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

eskbanker

NottinghamMan said:

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. 

There's nothing to stop you using your own terminology but if you're looking to understand the way an industry works, it'll all make much more sense if you accept and learn the standard terms rather than trying to argue that your own are better or more 'correct'!

NottinghamMan

eskbanker said:

There's nothing to stop you using your own terminology but if you're looking to understand the way an industry works, it'll all make much more sense if you accept and learn the standard terms rather than trying to argue that your own are better or more 'correct'!

Yes, I am very common, I'm often telling MP's & Authority bodies to talk normal Joe Bloggs to me, as I don't understand what they saying. Mine definitely ain't correct, just that I can't understand theirs. As soon as someone mentions the words Putting such & such in Trust, or Personal Allowance etc., I've lost it. 
But I do need to learn certain things & you have got it through to me how to calculate using my Capital Gains allowance to reset the base cost which I am very grateful u took the time & explained it in a way I could understand. It's amazing how many accountants don't understand pensions & now I've found out 'Resetting the Base or Average cost'.
Be nice to know from anyone on here if they have done the same & in years to come, if it made a big difference or is there any negatives etc., apart from being out that fund for 30 days which I know.
I intend to maybe use these funds in years to come before taking/as well as the pensions & ISA's etc., of course all in the most tax efficient manner. 

eskbanker

NottinghamMan said:
Yes, I am very common, I'm often telling MP's & Authority bodies to talk normal Joe Bloggs to me, as I don't understand what they saying. Mine definitely ain't correct, just that I can't understand theirs.

Just to be 100% clear, I wasn't commenting on (perceived) social status or anything like that, and was just simply highlighting the importance of using precise and common (in the sense of shared/agreed) terminology when talking about managing substantial sums of money!

NottinghamMan said:
It's amazing how many accountants don't understand pensions

Not really - an accountant does a different job, with different qualifications, from financial advisers, and even in the latter camp, it's only a subset that are qualified to advise on the specifics of pensions, which are an ever more complex specialist area.

As a more general point, if you find it all difficult to get to grips with, there is a plentiful industry of such advisers, who'll be more than happy to help - naturally they'll charge for the privilege, which offends some on here who choose to characterise them as parasites, but don't feel you have to do it all yourself....

EthicsGradient

dales1 said:

talexuser said:

Average price is easy to work out, but how do you work out dealing costs on partial sales?
The first purchase will have say stamp duty on a big amount so will be large cost, further dividend re-investments will have smaller amounts adding up.
At the point of partial sale  do you:
1 subtract the total of all costs up to that point, and rebase costs for further sales on the remainder to zero.
or
2 works out the proportion of costs up to that point, as a fraction of the shares sold compared to the total shares, and the remainder is the rebase of costs for future investments/sales?

It works like your option 2, but with no need to maintain separate running totals for purchase costs, dealing fees and stamp duty.

All these costs of buying, are brought together in calculating your average cost for CGT purposes.

(The average cost as shown on your platform statement will include all these costs).

NB if you hold the same stock on multiple platforms, you will have to calculate the overall average for yourself.

What a platform shows will depend on how thorough they've decided to be for working out a gain. They don't have to work out capital gains for you. For instance, Interactive Investor just works out the cost of buying new shares/units each time and adds that to their listed cost of the investment. But if it's an accumulating OEIC, they won't include the accumulated income in the cost price that they show.

So unless you know they have attempted to work out the cost with everything they know (and yes, if you also hold a stock on a different platform, they can't work it out unless they have a way of you adding the complete information to what they do know), you have to work it out yourself anyway to get an accurate figure (the accumulated income decreases the amount of CGT you might be liable for, so not taking it into account won't get you in trouble - you just might pay more than you need to, or use less of your yearly allowance than you could have).

NottinghamMan

eskbanker said:

Not really - an accountant does a different job, with different qualifications, from financial advisers, and even in the latter camp, it's only a subset that are qualified to advise on the specifics of pensions, which are an ever more complex specialist area.

As a more general point, if you find it all difficult to get to grips with, there is a plentiful industry of such advisers, who'll be more than happy to help - naturally they'll charge for the privilege, which offends some on here who choose to characterise them as parasites, but don't feel you have to do it all yourself....

That's one thing I do understand a lot more, pensions, paying my family make-up to the max limits each year. To me, pensions (mine) are/was a lot simpler than this Base cost formula.

