Converting accumulation shares to income shares in the same fund

Notepad_Phil

melbury said:

Thrugelmir said:

Upon reinvesting into income units. You will initially own the same holdings as the accum fund. 

Oh that doesn't sound too good as the income shares are less than half the price!  

Have just looked and the yield is 1.7%.

I think Thrugelmir meant that the value of the holding would be the same, not the number of units. So if share price is half the price of Acc unts then you'll have twice the number of units that you had.

EthicsGradient

Do you hold them in an ISA or SIPP, or in a general investment account (or just directly bought from M&G)? If the latter, changing to the income version would count as a disposal of the Acc units, and you should check if the capital gain is over the yearly allowance (£12,300).

Notepad_Phil

EthicsGradient said:

Do you hold them in an ISA or SIPP, or in a general investment account (or just directly bought from M&G)? If the latter, changing to the income version would count as a disposal of the Acc units, and you should check if the capital gain is over the yearly allowance (£12,300).

Are you sure of that? E.g. https://techzone.abrdn.com/public/investment/Guide-Taxation-of-Collectives (dated 6 April 2022) says "However, switches between different share classes within the same fund, for example switching between income and accumulation shares, are not treated as a disposal for CGT."

george4064

EthicsGradient said:

Do you hold them in an ISA or SIPP, or in a general investment account (or just directly bought from M&G)? If the latter, changing to the income version would count as a disposal of the Acc units, and you should check if the capital gain is over the yearly allowance (£12,300).

I don't think that's correct.

If the OP switches to the Income share class via a conversion, it is treated as an administrative change and therefore not considered a disposal and purchase, so CGT won't be an issue.

EdSwippet

george4064 said:

EthicsGradient said:

Do you hold them in an ISA or SIPP, or in a general investment account (or just directly bought from M&G)? If the latter, changing to the income version would count as a disposal of the Acc units, and you should check if the capital gain is over the yearly allowance (£12,300).

I don't think that's correct.

If the OP switches to the Income share class via a conversion, it is treated as an administrative change and therefore not considered a disposal and purchase, so CGT won't be an issue.

Right. However, it is the definition of "conversion" that makes things tricky. Selling accumulation units to cash and then later using the cash released to purchase equivalent distribution units is not necessarily a "conversion".

Beyond this, there really isn't much of any gain in switching from a fund's accumulation units to that same fund's income units. Any needed income can be just as readily realised by selling a few units of the accumulating fund as and when needed. Accumulation units are nothing more than income units with an automatic (and mostly invisible) dividend reinvestment, and except for different cumulative trading fees (if any), the long-term investing results from both will be identical.

NedS

EdSwippet said:

george4064 said:

EthicsGradient said:

Do you hold them in an ISA or SIPP, or in a general investment account (or just directly bought from M&G)? If the latter, changing to the income version would count as a disposal of the Acc units, and you should check if the capital gain is over the yearly allowance (£12,300).

I don't think that's correct.

If the OP switches to the Income share class via a conversion, it is treated as an administrative change and therefore not considered a disposal and purchase, so CGT won't be an issue.

Right. However, it is the definition of "conversion" that makes things tricky. Selling accumulation units to cash and then later using the cash released to purchase equivalent distribution units is not necessarily a "conversion".

There must be a 30 day break for the capital gain to be realised and it not to be considered a conversion. Selling and repurchasing within 30 days is considered a conversion.

EdSwippet

NedS said:

EdSwippet said:

george4064 said:

EthicsGradient said:

Do you hold them in an ISA or SIPP, or in a general investment account (or just directly bought from M&G)? If the latter, changing to the income version would count as a disposal of the Acc units, and you should check if the capital gain is over the yearly allowance (£12,300).

I don't think that's correct.

If the OP switches to the Income share class via a conversion, it is treated as an administrative change and therefore not considered a disposal and purchase, so CGT won't be an issue.

Right. However, it is the definition of "conversion" that makes things tricky. Selling accumulation units to cash and then later using the cash released to purchase equivalent distribution units is not necessarily a "conversion".

There must be a 30 day break for the capital gain to be realised and it not to be considered a conversion. Selling and repurchasing within 30 days is considered a conversion.

