Managing CGT on fund gains

Ceme3000

Morning, What's the usual way people minimise CGT on fund gains.

I'm not working, and am living off savings. Just over a year ago I put 80k in a HL fund and share account that is now worth 95k. I have already used my ISA allowance for 19/20 and paid as much as I can into my SIPP. I plan to transfer the maximum from cash savings to ISA and SIPP next 06/04 so won't bed and isa or bed and sipp.

My 95K is split across about 6 funds, is it just a case of selling them (up to the 12K gain) to take the profit, and then buying something different?

Tom99

ACC or INC units?
Unless you expect to have to sell enough units in a future year to take you above a gain of £12,000 I can't see the point in selling say £75k worth of funds just to make use of this years allowance.
Presumably you selected the 6 different funds to make a good fit so you will have to come up with say 4 or 5 new funds to substitute for those you sell.

Linton

Ceme3000 wrote: »

Morning, What's the usual way people minimise CGT on fund gains.

I'm not working, and am living off savings. Just over a year ago I put 80k in a HL fund and share account that is now worth 95k. I have already used my ISA allowance for 19/20 and paid as much as I can into my SIPP. I plan to transfer the maximum from cash savings to ISA and SIPP next 06/04 so won't bed and isa or bed and sipp.

My 95K is split across about 6 funds, is it just a case of selling them (up to the 12K gain) to take the profit, and then buying something different?

You say you are transferring cash savings to ISAs. Is that cash ISAs? With serious amounts of money, using an ISA for investments is much more worthwhile than using it for cash and avoids all the hassle of keeping detailed records.

Malthusian

Tom99 wrote: »

ACC or INC units?
Unless you expect to have to sell enough units in a future year to take you above a gain of £12,000 I can't see the point in selling say £75k worth of funds just to make use of this years allowance.

It would be worthwhile if it goes up another £15k next year (obviously we have no idea whether it will). Or if the capital gains allowance is reduced in a future Budget. It never hurts to grab the chance to reduce tax while you can instead of hoping you'll still be able to reduce it later.

Presumably you selected the 6 different funds to make a good fit so you will have to come up with say 4 or 5 new funds to substitute for those you sell.

Dead easy if they're tracker funds, admittedly more difficult if you use active management and have to find 6 managers you have faith in that you didn't believe in enough to invest in them in the first place.

The answer to the OP's question is [STRIKE]yes[/STRIKE] *edit* possibly not exactly, see next post.

Malthusian

And I think the reason for Tom99's question "Acc or Inc units" is that the 15k increase is likely to not be all capital gain; part of it may be reinvested income which isn't subject to CGT.

Presumably HL has a capital gains calculator you can look at to see what your actual capital gains were. The "+ / - " figures on the main portfolio valuation page are not the capital gains (just current value minus amount invested), you need a calculator specifically for CGT.

Ceme3000

Linton wrote: »

You say you are transferring cash savings to ISAs. Is that cash ISAs? With serious amounts of money, using an ISA for investments is much more worthwhile than using it for cash and avoids all the hassle of keeping detailed records.

No, I only have a S&S Isa but have maxed out the contributions for the last few years, which is why I set up the fund and share account. My cash savings are in Marcus, Investec and premium bonds. To be honest I probably have too much in cash (130k in cash and 500k in funds), but I've done that so that I don't need to sell funds to live on in the event of a market downturn. I'm 53, live on about 13k per annum, so really don't need all that cash.

Ceme3000

Tom99 wrote: »

ACC or INC units?
Unless you expect to have to sell enough units in a future year to take you above a gain of £12,000 I can't see the point in selling say £75k worth of funds just to make use of this years allowance.
Presumably you selected the 6 different funds to make a good fit so you will have to come up with say 4 or 5 new funds to substitute for those you sell.

They are INC funds, so yes, some of the gain will be interest and dividends.

Actually, as I'll only have sufficient savings to move from cash to funds for the next couple of tax years, I guess I could not sell now, and then just gradually bed and isa the fund over 6 or 7 years in the future.

Malthusian

Ceme3000 wrote: »

I'm 53, live on about 13k per annum, so really don't need all that cash.

Do you need to earn extra return on the cash that could be invested in the stockmarket without running the risk of pound cost ravaging?

Given your current relatively frugal expenditure of 13k a year compared to your 630k in assets, plus DB pensions and the State Pension coming in later as well (says some poststalking), is spending more money an option?

Tom99

Ceme3000 wrote: »

They are INC funds, so yes, some of the gain will be interest and dividends.

Actually, as I'll only have sufficient savings to move from cash to funds for the next couple of tax years, I guess I could not sell now, and then just gradually bed and ISA the fund over 6 or 7 years in the future.

[FONT=Verdana, sans-serif]When you calculate the chargeable gain remember to follow the following rules for the[/FONT][FONT=Verdana, sans-serif] treatment of equalisation and income distribution [/FONT][FONT=Verdana, sans-serif]which [/FONT][FONT=Verdana, sans-serif]differ depending on whether you hold Acc units or Inc units:

[/FONT][FONT=Verdana, sans-serif]ACC Units:[/FONT][FONT=Verdana, sans-serif]
Equalisation - Ignore
Income distribution - Add to cost for CGT purposes and add to income for Income Tax purposes.

[/FONT][FONT=Verdana, sans-serif]INC Units:[/FONT][FONT=Verdana, sans-serif]
Equalisation - Deduct from cost for CGT purposes.
[/FONT][FONT=Verdana, sans-serif] Income distribution - Add to income for Income Tax purposes.
[/FONT]
[FONT=Verdana, sans-serif]Since you don’t need the cash why did you choose INC units?[/FONT]

Ceme3000

Malthusian wrote: »

Do you need to earn extra return on the cash that could be invested in the stockmarket without running the risk of pound cost ravaging?

Given your current relatively frugal expenditure of 13k a year compared to your 630k in assets, plus DB pensions and the State Pension coming in later as well (says some poststalking), is spending more money an option?

Nothing wrong with a bit of post stalking. Yes I have DB pension to come too, which I'll probably claim at 60.

As for spending more money, you are I'm sure correct! I guess the problem is, I have always been careful, and what you might call a tight git! It's two fold. The fear of running out, illogical probably but the thought is still there. There is also the psychological barrier in spending more when I've conditioned myself not to over the years. That's something I do need to work on. I do have ideas to travel in a few years time when I've actually convinced myself that I won't run out of money to live on.

Ceme3000

Tom99 wrote: »

[FONT=Verdana, sans-serif]When you calculate the chargeable gain remember to follow the following rules for the[/FONT][FONT=Verdana, sans-serif] treatment of equalisation and income distribution [/FONT][FONT=Verdana, sans-serif]which [/FONT][FONT=Verdana, sans-serif]differ depending on whether you hold Acc units or Inc units:

[/FONT][FONT=Verdana, sans-serif]ACC Units:[/FONT][FONT=Verdana, sans-serif]
Equalisation - Ignore
Income distribution - Add to cost for CGT purposes and add to income for Income Tax purposes.

[/FONT][FONT=Verdana, sans-serif]INC Units:[/FONT][FONT=Verdana, sans-serif]
Equalisation - Deduct from cost for CGT purposes.
[/FONT][FONT=Verdana, sans-serif] Income distribution - Add to income for Income Tax purposes.
[/FONT]
[FONT=Verdana, sans-serif]Since you don’t need the cash why did you choose INC units?[/FONT]

Thanks for this. I need to get my head around it and set up a spreadsheet. It's on my to do list, so this is really helpful. I bought inc units after reading on the forums here that it was easier to calculate the gains.