Converting accumulation shares to income shares in the same fund

EthicsGradient

Notepad_Phil 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).

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."

Well, I asked on the HMRC forum, and they replied they should be treated as different classes:

When working out how to match acquisitions of investments with disposals, CG51560 says the assets must be in the same class - https://www.gov.uk/hmrc-internal-manuals/capital-gains-manual/cg51560 - and points to CG50203, which gives examples for shares in companies (such as partly paid shares or preference shares) - https://www.gov.uk/hmrc-internal-manuals/capital-gains-manual/cg50203 . However, I can't tell if for OIECs, income units and accumulation units are considered to be in the same class or not.
...
Hi,

OEICs can issue shares of a number of different classes. These include income shares, net or gross accumulation shares and currency shares, . These should be treated as different classes of unit. See link: CG57755 - OEICs: shareholders: shares: classes  .

https://community.hmrc.gov.uk/customerforums/cgt/d8d535b0-774f-ec11-a3ee-00155d974e91#post-ce3a8dac-774f-ec11-8f8e-000d3ad5507b

EdSwippet

EthicsGradient said:
...  Well, I asked on the HMRC forum, and they replied they should be treated as different classes ...

Nicely clear. Thanks for asking and posting this.

Specifically for M&G, the prospectus for the OP's fund is a bit difficult to parse, but contain the following:

15.1.1 Holders of Shares in a Sub-fund may at any time switch all or some of their Shares of one Sub-fund (‘Original Shares’) for Shares of another Sub-fund of this or another M&G OEIC (‘New Shares’) provided they are eligible to hold Shares in that class or Sub-fund and are in the same currency. The number of New Shares issued will be determined by reference to the respective prices of New Shares and Original Shares at the valuation point applicable at the time the Original Shares are redeemed and the New Shares are issued.

15.1.2 Switching may be effected by giving instructions to the ACD and the Shareholder may be required to provide sufficient written instructions (which, if required – see paragraph 14.2.3 – in the case of joint Shareholders must be signed by all the joint holders).

...

15.1.6 Please note that a switch of Shares in one sub-fund for Shares in any other Sub-fund is treated as a redemption and sale and will, for persons subject to UK taxation, be a realisation for the purposes of capital gains taxation.

So ... a "switch" is something that it has to be actioned by the ACD; the holder simply selling one class and later purchasing another presumably wouldn't count. And a "switch" would be a CGT event if it is between funds, but not if between classes.

All of which suggests that provided the OP carefully and faithfully follows all of M&G's instructions and paperwork to move from accumulation to income class shares of the same fund, this should not create a CGT event (because no "disposal"?). Maybe.

If it were me though, even armed with this information I wouldn't bother. Aside from the minor psychological comfort of seeing dividends arrive as hard cash rather than a less visible reinvestment, there is really no gain to it. There is however a non-zero risk of a mistake somewhere that could then generate a large and entirely unnecessary tax bill.

Notepad_Phil

EthicsGradient said:

Notepad_Phil 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).

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."

Well, I asked on the HMRC forum, and they replied they should be treated as different classes:
...

Thanks. I wonder whether this is a recent change as they certainly seemed to consider that such a switch wouldn't count as a disposal back in 1998.

"On a separate point, we have been asked to explain the CGT treatment where an investor switches between income units and accumulation units in the same sub-fund of an authorised unit trust umbrella scheme. Section 102 TCGA 1992 does not apply in these circumstances. This is because both the old units and the new units (treated as shares by Section 99 TCGA 1992) provide rights to participate in the same separately pooled part of the scheme property. So, where an investor switches between income units and accumulation units in a single sub-fund of an umbrella scheme, Section 127 TCGA 1992 can apply. In a straightforward switch, where no consideration is given or received apart from the old units and the new units, the switch would be treated as not giving rise to any disposal for CGT purposes. The new units will be treated as having the same date of acquisition, and the same capital gains cost, as the old units."

taken from:
https://webarchive.nationalarchives.gov.uk/ukgwa/20050302121257/http://www.inlandrevenue.gov.uk/bulletins/tb28.htm

which was linked in a similar question on reddit a few years ago:
https://www.reddit.com/r/UKPersonalFinance/comments/5eqkxz/tax_capital_gains_tax_on_converted_fund_from/

masonic

Notepad_Phil said:

EthicsGradient said:

Notepad_Phil 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).

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."

Well, I asked on the HMRC forum, and they replied they should be treated as different classes:
...

Thanks. I wonder whether this is a recent change as they certainly seemed to consider that such a switch wouldn't count as a disposal back in 1998.

"On a separate point, we have been asked to explain the CGT treatment where an investor switches between income units and accumulation units in the same sub-fund of an authorised unit trust umbrella scheme. Section 102 TCGA 1992 does not apply in these circumstances. This is because both the old units and the new units (treated as shares by Section 99 TCGA 1992) provide rights to participate in the same separately pooled part of the scheme property. So, where an investor switches between income units and accumulation units in a single sub-fund of an umbrella scheme, Section 127 TCGA 1992 can apply. In a straightforward switch, where no consideration is given or received apart from the old units and the new units, the switch would be treated as not giving rise to any disposal for CGT purposes. The new units will be treated as having the same date of acquisition, and the same capital gains cost, as the old units."

taken from:
https://webarchive.nationalarchives.gov.uk/ukgwa/20050302121257/http://www.inlandrevenue.gov.uk/bulletins/tb28.htm

which was linked in a similar question on reddit a few years ago:
https://www.reddit.com/r/UKPersonalFinance/comments/5eqkxz/tax_capital_gains_tax_on_converted_fund_from/

This is correct and does not conflict with the HMRC quote given by Ethicsgradient above. The position is this:

• If the switch is done via conversion, where the original units are not sold for cash, but instead directly exchanged by the fund house, then it is not a disposal
• If the switch is done by first selling the original units (for a consideration in cash), then the proceeds are reinvested in a different financial instrument, i.e. different fund ISIN, then it is a disposal and the subsequent purchase cannot be matched to the sale of a different financial instrument under bed and breakfast rules.