Capital gains washing out the base cost on index funds to utilise the personal allowance every year

NottinghamMan

eskbanker said:

NottinghamMan said:

Right, So it's only the re-buying that resets the base cost then.
Yes.

Answers inline above....

Perhaps worth noting that the 30-day rule only applies if you repurchase exactly the same investment - you do have the option to buy something similar but slightly different, e.g. Inc units instead of Acc or vice versa, to avoid being out of the market for 30 days.

Thanks eskbanker, u seem the Daddy at answering/explaining these in non complicated way, so if u can help with my next lot please.

Yes, I would buy similar fund groups for 30 days. Do I then just transfer the whole amount in £'s ie. £126,382 back after 30 days then? Whether it's gone up or down or if the fund I'm re-buying has gone up or down?
I don't have to re-buy exactly the same units I sold then?
And this fund I bought for 30 days, do I have to be careful of Capital Gains on that in years to come if every time I buy and sell, it makes 2k for example?
Or does it not matter if I'm using the whole funds to re-buy my original fund?

Is the base cost always the Average cost then?
So my top kindred base cost on the whole value I am looking for doesn't matter then? I need to be concentrating on the average value as the base cost.

This formula then pretty simple.
The capital gain allowance ie. currently £12300 divide that by the gain from today's price per unit to Average price per unit.
That gives me the amount of units I need to sell which multiplied by today's unit price is the £'s figure I need to sell?
If that is the correct formula, don't seem complicated & u may have just taught me something great, I think I could do this myself for me, wife, daughter.

Notes for me, my new Base cost is the new Average cost then? Not the total figure in £’s what the whole lot is worth today?
And if need to know my base cost, that would the total value in £'s ie. today £353,260 divided by the Average cost £195.98 =

Do I want to be selling these in say 15 Feb (investing in similar fund), & then re-buying 19 March?
Or do I need to be doing 4th March, then re-buying 6th April new tax year?

So we established from your great simple teaching how to work out to utilize the Capital Gains allowance every year, what s the formula for let's say in 10 years time & there may be £1 million, & I then want to start spending & say withdraw 100k one year & we may be over the Capital Gain allowance, how do I then work out what will be my Capital Gain to sell tax on, as I imagine the formula is somewhat reversed?
Or is there a method to work out to just sell enough for the personal allowance?
And do we still need to do some sort of resetting base cost even when in the withdrawing years?

Someone said can deduct costs, what figure do they come off?

dales1

talexuser said:

Thanks, yes my spreadsheet average includes costs and agrees with the figures shown on iWeb. So a partial sale is simple because subtracting average from the crystallised gain is already subtracting that portion of costs?

Yes a partial sale is simple. The average cost for CGT purposes already includes its allowed portion of purchase costs.

So you multiply the average cost by the number of shares sold. Take the result and deduct it from the actual sales proceeds (net of dealing fees on sale). That gives you your capital gain.

And the average cost (for the remaining shares) stays the same until another transaction occurs.

eskbanker

NottinghamMan said:

eskbanker said:

NottinghamMan said:

Right, So it's only the re-buying that resets the base cost then.
Yes.

Answers inline above....

Perhaps worth noting that the 30-day rule only applies if you repurchase exactly the same investment - you do have the option to buy something similar but slightly different, e.g. Inc units instead of Acc or vice versa, to avoid being out of the market for 30 days.

Thanks eskbanker, u seem the Daddy at answering/explaining these in non complicated way, so if u can help with my next lot please.
Not sure I was really volunteering to answer another 14 questions but here goes....

Yes, I would buy similar fund groups for 30 days. Do I then just transfer the whole amount in £'s ie. £126,382 back after 30 days then? Whether it's gone up or down or if the fund I'm re-buying has gone up or down?
I don't have to re-buy exactly the same units I sold then?
Up to you - I wasn't saying you should buy other funds, or that you should buy them temporarily and sell again after the 30 days.  You should always have investments that you're happy to hold, so don't let the tax tail wag the investment dog, and obviously making multiple sales and purchases involves transaction costs, even though these can be offset against CGT liabilities.