The bed-and-breakfast matching rules mean that selling and repurchasing the same identical thing -- for a fund, that would be units of the same fund and the same class to those sold -- does not generate a usable capital gain. The section 104 pool rules state that shares of different classes are pooled separately.

So, selling fund units of one class and later buying fund units of a different class moves stuff from one section 104 pool to another, skirting the above rule (see this thread, from January this year), and so generating a capital gain. Given this then, selling accumulation units and then later buying distribution units of the same fund cannot really qualify as a non-CGT-able "conversion".

melbury

NedS said:

EdSwippet said:

george4064 said:

EthicsGradient said:

Do you hold them in an ISA or SIPP, or in a general investment account (or just directly bought from M&G)? If the latter, changing to the income version would count as a disposal of the Acc units, and you should check if the capital gain is over the yearly allowance (£12,300).

I don't think that's correct.

If the OP switches to the Income share class via a conversion, it is treated as an administrative change and therefore not considered a disposal and purchase, so CGT won't be an issue.

Right. However, it is the definition of "conversion" that makes things tricky. Selling accumulation units to cash and then later using the cash released to purchase equivalent distribution units is not necessarily a "conversion".

There must be a 30 day break for the capital gain to be realised and it not to be considered a conversion. Selling and repurchasing within 30 days is considered a conversion.

They have sent me a form to convert the shares so I didn’t think it involved selling the acc shares and then purchasing the inc shares.  I thought they just switched them over, but obviously I have misunderstood.

They were originally purchased decades ago and so not within an ISA.

masonic

george4064 said:

EthicsGradient said:

Do you hold them in an ISA or SIPP, or in a general investment account (or just directly bought from M&G)? If the latter, changing to the income version would count as a disposal of the Acc units, and you should check if the capital gain is over the yearly allowance (£12,300).

I don't think that's correct.

If the OP switches to the Income share class via a conversion, it is treated as an administrative change and therefore not considered a disposal and purchase, so CGT won't be an issue.

Yes, exactly, conversion is not treated as a disposal, whereas sale and immediate purchase of a different class would be, because the transactions in different financial instruments cannot be matched under bed and breakfasting rules.

EdSwippet

melbury said:

NedS said:

EdSwippet said:

george4064 said:

EthicsGradient said:

Do you hold them in an ISA or SIPP, or in a general investment account (or just directly bought from M&G)? If the latter, changing to the income version would count as a disposal of the Acc units, and you should check if the capital gain is over the yearly allowance (£12,300).

I don't think that's correct.

If the OP switches to the Income share class via a conversion, it is treated as an administrative change and therefore not considered a disposal and purchase, so CGT won't be an issue.

Right. However, it is the definition of "conversion" that makes things tricky. Selling accumulation units to cash and then later using the cash released to purchase equivalent distribution units is not necessarily a "conversion".

There must be a 30 day break for the capital gain to be realised and it not to be considered a conversion. Selling and repurchasing within 30 days is considered a conversion.

They have sent me a form to convert the shares so I didn’t think it involved selling the acc shares and then purchasing the inc shares.  I thought they just switched them over, but obviously I have misunderstood.

You could be fine. If the fund provider switches things for you, as a single transaction and without an explicit move to cash or similar and then back again, this could be characterised as a "reorganisation", and that doesn't realise a capital gain. There is a special get-out clause for this in the capital gains tax rules.

However, the devil is very much in the details. Since these are unwrapped shares you want to be extremely careful that this would be a reorganisation, and not a sale and subsequent purchase of a different share class.

All that aside, what do you hope to gain by doing this anyway?

Assuming you want to remain in the same fund, accumulation units are literally nothing more than distribution units with automatic dividend reinvestment. You'll get the same investing results from both. Sticking with what you current have and just selling a small chunk when you need income will be much less troublesome. (You should however make sure that you use your £12k or so annual capital gains allowance to the full, even if that means selling more units than you need for current income; you can readily reinvest the excess, perhaps even in distribution units of the same fund.)

If you want to change fund entirely though, that's a different matter. That almost certainly cannot be characterised as a "reorganisation", in which case you then have no choice but to contend with capital gains taxes. As above though, the £12k or so annual capital gains tax allowance will help, particularly if you can manage to phase the transition over several years.