Parasites, yes it's something I often get called for my trade from people who have no idea and think everything should be free.

I was happy to pay some accountant adviser specialist in this resetting base cost but couldn't find anyone.

I'm doing this from small phone now, so can't see all previous comments easy. When we work out units to sell, am I correct in saying we then need to be selling the actual figure ie. £126,000+ as if sell units and the price changes a lot overnight, could end up selling more or less than intended.

I see the next comment mentions charges and I din't want to confuse meself too much having just learnt this base average cost thing, but if Vanguard's max annual cost is £375 pa, I know u gonna say Yes wrong ha ha, would it be wrong of me to just add the £375 on top of the £126,000+ I'm going to sell?

eskbanker

NottinghamMan said:
When we work out units to sell, am I correct in saying we then need to be selling the actual figure ie. £126,000+ as if sell units and the price changes a lot overnight, could end up selling more or less than intended.

It's not an exact science so overnight changes to the unit price would affect how much the chargeable gain is, and could result in your undershooting or overshooting the target gain.  However, the effect is unlikely to be significant unless you're particularly unlucky, but even so, there's nothing you can do about it (if selling investments that aren't traded in real time) and it's best not to obsess about a few quid of 'wasted' CGT allowance or paying a few quid in tax.

NottinghamMan said:
if Vanguard's max annual cost is £375 pa, I know u gonna say Yes wrong ha ha, would it be wrong of me to just add the £375 on top of the £126,000+ I'm going to sell?

The annual platform cost of looking after your investments doesn't form part of the CGT calculation.

dales1

EthicsGradient said:

What a platform shows will depend on how thorough they've decided to be for working out a gain. They don't have to work out capital gains for you. For instance, Interactive Investor just works out the cost of buying new shares/units each time and adds that to their listed cost of the investment. But if it's an accumulating OEIC, they won't include the accumulated income in the cost price that they show.

So unless you know they have attempted to work out the cost with everything they know (and yes, if you also hold a stock on a different platform, they can't work it out unless they have a way of you adding the complete information to what they do know), you have to work it out yourself anyway to get an accurate figure (the accumulated income decreases the amount of CGT you might be liable for, so not taking it into account won't get you in trouble - you just might pay more than you need to, or use less of your yearly allowance than you could have).

Yes, well said EG.

I was treating this as a very simple introduction to the process.

I neglected to say that other (more involved) things are treated differently.

I could have mentioned the 30 day rule, but I didn't.

I could have mentioned Excess Reportable Income (including accumulation unit dividends), but I didn't.

The sadly missing contributor would have included all of the variations and exceptions, but I didn't !!

(Personally I would do my own calculations every time, and not rely on a platform's figures which I have known to be wrong).

NottinghamMan

Thanks for everyone's help. I feel I'm now armed with the formula to sell/switch the right amount of funds around 1st March & re-buy after 6th April.
And also the formula when withdrawing to sell permanently.
And hopefully in 10 years, we have a lot higher Base Cost.
Be interesting to know if in 10 years at say adding 100k a year too, that if do the re-basing every year, in 10 years, it does make a lot of difference, as I imagine, the more the fund grows & the more the profit gap gets wider from sale cost to Base cost, you'd have to sell less funds to use up your personal allowance every year, so the base cost increase becomes less.
If anyone thinks I've missed anything out or any negatives or pitfalls with this re-basing, please let me know. 

NottinghamMan

Question for u experts please. And also if anyone knows a financial adviser who specializes in this Capital Gains resetting base cost on funds. As I wun't mind paying to get all the answers going forward, as I may do the wrong thing one year.
Wife has average cost £202.10, today's cost £215.03.
Gain £12.93.
Capital Gains allowance £12,300 divided by 12.93 = 951.276 units to sell x 215.03 = £204,552.89
She only has £159,661.
The actual monetary gain is only £9,606.04.
Now I know some may not want to give financial advice,
But would we sell to reset the base cost this Tax year, or cause this is so low, if we left a year, we could catch up easily next year?
Or do we need to do every year so this base cost is as high as possible in years to come?
And if on a loss one year, would u still sell to reset the base cost?

Eco_Miser

But would we sell to reset the base cost this Tax year, or cause this is so low, if we left a year, we could catch up easily next year?

 How much is it going to go up next year? If it will be less than £2600 you could wait till next year. (But the allowance might be less next year, and the tax rate higher).

My crystal ball isn't working though. I'd sell now.