Sell & re-buy to crystalise CGT

RomfordNavy

New to Capital Gains Tax so am only just gaining an understanding of how it works.


Would it be prudent to sell & immediately re-buy some assets in-order to crystalise profits and therefore use-up some of this years CGT allowance of £12k? Do brokers have the facility to allow this sort of Administrative re-buy or do I have to just do a manual sell foolloowed by a manual buy?

talexuser

You cannot sell and immediately rebuy to avoid CTG. There has to be 30 days between the sell and the buy of the same fund to avoid CTG. Either keep the cash and take the risk of being out of the market for a good month, or buy a similar fund you want to keep, or buy another fund to sell and rebuy your original choice after the month has elapsed. I crystalise gains every tax year and use the opportunity to rebalance or buy something on my watch list I want.

p00hsticks

And, if the type of fund and allowances permit, use the opportunity to re-buy inside a S&S ISA so you don't need to worry about CGT going forward

RomfordNavy

talexuser wrote: »

You cannot sell and immediately rebuy to avoid CTG. There has to be 30 days between the sell and the buy of the same fund to avoid CTG. Either keep the cash and take the risk of being out of the market for a good month, or buy a similar fund you want to keep, or buy another fund to sell and rebuy your original choice after the month has elapsed. I crystalise gains every tax year and use the opportunity to rebalance or buy something on my watch list I want.

Does that rule still apply? I have been reading about CGT on the HMRC website and it makes no mention of the 30 day rule.

Malthusian

RomfordNavy wrote: »

Does that rule still apply? I have been reading about CGT on the HMRC website and it makes no mention of the 30 day rule.

See https://www.gov.uk/hmrc-internal-manuals/capital-gains-manual/cg51560.

Because of the need to buy something different (to realise gains while still remaining invested), no broker allows you to simply push a "realise gains" button. The process can often be very straightforward (e.g. sell HSBC tracker, buy L&G tracker for the same index) but still requires input from the investor.

RomfordNavy

What if I change from Income fund to Accumulation fund would that count as a different class for the purpses of CGT?

RomfordNavy

p00hsticks wrote: »

And, if the type of fund and allowances permit, use the opportunity to re-buy inside a S&S ISA so you don't need to worry about CGT going forward

Already up to my yearly ISA limit.

RomfordNavy

RomfordNavy wrote: »

What if I change from Income fund to Accumulation fund would that count as a different class for the purpses of CGT?

Further investigation suggests that would fall foul of the CGT 30 day rule as they are both the same class. However if a different class existed I could change to that.

For example with Fundsmith I could sell the 'T' class (OCF: 1.05%) and buy the 'R' class (OCF: 1.55%). After the 30 days have elapsed I could then sell the R class and revert to the T class with the lower OCF.

bowlhead99

RomfordNavy wrote: »

What if I change from Income fund to Accumulation fund would that count as a different class for the purpses of CGT?

The accumulation class is a different financial instrument, so it's not a re-buy.

However, the HMRC rules allow the fund manager to arrange to switch you out of one share class and into another share class of the same fund which has exposure to basically the same underlying assets but some administrative differences. In that situation it can be treated as a share-for-share exchange -simply a reorganization of the fund's share capital and the new holding can take on the old holding's base cost without a disposal being considered to have taken place.

This practice was used quite intentionally by fund managers a few years ago when new 'clean-priced' share classes were created to allow the unbundling of platform fees and move people to a lower-fee share class - the 'switch' process was able to ensure that all those people didn't have an unwanted tax charge triggered as part of the process of getting them onto a more transparent fee structure. The principle is the same whether it is class R to class T, or Inc to Acc.

As Fundsmith are probably able to move you from T to R in that manner without creating a 'disposal', your plan may not work. If you want to make sure you can evidence that you did not 'switch' and you definitely exited with a disposal of the assets for CGT, the safe thing to do is to sell Fundsmith T and use the proceeds to buy a different fund entirely (eg Malthusian's suggestion to sell HSBC buy L&G). Once you know you have definitely exited the fund and not merely exchanged your units of one class for another, you definitely have a disposal for CGT.

You could then after a day, go back to your original fund as long as it was a different class, without it being a re-buy under the 30 day rule. A new purchase of Fundsmith R Acc or Fundsmith T Inc shares can't be matched with a previous sale of Fundsmith T Acc, shares, as they are different financial instruments. Shares only get matched if they are the exact same instrument, or if they are a similar instrument in the same OEIC or UT sub-fund which the manager has exchanged for you as part of a switch.

So if you move to HSBC in between two stints of ownership of different Fundsmith share classes (to stay 'in the market') or you move to cash in between (and accept being temporarily 'out of the market',) you will have definitely exited and can go back in, to a different class, whenever you are ready.

RomfordNavy

Well accoording to this:
https://www.gov.uk/hmrc-internal-manuals/capital-gains-manual/cg50203
Fundsmith T Inc would be considered a different 'class' to Fundsmith T Acc.

They would both have different prices so despite them both being the same fund 'class' they would be considered different revenue 'class' so 30 day rule would not apply.

bowlhead99

RomfordNavy wrote: »

Well accoording to this:https://www.gov.uk/hmrc-internal-manuals/capital-gains-manual/cg50203
Fundsmith T Inc would be considered a different 'class' to Fundsmith T Acc.

Yes, that's correct. Looking up the thread, it was only you (in post 8) saying that wasn't the case.