Sell & re-buy to crystalise CGT

RomfordNavy

Just to take this a stage further what about selling outside an ISA and then re-buying inside an ISA, would that be caught by the 30-day rule? Would that be excluded as not both within the 'same capacity'.

masonic

RomfordNavy said:

Just to take this a stage further what about selling outside an ISA and then re-buying inside an ISA, would that be caught by the 30-day rule? Would that be excluded as not both within the 'same capacity'.

No, if you sell and repurchase within an ISA, that is a disposal for CGT purposes. From that point any investment gains are exempt of CGT and capital losses cannot be claimed for tax relief. It is as if you just sold the investment.

cloud_dog

Are we sure, we're not just over complicating the situation?

I don't think a 'fund' has been mentioned (other than Fundsmith; it is specifically that fund?) but surely in the plethora of available funds isn't there one out there that is similar to the one to be disposed of that would suffice for 31 days?

RomfordNavy

Here is a list of those I need to find alternatives to if possible:

Scottish Mortgage Investment Trust plc

BB Healthcare Trust (Red) (BBH)

Fundsmith Equity fund T class Income - OEIC

Smithson

L&G Pharma Breakthrough UCITS ETF (GBP)

Legal & General Global Health & Pharmaceuticals Index Trust I Class Accumulation

Blackrock Throgmorton Trust PLC ord 5P

Standard Life UK Small Co Trust ord GBP 0.25

Some but not all can be sold at the end of March and then re-purchased within an ISA after 5th April.  Obviously Fundsmith is not a problem because it can be moved from Income to Accumulation.

bowlhead99

RomfordNavy said:

Here is a list of those I need to find alternatives to if possible:
[Etc.]

Some but not all can be sold at the end of March and then re-purchased within an ISA after 5th April.  Obviously Fundsmith is not a problem because it can be moved from Incooome to Accumulation.

Most of those are relatively niche or specialist funds, or actively managed and the manager will be keen to differentiate them from rivals (at least for marketing purposes) and claim that they are great at what they do, which presumably is why you bought them, and giving them up to buy something else temporarily may be unwelcome - you wouldn't expect to find an exact match for everything.

You will find other healthcare funds, global growth funds, and UK small cap funds available of course and in the long term it may well be worth the two lots of buying and selling costs to 'cash in' your full annual exemption-worth of gains this year, buy something temporarily and buy back the portfolio that you really want later. 

However, over a 30 day period you would probably expect a global equities tracker to perform similarly to your more specialist/differentiated portfolio, so no need to completely mirror it. The goal is just to avoid being out of the market for the 30 days.

Also, presumably you don't need to sell absolutely all of your holdings to crystallise the gains this tax year. You will either:

a)  be in a position where your unrealised gains are well in excess of your annual exemption - so other than the ones you are moving to ISA, you won't need to sell out of literally all of them because it would create more gains than you can fit into the allowance; or 

b) not have as much unrealised gains as your annual exemption in which case you probably don't need to cash in all of those gains and take as much of the annual exemption as you possibly can, because you're not creating gains fast enough to be building up an impossible-to manage capital gains problem.

So for various reasons, finding direct substitutes for all of those funds for a short hold period is probably not really necessary 

pip895

When I had this problem (before getting most of my funds into tax shelters and moving to predominantly passive investments) - I would swap investments between my ISA and my untaxed funds - so I had LT un wrapped and Fundsmith in my ISA. Sold LT and purchased Fundsmith outside the isa and did the reverse in the isa - net position largely unchanged but CG realised and tax avoided.  Now I have moved to mostly passives it is even easier - so many nearly identical funds to chose from to just make a direct swap.  

EthicsGradient

RomfordNavy said:

Some but not all can be sold at the end of March and then re-purchased within an ISA after 5th April.  Obviously Fundsmith is not a problem because it can be moved from Incooome to Accumulation.

