Accumulation to income switch?

Barry_Bear

I want to switch from accumulation units to income units without triggering a capital gain event.

This should be possible by doing a conversion on the platform. I use the Vanguard platform but incredibly Vanguard say they do not offer a service to convert their own funds from one class to another!

I have checked with A J Bell and they say they can do this if the Vanguard fund holdings are transferred to them.

Are there any other platforms that offer a real conversion - not just a buy and sell?

bowlhead99

You're right that it should be possible with the cooperation of the manager to simply switch as a reorganization of the share capital structure of the fund where you get new Inc shares to replace your Accs, and is usually possible when you are investing direct with the manager or using the major intermediary platforms used by IFAs etc. It's not a particularly crazy request that you're making.

But anecdotally from previous threads on here, various DIY fund platforms don't actually offer it - and simply force you to go through their IT front end interface and place a sell order, then place a buy order for the same day, and will use the redemption proceeds of one to fund the subscription settlement to the other. It may be cheaper for the platform operators (both in systems costs and communication with the fund managers) to not bother offering that functionality.

Or at least, some platforms might have an option to properly 'switch' but their front line customer service staff can't explain it definitively; it could be nerve wracking to not really know if you are going to get two separate contract notes for a buy and sell when you were hoping for a direct switch - or they give you the separate contract notes and tell you it's a switch but 'that's just how the system shows it". I would want to get something in writing to say it definitely wasn't a disposal, if a disposal was something I needed to avoid to ensure I didn't get lumbered with an unplanned tax bill.

Unfortunately although the topic has come up here before, I can't remember which platforms did it which ways. I am with AJ Bell myself. My parents are with HL.co.uk and that platform does have a 'switch' option but I don't know the mechanics of how they process it (ie is it a true 'switch' arranged as a share-for-share exchange directly with the manager, rather than just a buy-sell which has the same economics, settling the purchase from the redemption proceeds. It may be the latter but as my family's holdings are in tax wrappers I've never looked at it. They have a helpful customer service team though, even for non-customers who are curious

Barry_Bear

bowlhead99 wrote: »

You're right that it should be possible with the cooperation of the manager to simply switch as a reorganization of the share capital structure of the fund where you get new Inc shares to replace your Accs, and is usually possible when you are investing direct with the manager or using the major intermediary platforms used by IFAs etc. It's not a particularly crazy request that you're making.

But anecdotally from previous threads on here, various DIY fund platforms don't actually offer it - and simply force you to go through their IT front end interface and place a sell order, then place a buy order for the same day, and will use the redemption proceeds of one to fund the subscription settlement to the other. It may be cheaper for the platform operators (both in systems costs and communication with the fund managers) to not bother offering that functionality.

Or at least, some platforms might have an option to properly 'switch' but their front line customer service staff can't explain it definitively; it could be nerve wracking to not really know if you are going to get two separate contract notes for a buy and sell when you were hoping for a direct switch - or they give you the separate contract notes and tell you it's a switch but 'that's just how the system shows it". I would want to get something in writing to say it definitely wasn't a disposal, if a disposal was something I needed to avoid to ensure I didn't get lumbered with an unplanned tax bill.

Unfortunately although the topic has come up here before, I can't remember which platforms did it which ways. I am with AJ Bell myself. My parents are with HL.co.uk and that platform does have a 'switch' option but I don't know the mechanics of how they process it (ie is it a true 'switch' arranged as a share-for-share exchange directly with the manager, rather than just a buy-sell which has the same economics, settling the purchase from the redemption proceeds. It may be the latter but as my family's holdings are in tax wrappers I've never looked at it. They have a helpful customer service team though, even for non-customers who are curious

You have hit the nail on the head.

When I asked Vanguard support they said yes they did offer a switch. They confirmed the menu options to use on their website and confirmed it was a switch. It was only by asking for written confirmation from them that it would not create a taxable disposal that they admitted it was a buy and sell, not a true switch.

It is incredible that people could be caught out by this and face a tax bill.

bowlhead99

Barry_Bear wrote: »

You have hit the nail on the head.

When I asked Vanguard support they said yes they did offer a switch. They confirmed the menu options to use on their website and confirmed it was a switch. It was only by asking for written confirmation from them that it would not create a taxable disposal that they admitted it was a buy and sell, not a true switch.

It is incredible that people could be caught out by this and face a tax bill.

Unfortunately 'switch' is not a fully regulated term even though we all generally know what we're meaning when we use it.

A layman may say "I had a lot of Microsoft shares in my portfolio so switched some of them out for an iShares S&P tracker ETF" or "I switched my HSBC fund for a Vanguard one" ; in neither situation did they literally enter into a share-for-share exchange with a fund operator - the first was a sale and purchase on a stock exchange; the second a subscription and redemption with two separate fund entities.

But if ABC Fund Managers allows me to swap my ABC Equity Fund Inc for a different number of units of ABC Equity Fund Acc, it might be considered a 'switch' from HMRC's perspective, whether I or ABC call it a switch or some other name.