Capital Gains Tax on bed to ISA

milleniumaire

I've found many discussions and explanations of bed to ISA's but I'm still confused about the treatment of Capital Gains Tax (CGT), so I thought I would post an example, in the hope that someone could confirm exactly how CGT applies.

Firstly, it is my understanding that selling shares and buying back EXACTLY the same shares WITHIN 30 DAYS does NOT result in any CGT. At this point, I'm not talking about ISA's, so here's an example:

1st June 2019 - Purchase 100 shares in company XYZ at a value of £1 per share.  The cost was therefore £100.

4th January 2021 - Sell all 100 shares in company XYZ at a value of £1.50 per share.  The sale raised £150, so the gain was £50.  Ignoring the CGT threshold for simplicity, this means tax is due on the £50 gain.

20th January 2021 - Purchase 100 shares in company XYZ at a value of £1.20 per share.  The cost was therefore £120.

It is my understanding that the sale and re-purchase of the shares in the SAME company within 30 days, means there is NO Capital Gains Tax to be paid.  I started off with 100 shares and I still have 100 shares.  However, I assume the "Cost" of the share has now changed as they are part of a Section 104 holding, so the pool of cost would be used to calculate any future gains, or is it that the original cost of £100 remains due to the shares being purchased within 30 days.  Note: This isn't really my question, but thought I would mention this.

So, "I think", buying back the same shares within 30 days essentially nulls out the sale and nothing changes and there is no CGT bill.

Now, to bed and ISA.

Same as above, but this time on 20th January 2021, the 100 shares are purchased for £1.20 per share WITHIN AN ISA WRAPPER.  Now I completely understand that all FUTURE sales and dividend payouts for the shares in the ISA are free of CGT.  However, to get the shares into the ISA, they first had to be sold.  Is there any CGT on the sale? Based on the 30 day rule I would say not, so essentially, the shares have been moved into an ISA and no tax has been paid.  If I'm correct and no CGT is due on the sale, I assume the shares that are now in the ISA are still costed based on their original cost i.e. £1 per share, rather than at the £1.20 per share that they cost to place them in the ISA?

Sorry for the long post, but I really wanted to be clear about the combination of the 30 day rule AND bed and ISA.

eskbanker

The sale component of a bed & ISA transaction does incur CGT (unless total net gains are below annual threshold), regardless of whether the repurchase within the ISA is within 30 days or not.

Old_Lifer

If you bed & ISA a share  where the share price is currently depressed   but which you expect to recover or do well later,   it will create a smaller gain and have less impact on your CGT  allowance   than  if you do it with a currently top- performing share.

I do this all the time with my small company  shares,   so that when the  increase in value occurs    the shares are held within the  ISA wrapper and the gain is tax-free.    However,  I have a large number of shares in  several small companies and not all these shares are held in an ISA wrapper.

milleniumaire

Over the years, our share broker has also been moving managed funds from Collective Investment Accounts to ISA's, but usually this also involves a re-assessment of the performance of the underlying funds, meaning the resulting ISA's aren't always the same investments as the original fund.  In this case, I'm aware that CGT applies, but we have now started investing ourselves, directly into company shares (mainly US stock).

Unfortunately/fortunately, depending on how you look at it, we are both utilising both our CGT allowances and ISA allowances to make these moves and I wasn't sure of the CGT rules for specific shares, as opposed to a managed fund, which tends to include many different company shares.

eskbanker

milleniumaire said:

I wasn't sure of the CGT rules for specific shares, as opposed to a managed fund, which tends to include many different company shares.

No difference - the rules are explained at https://www.gov.uk/tax-sell-shares (and https://www.gov.uk/capital-gains-tax )