Avoiding going over the Captil gains Annual Exempt Amount

David_66

I Have £246,000 invested in HSBC GLOBAL AM UK GLOBAL STGY DYNAMIC PTF C, on Iweb.  It has made a profit of £22,676 so I was wanting to use this years capital gains Annual Exempt Amount before April. The plan would be to sell enough of the MDYNAM (a little over half of it) and buy something similar to use the £12,300 exempt amount. I wondered what others do as when you sell on Iweb or elsewhere something such as MDYNAM as it doesn't go through straight away you don't know the specific price you're going to get until it sells. I am early retired and am living on my investments and do not yet receive a pension and currently don't have to fill in a tax return. I am trying to avoid attempting to sell enough to use up just under the £12,300 amount but the price going up in between me making the order to sell and it actually going through and then having to do a tax return or deal with HMRC for the sake of a few hundred pounds gain over the Exempt amount. I supposed one way would be to sell in a a initial larger batch well under the allowance and then a smaller amount once I see how much allowance is left.

Thanks

musehead

Also beware that if the amount you sell is more than 4x the exempt amount (so £49,200) you still have to report it even if the gain is under the exempt amount. So if you want to avoid having to deal with HMRC at all you'll need to make sure to sell less than that amount.

underground99

musehead said:

Also beware that if the amount you sell is more than 4x the exempt amount (so £49,200) you still have to report it even if the gain is under the exempt amount. So if you want to avoid having to deal with HMRC at all you'll need to make sure to sell less than that amount.

That's not likely to affect OP though.

- OP says he doesn't want to exceed the annual exempt amount because he is hoping to avoid doing a tax return or deal with HMRC. So presumably is not already required to complete a self-assessment tax return for any other reason.

- The requirement to give details of your disposals if they exceed £49200 is part of the self-assessment tax return process. If you're not required to do a self assessment, there's no requirement to tell HMRC about your disposals unless you have non-exempt gains or you want to declare losses so you can carry them forward to future years.

- So, assuming the OP is not doing a tax return, there's no reason to 'deal with HMRC at all' just for having disposals over £49200... if his gross gains are below £12300 he can keep the information to himself.

tigerspill

Can you sell and re-buy the same investment to use up CG allowances?

eskbanker

tigerspill said:

Can you sell and re-buy the same investment to use up CG allowances?

Only if you leave more than 30 days between those transactions....

TBC15

musehead said:

Also beware that if the amount you sell is more than 4x the exempt amount (so £49,200) you still have to report it even if the gain is under the exempt amount. So if you want to avoid having to deal with HMRC at all you'll need to make sure to sell less than that amount.

Not for the OP in the circumstances you describe. You only have to declare the transaction (4x CGT allowance) if you are already subject to self assessment.

TheAble

Filling out a tax return is really not a big deal.

David_66

Thanks for your help people, the other question is where do I put my £12,300 for 30 days that is as close to MDYNAM as possible before moving it back again.

underground99

David_66 said:

Thanks for your help people, the other question is where do I put my £12,300 for 30 days that is as close to MDYNAM as possible before moving it back again.

Plenty of providers offer rival mixed asset funds with the same target volatility range albeit with different underlying assets - for example L&G or Blackrock are rivals; but within the same family of HSBC funds you could look at putting a portion of the released funds into HSBC's Global Strategy 'Adventurous' fund (which sits higher on the risk scale) and a portion of it (perhaps a larger portion) into Global Strategy 'Balanced' which is the tier below. The overall blend would then be similar to the Dynamic fund that you were temporarily moving from.

Maybe the simplest method if you are currently in HSBC Global Strategy Dynamic C Acc (GB00B849DT80 / MDYNAM) would be to switch from that into some other fund (or even just to cash) for a day and then switch to HSBC Global Strategy Dynamic C Inc (GB00B7NM4986 /MDDYNA) which is the income-distributing version of the exact same fund that the other half of your money would be staying in.  The Inc class is a different financial instrument to the Acc class, as far as the CGT matching rules are concerned.

The reason to bounce into that alternative fund class via cash or via another fund for a day before eventually ending up in the Inc class a day or two later, rather than just doing a straight 'switch' from Acc to Inc, would be to create a nice clean break so that there could be no assumption from HMRC that the fund manager had simply re-jigged your holding to convert your Acc units into Inc units, which would lead them to say it wasn't really a disposal and that there was in fact no gain for CGT purposes.  If you have redeemed your Acc units and received cash for them (or received units in a different fund entirely), it would definitely be treated as a 'disposal' of the Acc shares, and so from the taxman's perspective you would achieve the objective of making the c.£12k capital gain that you set out to make this tax year.

Then a little more than a month later once you've 'served your time' for the 30-day rule, you could go back the other way if you wanted to. But there is no real hardship from holding the Inc version of the fund - it has the same performance, and will generate a bit of cash from time to time which you could either reinvest on ex-div day or use to pay platform fees etc.

David_66

Thanks for the reply Underground, I have sold using Iweb's online interface rather than ringing a fund manager to do it, so it should be going into cash before I then make the separate purchase once it has gone through. Just buying the Inc version of the same fund would be the closest and easiest, I just remember reading a couple of discussions on here where there was a disagreement amongst people on whether selling Acc and buying Inc would be counted as a disposal by HMRC for CGT purposes

underground99

David_66 said:

Thanks for the reply Underground, I have sold using Iweb's online interface rather than ringing a fund manager to do it, so it should be going into cash before I then make the separate purchase once it has gone through. Just buying the Inc version of the same fund would be the closest and easiest, I just remember reading a couple of discussions on here where there was a disagreement amongst people on whether selling Acc and buying Inc would be counted as a disposal by HMRC for CGT purposes

Yes, there have been a few of those discussions. But HMRC rules do clarify that different classes of shares in an open ended fund (e.g. class R vs class I or class C, or version Acc vs version Inc) are different financial instruments - not least, they obviously trade at a different price per share because they carry rights to receive an different amount of fund assets on a liquidation of the fund. So if they were trading on a stock exchange you would definitely not be indifferent between which one you get, if you offered to pay £x to receive one share; so they are not the same financial instrument.

If you sell or redeem one financial instrument resulting in you being owed some cash, and then decide to buy a different financial instrument with the proceeds, settling the payment obligation for the new investment with your own existing cash (or the cash proceeds you received from selling that first, different investment...) it definitely can't be considered that:

(a)  the fund manager decided to restructure its share capital and converted your old shares of one type directly into new shares of a different type, as a direct share-for-share exchange or restructuring.  Or that, 

(b) you re-bought the same financial instrument you just sold, having just disposed of it a day or two earlier.

-  because clearly for (a), you haven't just arranged to convert one share into another. You redeemed your shares, they paid you off, and you chose to buy something different at a later date (albeit only a day or two later); the sale price of Class C Acc can only be compared with the historic purchase cost of those Class C Acc shares, back a number of weeks or months or years ago. This generates a capital gain - which is what you're expecting, so is fine.

- and clearly for (b) nobody could accuse you of you re-buying the same financial instrument you recently sold; because the financial instrument you end up buying is a different one, worth fewer pounds per share than the one you used to own, and so is not homogenous / pari passu with the original thing you held. Therefore the disposal of of asset 'Class C Acc' can't possibly be matched with the purchase of asset 'Class C Inc' as if it were the same investment. So the disposal of Class C Acc can only be compared with the historic purchase cost of those Class C Acc shares back a number of weeks or months or years ago. This generates a capital gain on the exit of Class C Acc shares - which is what you're expecting, so is fine.