And this fund I bought for 30 days, do I have to be careful of Capital Gains on that in years to come if every time I buy and sell, it makes 2k for example?
Or does it not matter if I'm using the whole funds to re-buy my original fund?
Every gain (or loss) you make on unwrapped investments counts towards CGT, so if you buy units and then sell them again 30 days later, any gain you make on those would potentially affect your careful calculations!

Is the base cost always the Average cost then?
So my top kindred base cost on the whole value I am looking for doesn't matter then? I need to be concentrating on the average value as the base cost.
I don't know what you mean by 'top kindred base cost'!  You really only need to maintain two numbers per investment - the total number of units you hold and their total acquisition cost, net of charges - from those two numbers you can derive the average cost for CGT purposes.  Every time you buy or sell, you adjust those two numbers.

This formula then pretty simple.
Indeed!

The capital gain allowance ie. currently £12300 divide that by the gain from today's price per unit to Average price per unit.
That gives me the amount of units I need to sell which multiplied by today's unit price is the £'s figure I need to sell?
If that is the correct formula, don't seem complicated & u may have just taught me something great, I think I could do this myself for me, wife, daughter.

Notes for me, my new Base cost is the new Average cost then?
Personally I feel that average cost is a more useful term, but if you're using base cost to represent the average net purchase cost of each unit, that needs to be fed into CGT calculations, then yes.

Not the total figure in £’s what the whole lot is worth today?
The total current value isn't particularly relevant for CGT purposes, no.

And if need to know my base cost, that would the total value in £'s ie. today £353,260 divided by the Average cost £195.98 =
Ah, maybe you mean something different by 'base cost' then!  I can't think of a use for total current value divided by average purchase cost?

Do I want to be selling these in say 15 Feb (investing in similar fund), & then re-buying 19 March?
Or do I need to be doing 4th March, then re-buying 6th April new tax year?
CGT liability is triggered by the asset disposal, so if you want a disposal to count towards this tax year's CGT allowance, then the sale needs to happen by 5 April.

So we established from your great simple teaching how to work out to utilize the Capital Gains allowance every year, what s the formula for let's say in 10 years time & there may be £1 million, & I then want to start spending & say withdraw 100k one year & we may be over the Capital Gain allowance, how do I then work out what will be my Capital Gain to sell tax on, as I imagine the formula is somewhat reversed?
The formula is the same if you want to work out how many units to sell to use up your CGT allowance in future, but if your question is the other way round, i.e. given a sale of x units then what's the CGT payable, then yes, it's a different calculation.  However, it's the same principle - you just work out the gain per unit (current unit price minus the most recently updated net average purchase cost), multiply by the number of units and subtract the prevailing CGT allowance to give the gain on which you'll be taxed.

Or is there a method to work out to just sell enough for the personal allowance?
The same method covered yesterday, assuming you're referring to the personal CGT allowance rather than the personal income tax allowance (which doesn't come into play).

And do we still need to do some sort of resetting base cost even when in the withdrawing years?
No, there is no recalculation of average purchase cost when selling.

Someone said can deduct costs, what figure do they come off?
You can deduct selling costs when selling, and add purchasing costs when buying.

See above....

NottinghamMan

Ha ha volunteering, love it. U shun't know your stuff then. Thanks ever so much, you've been invaluable & may potentially save me hundreds of thousands in 10-20 years, as if u Google this, no one makes this formula easily explainable like u have & some other kind answers from others on these pages, thanks to u all.

I'll reply to your points.

I don't know what you mean by 'top kindred base cost'!  You really only need to maintain two numbers per investment - the total number of units you hold and their total acquisition cost, net of charges - from those two numbers you can derive the average cost for CGT purposes.  Every time you buy or sell, you adjust those two numbers.
Yes my words Kindred, I mean I was holding the Base cost in too high esteem, when as u say, I just need total units & total acquisition cost which gives me average cost.

Ah, maybe you mean something different by 'base cost' then!  I can't think of a use for total current value divided by average purchase cost?
I got confused on working out base cost.

