Transfer into ISA from trading account

anything123

Hey,

Been doing some retirement planning recently and had some good suggestions from this forum, so apologies if this is slightly off topic.

Does anyone know what the rules are around transferring assets into an ISA without selling?

The situation I'm considering is where I hit retirement age with say £100k invested in a regular trading account. I'd like to start moving this into a S+S ISA so that the returns are tax free. What would be the best way to go about this?

Let's assume for the sake of discussion that £50k of the £100k are capital gains that (presumably?) are taxable at the time of disposal.

Thanks

anselld

AFAIK you need to sell in the trading account and repurchase in the ISA. Some platforms will do it as a single instruction "bed and ISA" but it still amounts to the same thing.

Sell enough each year to utilise your CGT allowance and invest the proceeds up to £20k in the ISA.

If you realise more than £20k in the sale then either invest in a different asset or wait 30 days to avoid the CGT "30 day rule".

Don't wait for retirement, start straight away (unless you have already maxed ISA).

Repeat for Spouse if available. Transfer sufficient unwrapped assets to spouse prior to sale if spouse doesn't currently hold.

pip895

I think you have to sell and repurchase. To avoid CGT you sell ~24k /year and transfer in 20k so taking advantage of the 12k annual allowance assuming you haven't used it elsewhere.

Alice_Holt

Given that ISA contributions are limited to £20k per annum, I would have thought over 5 years?

Each year you would then utilise £10k of your (current) £12k CGT allowance.

Even if you have both your ISA and Funds accounts on the same investment platform, I don't think a transfer can be effected without a sale - what guidance does your platform give?

anything123

Looks like Bed and ISA is a service that's quite widely offered (I just spot checked a couple of the big players, e.g. HL and AJ Bell have offerings available). So the idea with Bed and ISA is utilising the CGT allowance while maximising time in the market. Unfortunately the CGT allowance of £12k is less than the ISA allowance, but this is clearly still a good way of converting assets to tax free. Worst case here is 20% tax on £8k or £1600, so not the end of the world.

I was looking at the 30 day rule to see if there's an option here, also curious to know if there's any other resources I should know about... Am I right in saying that selling and buying inside the ISA within 30 days wouldn't help? Effectively, once the proceeds of the sale go into the ISA, there's no CGT reduction available by buying back the same shares?

And thinking a bit beyond just topping up the ISA, how to make capital gains most efficient in general, does the other side of the 30 day rule help? E.g. if we sell and buy back after 30 days. You'd need to be happy being out the market, but ignoring the complexity there for a second, I've worked through a little example.

Day 1
Market open

• Shares held 100k
  
• Average purchase price per share £0.50

Mid day

• Sell 20k shares at £1 per share
• CGT liability = £4k (assume we've used the CGT allowance)

Do nothing for the next 30 days, then...

Day 32
Market open

• Shares held 80k
• Average price per share £0.50

Mid day

• Buy 20k shares at £1 per share
• Shares held 100k
  
• Average price per share £0.60
• CGT liability from sell on day 1 is eliminated

There's two questions that spring to mind here (1) does this accurately reflect the calculation of average price per share? and (2) am I correct in saying that the CGT liability is eliminated by buying back the same shares?

If that's correct, the upshot of this scenario is that by being out the market for 30 days, you're repricing the asset at a slightly higher price with no CGT. Clearly you'd need to crunch the numbers specifically for the asset you had in mind, but worth at least considering, and could work particularly well for assets that aren't very volatile.

anselld

anything123 wrote: »

Unfortunately the CGT allowance of £12k is less than the ISA allowance.

Not particularly relevant because CGT is only on the gain whereas you would be trying to rehouse the whole sale proceeds in the ISA.

eg You could sell £20k producing a £10k gain and not exceed either allowance.

As I said above I would personally try to utilise all allowances in full even if it means reinvesting some of the proceeds outside ISA.

anything123 wrote: »

CGT liability from sell on day 1 is eliminated

No. You have misunderstood the 30 day rule. The previous CGT would not be eliminated.

The point of such a scenario is to utilise available CGT allowance and incidentally increase the average base price as you state. However there would be no point doing it if you have no CGT allowance remaining.

pip895

What are the actual investments involved? Do you need to purchase the same fund/share? If you want no change then if its a passive fund you are likely to be able to replicate it with a fund from another investment house. Swapping an HSBC tracker for a Vanguard tracker for instance could utilise your CGT allowance whist staying invested in essentially the same thing.

anything123

pip895 wrote: »

What are the actual investments involved? Do you need to purchase the same fund/share? If you want no change then if its a passive fund you are likely to be able to replicate it with a fund from another investment house. Swapping an HSBC tracker for a Vanguard tracker for instance could utilise your CGT allowance whist staying invested in essentially the same thing.

Very good idea, this makes a lot of sense. At the moment I'm just planning for what to do while accumulating more cash than can be stored in an ISA. Plan is to continue stuffing the ISA with £20k, but meanwhile store the rest in a general trading account. Could quite easily buy broad market trackers and swap between them to use up the CGT allowance while waiting for retirement to kick in. Assuming average returns of 7% PA, this means £12k / 0.07 = £170k in the account before using up the allowance becomes a problem.

On the other side of this, I guess it also makes sense to take capital losses near the end of the tax year with the same strategy.