offset other gains they have in 2019/20, saving them some CGT. as soon as possible. However if you don't have any gains this year (or all your gains this year are covered by your annual exemption anyway) you may prefer not to bother recognising any loss this year. Just say that the proceeds reduced your cost, and carry forward that reduced cost until you get the rest of the liquidation proceeds. In that way, the full actual loss will be recognised whenever you get the rest of the proceeds. But that optional simplified treatment is only available if the amount of capital distribution you're getting now is below the £3k guideline, unless you can successfully argue otherwise.

ChesterDog

jimjames wrote: »

I don't think a lot of people could foresee it. I invested, I've been investing for over 25 years and still got caught out.

Jim, I'm surprised to see you getting caught out. I've always felt you and I are very much on the same wavelength.

I invested in the Woodford OEIC initially (as did a friend to whom I suggested it), but as time passed, I became concerned enough to pull out well before the crisis hit. I twisted my friend's arm to do likewise even though - as he pointed out at the time - I had always told him investment is for the long term and you shouldn't chop and change. But this was a special case...

The fund got chucked out of the Equity Income sector - bad sign.

There was a high level of small, unlisted, high-risk companies in it, and the proportion of these grew and grew - bad sign.

Increasingly, the holdings didn't reflect his previous successful funds - bad sign.

There were big problems with individual holdings within it (Capita, Provident, Industrial Heat...) - bad sign.

The performance, initially good, fell away - bad sign.

Woodford started to rule-bend and wriggle the regs (Guernsey listings) - bad sign.

Withdrawals from the fund sucked further value from it - bad sign.

Woodford - the high-hubris, high-conviction, dedicatedly contrarian investor - found himself issuing contrite apologies to his investors, while also blaming them for the poor performance by pulling their money out - bad sign.

Etc, etc, etc.

So I am curious: what made you hang on?

tigerspill

ColdIron wrote: »

Payment per unit class for those interested
https://citywire.co.uk/wealth-manager/news/trapped-woodford-investors-to-receive-74-of-their-cash-this-week/a1317635?

So the fund I have is called "Link Fund Sol Ltd LF Equity Income C GBP ACC" (held with CSD)
Is this the same as "C Sterling Accumulation" detailed in the table in the article linked above

ColdIron

Yes. Class C, Sterling = GBP and ACC = Accumulation

talexuser

bowlhead99 wrote: »

If inception was 100p and the Acc class is going to make a series of capital payments during the liquidation with the first of those payments being 58.99p, it doesn't seem like you are looking at an overall loss of 50% from inception.

The Borisgraph Business main story today is putting the maximum negative spin on this possible.

They say investors in C class through AJ Bell could lose 62%. Hargreaves Z class people lose 58% buying at peak. And initial investors lose 50% now, no mention of further payments. Average ACC people lose 48%, average INC people lose 57% - no mention of the dividends they have got in the meantime.

Good to see they aren't panicking investors who feel sore about the losses. :mad:

Malkytheheed

Midas wrote: »

but, £50k all in one fund.. what were you thinking :eek:

I know people with Millions in ONE COMPANY let alone one fund. Really depends what you are worth and how many assest you have. 50k is a lot to many but nothing to others.

bowlhead99

talexuser wrote: »

The Borisgraph Business main story today is putting the maximum negative spin on this possible.

They say investors in C class through AJ Bell could lose 62%. Hargreaves Z class people lose 58% buying at peak.

To a casual observer this might imply that AJ Bell was a more expensive place to buy and reinforce the apparent benefit of using the discounted share class offered by HL on some funds.

Though really the 0.1% additional annual management fee would have been offset by a platform fee that was 0.2% lower in the AJ Bell investors' favour.. The 4% difference between the classes is not really anything to do with the fee structure, but more to do with the fact that they are assuming that the 3-4p of dividends received by the C Income investors at AJ Bell since the fund was at its peak, was simply thrown in the bin by the investor on receipt.

And initial investors lose 50% now, no mention of further payments.

Yes, aside from the impressions given about income investors making bigger losses than accumulation investors (when really the opposite is true because income investors taking the money to invest or spend elsewhere will have avoided letting their money compound up in an ultimately failing fund); it's somewhat disingenuous to present a statement that someone investing in June 2014 could see an 'initial loss' of around 50pc.

The phrasing of 'initial loss' since inception of 50% may imply to fearful people that there could be further losses to follow as the fund winds up. However, if you've calculated that initial loss from your entire cost less your interim distribution, you can't possibly lose any more money than that. You will either get extra cash back as planned, reducing the loss, or you won't, maintaining the loss.

Good to see they aren't panicking investors who feel sore about the losses. :mad:

It's certainly more impactful if they make it sound more dramatic - at least they didn't follow the BBC's approach and stick a photo of an OAP with sadface as their lead image. :shocked:

eye_to_eye

Malkytheheed wrote: »

I know people with Millions in ONE COMPANY let alone one fund. Really depends what you are worth and how many assest you have. 50k is a lot to many but nothing to others.

Won't somebody please think of the billionaires.

iglad

ChesterDog wrote: »

Jim, I'm surprised to see you getting caught out. I've always felt you and I are very much on the same wavelength.

I invested in the Woodford OEIC initially (as did a friend to whom I suggested it), but as time passed, I became concerned enough to pull out well before the crisis hit. I twisted my friend's arm to do likewise even though - as he pointed out at the time - I had always told him investment is for the long term and you shouldn't chop and change. But this was a special case...

The fund got chucked out of the Equity Income sector - bad sign.

There was a high level of small, unlisted, high-risk companies in it, and the proportion of these grew and grew - bad sign.

Increasingly, the holdings didn't reflect his previous successful funds - bad sign.

There were big problems with individual holdings within it (Capita, Provident, Industrial Heat...) - bad sign.

The performance, initially good, fell away - bad sign.

Woodford started to rule-bend and wriggle the regs (Guernsey listings) - bad sign.

Withdrawals from the fund sucked further value from it - bad sign.

Woodford - the high-hubris, high-conviction, dedicatedly contrarian investor - found himself issuing contrite apologies to his investors, while also blaming them for the poor performance by pulling their money out - bad sign.

Etc, etc, etc.

So I am curious: what made you hang on?

I think he stuck by the 'it's a 'long term investment' and 'things will get better' mantra. I believe in the first one but the 2nd one nah as I don't invest or stay in loss making funds.

Many people who should know better stuck around far too long and got burnt.

Also what has happened to the OP who put £50k into Woodford is he still with us?