I'll put the next question out to everyone else as well if anyone still in answering mode.

I've just seen this from Hargreaves Lansdown:
Accumulation units
Accumulation units don’t pay out income. Instead, the income is retained and reinvested automatically. You don’t receive any new units, but the value of your existing units is increased.
This notional income is usually subject to income tax (unless held within an ISA or pension) but not CGT.

Which then opens up another can of worms, are these normal funds liable to income tax?

eskbanker

NottinghamMan said:

I've just seen this from Hargreaves Lansdown:

Accumulation units
Accumulation units don’t pay out income. Instead, the income is retained and reinvested automatically. You don’t receive any new units, but the value of your existing units is increased.
This notional income is usually subject to income tax (unless held within an ISA or pension) but not CGT.

Which then opens up another can of worms, are these normal funds liable to income tax?

Not sure exactly what you mean by 'normal' funds, but if you're referring to those held in unwrapped form, i.e. outside tax shelters, then any dividends generated from these (whether or not reinvested) are subject to income tax, although there is a nil-rate band that takes care of the first £2K of such income in any tax year.

NottinghamMan

eskbanker said:

NottinghamMan said:

I've just seen this from Hargreaves Lansdown:

Accumulation units
Accumulation units don’t pay out income. Instead, the income is retained and reinvested automatically. You don’t receive any new units, but the value of your existing units is increased.
This notional income is usually subject to income tax (unless held within an ISA or pension) but not CGT.

Which then opens up another can of worms, are these normal funds liable to income tax?

Not sure exactly what you mean by 'normal' funds, but if you're referring to those held in unwrapped form, i.e. outside tax shelters, then any dividends generated from these (whether or not reinvested) are subject to income tax, although there is a nil-rate band that takes care of the first £2K of such income in any tax year.

I mean normal funds as in Vanguard Life Strategy UCITS.
Yes I get the Dividends are taxed above 2k. 
Is the fund just increasing in value liable to income tax then?

eskbanker

NottinghamMan said:

Is the fund just increasing in value liable to income tax then?

The general principle is that unit value increases are taxable via CGT (only) and dividends are taxable via income tax, but accumulation versions blur the boundary by internally reinvesting the income to generate growth in unit value, so when holding such funds unwrapped, the platform will issue tax certificates clarifying how much of the value increase is attributable to reinvested dividends (and is therefore to be subject to income tax).

NottinghamMan

eskbanker said:

NottinghamMan said:

Is the fund just increasing in value liable to income tax then?

The general principle is that unit value increases are taxable via CGT (only) and dividends are taxable via income tax, but accumulation versions blur the boundary by internally reinvesting the income to generate growth in unit value, so when holding such funds unwrapped, the platform will issue tax certificates clarifying how much of the value increase is attributable to reinvested dividends (and is therefore to be subject to income tax).

Thanks a lot for your help then.
Yes, some of the sites seems to constantly mention the Dividend part & tax, but not then fully clarifying if full tax due on growth, they don't use the correct words, which seems to imply to me that it is only the Dividends that are taxed as income. 
And Vanguards Tax notification they send us, the Dividend notifications are minor. 

eskbanker

NottinghamMan said:

Yes, some of the sites seems to constantly mention the Dividend part & tax, but not then fully clarifying if full tax due on growth, they don't use the correct words, which seems to imply to me that it is only the Dividends that are taxed as income. 

With all due respect, it may not be the sites that aren't using the correct words, unless 'top kindred base cost' is perhaps a recognised industry term

And, as above, it is only the dividends that are taxed as income, regardless of whether they're reinvested or not....

NottinghamMan

eskbanker said:

With all due respect, it may not be the sites that aren't using the correct words, unless 'top kindred base cost' is perhaps a recognised industry term

And, as above, it is only the dividends that are taxed as income, regardless of whether they're reinvested or not....

Thanks a lot for your help.
Ha ha just realised, yes u could be right, they using their jargon & I ain't understanding it. I talk very normal.