Just a reminder that the professionals do not agree with that. As well as HL and Fidelity whom I have already quoted, here's another:

Identical income and accumulation units should not be considered to constitute different share classes by HMRC; switching between income and accumulation units does not create a disposal. It is also worth noting that the same company rule equally applies to holdings in funds.
...
Switching from income to accumulation units
In our view, transferring from income to accumulation units (or vice versa) of the same unit trust does not create a disposal. As the units are treated exactly the same for other tax purposes, they can also be considered identical for the bed and breakfast rules.
Switching from retail to institutional units will create a gain (different levels of charges and investor protection) if done at an individual level. Fund management groups may be able to agree with HMRC that any fund-wide change is to be treated as a share reorganisation and therefore does not create a disposal.
https://www.ftadviser.com/article/42660/print-view

masonic

EthicsGradient said:

Just a reminder that the professionals do not agree with that. As well as HL and Fidelity whom I have already quoted, here's another:

The only opinion that matters is that of HMRC. Opinions about what HMRC should be doing do not make it so. Until fund management groups agree with HMRC that such a change is treated as a share reorganisation, it would seem this avenue exists. Unless you have information from HMRC suggesting they have taken this suggestion on board, agreed with it, and such agreements with fund management groups have been made.

EthicsGradient

masonic said:

The only opinion that matters is that of HMRC. Opinions about what HMRC should be doing do not make it so. Until fund management groups agree with HMRC that such a change is treated as a share reorganisation, it would seem this avenue exists. Unless you have information from HMRC suggesting they have taken this suggestion on board, agreed with it, and such agreements with fund management groups have been made.

No. Some forum members reckon it exists, but without any evidence that HMRC thinks that way. That does not mean that "it would seem this avenue exists". As I said, the professionals disagree. It's unlikely that HMRC would notice you doing it (if they ask to see records for disposals in the year you make the change, you can show them the first purchase, and the first sale; if they ask to see them when you make the final sale, you can show them the 2nd purchase and sale; it's only if they realise the other pair exists that they'd need to make a ruling), but the professionals, and I, reckon it wouldn't count as a disposal unless you weren't invested for a 30 day period. It would run a coach and horses through the idea of a 30 day period; you could switch twice, and end up doing the equivalent of 'bed-and-breakfast' by just incurring 2 dealing charges. 
If you think the only opinion that matters is HMRC, then yours or mine don't. We should say "we don't know if it would count as a disposal or not". Your wish for the loophole to exist does not mean that it does.

masonic

EthicsGradient said:

No. Some forum members reckon it exists, but without any evidence that HMRC thinks that way. That does not mean that "it would seem this avenue exists".

I agree some forum members reckon it exists, and they have posted information from HMRC supporting their view. You have attempted to rebut that view through selective quoting of some information from Fidelity. The bit you left out was:

"Where exchange is undertaken at the behest of you through a ‘switch’ process (that is a sell transaction followed by a corresponding buy transaction) it must involve only a single instruction from you and there must be no time interval between the two events beyond the minimum ordinarily necessary to achieve the transaction."

https://eumultisiteprod-live-b03cec4375574452b61bdc4e94e331e7-16cd684.s3-eu-west-1.amazonaws.com/filer_public/aa/58/aa58081a-19e9-464f-ab30-92d2c0dd766e/cgt_user_guide.pdf

Does that perhaps substantially change the meaning of the part you quoted, such that it does not apply to the sale of an investment, followed by a purchase of a different unit class of that investment, made as two separate instructions? I see @bowlhead99 has already pointed this out to you, but it's worth re-emphasising the point, since you might have missed it. The consequence of the above quoted text is that Fidelity can be considered to agree that a fund switch involving two instructions from the customer does constitute a disposal, and Fidelity cannot be counted among those who agree with your view.

The second attempt you have made to rebut the view is the quoted text from FT Adviser, where Danny Cox opines on how things ought to be, rather than how they actually are. As such, it cannot be stated that HL has expressed an opinion on whether or not, today, such switches between unit classes constitutes a disposal.

Unless you have quotes from other professionals, there seems to be no disagreement from the professionals.

So you'll forgive me for maintaining my position that "it would seem this avenue exists" on the basis of the information published by HMRC, and the only way to be certain (if you are in any doubt regarding the interpretation of this information) would be to ask HMRC to clarify their position.