Bed & ISA-To do or not to do

lindabea

Can someone please help me decide whether or not it would be a good idea to bed&Isa by selling units in a GIA with a loss of around 8%.  The alternative is to wait for the price to go up, but of course this may not happen during this year and I'd lose next year's ISA allowance.   On the plus side, I can of course off set the loss against future Capital Gains which would be of some benefit when the allowance drops to £500.  Any thoughts anyone can offer for me to consider.  

eskbanker

The 8% loss doesn't matter if you're buying straight back within the ISA, unless the investment is particularly volatile with a risk of further loss while briefly out of the market.

The CGT allowance isn't going anywhere near £500 to the best of my knowledge, it's being reduced from £12,300 to £6K and then £3K....

ColdIron

lindabea said:

Bed & ISA-To do or not to do

To do

There are huge upsides to sheltering your investments in an ISA and few (if any for most) downsides

The price when you do it is largely irrelevant as above

lindabea

eskbanker said:

The 8% loss doesn't matter if you're buying straight back within the ISA, unless the investment is particularly volatile with a risk of further loss while briefly out of the market.

The CGT allowance isn't going anywhere near £500 to the best of my knowledge, it's being reduced from £12,300 to £6K and then £3K....

Thank you for your reply.  The reference to the £500 - I was getting the whole thing mixed up with the dividend allowance, so thank you for correcting me on that.  Regarding the 8% loss, I think I understand what you're saying.  I just haven't thought it through enough!!  If I sell 20K worth of units from the GIA, I still have 20K worth of units in the ISA account, although less units because the ISA unit price is higher than the unit price in the GIA ( acc V inc). 

But am I correct that I can offset the loss against future gains    

Steve_666_

Dividend and interest tax limits are also reducing significantly, so isolating long term investments in an ISA is a sound strategy, as is using each years ISA allowance. You  have to weight up any extra cost the ISA may incur against potential tax savings. Also if these, CGT, Dividends, interest,  are the only reasons you have to contact HMRC and fill out forms, then that is also a bonus on wrapping the ISA around your investments.

eskbanker

lindabea said:
Regarding the 8% loss, I think I understand what you're saying.  I just haven't thought it through enough!!  If I sell 20K worth of units from the GIA, I still have 20K worth of units in the ISA account, although less units because the ISA unit price is higher than the unit price in the GIA ( acc V inc).

Bed & ISA tends to refer to selling unwrapped holdings and buying back exactly the same ones within the ISA, so if you want to sell GIA units and buy something different within the ISA then that's not really Bed & ISA as such, just a sale and then a purchase of something else.

lindabea said:
But am I correct that I can offset the loss against future gains    

Yes.

ColdIron

lindabea said:

eskbanker said:

The 8% loss doesn't matter if you're buying straight back within the ISA, unless the investment is particularly volatile with a risk of further loss while briefly out of the market.

The CGT allowance isn't going anywhere near £500 to the best of my knowledge, it's being reduced from £12,300 to £6K and then £3K....

 I still have 20K worth of units in the ISA account, although less units because the ISA unit price is higher than the unit price in the GIA ( acc V inc).

You are confusing two things. The unit price of an Acc unit in a GIA or an an Acc unit in an ISA is the same, ditto Inc units. Of course the price of a single Acc unit is higher than an Inc unit (because of retained dividends) but the value of the combined units is the same where ever it is and would only be apparent if you switched from one class to the other. Is there more beer in 10 pint units or twenty half pint units?

But am I correct that I can offset the loss against future gains   

Yes but 1) it's probably not that significant unless you had a very large holding, 2) it's obviously irrelevant to everything in an ISA and 3) you would need to record the loss with HMRC for the relevant year it occurred. You can't just magic it out of a hat further down the road and knock it off a future gain. I.e. report an actual gain of say £15,000 as £12,000 or whatever (that would be misrepresentation)

Edit: If you have several funds and have an eye on future reductions in allowances you might have some funds in profit and some in loss. An easier course of action might be to sell more of the funds with the highest gains now (perhaps mixing in some units with a loss to limit the gain). In future years you will have fewer high gain investments and more at a loss (or at least a lower gain) which may easily be contained within a lower allowance

InvesterJones

Isn't loss offset only within the same tax year? I didn't think you could carry forward a loss.

I'm wrong, you can!

https://www.gov.uk/capital-gains-tax/losses

eskbanker

InvesterJones said:

Isn't loss offset only within the same tax year? I didn't think you could carry forward a loss.

No, they can be carried forward:

https://www.gov.uk/capital-gains-tax/losses

lindabea

eskbanker said:

lindabea said:
Regarding the 8% loss, I think I understand what you're saying.  I just haven't thought it through enough!!  If I sell 20K worth of units from the GIA, I still have 20K worth of units in the ISA account, although less units because the ISA unit price is higher than the unit price in the GIA ( acc V inc).

Bed & ISA tends to refer to selling unwrapped holdings and buying back exactly the same ones within the ISA, so if you want to sell GIA units and buy something different within the ISA then that's not really Bed & ISA as such, just a sale and then a purchase of something else.

lindabea said:
But am I correct that I can offset the loss against future gains    

Yes.

It would appear that the more I delve into these matters, the more confusing it becomes.  I may have mis-understood the concept of bed & ISA.  Suppose I have VLS 80% acc fund in an ISA and VLS 80% inc fund in a GIA.  If I sell 20K worth of units from the GIA, and buy the equivalent units in the ISA, are you saying that's not a bed & ISA?  

That being the case, your earlier comment about the 8% loss not being relevant, would that still stand in this scenario. The way I see it following your comment, is that although I am making a loss by selling the inc units in the GIA for a lower price than the acquisition value, I still have the same amount of money invested in the ISA acc fund and that is why you say the loss is irrelevant.  Or have I misinterpreted what you said.   

eskbanker

lindabea said:

eskbanker said:

lindabea said:
Regarding the 8% loss, I think I understand what you're saying.  I just haven't thought it through enough!!  If I sell 20K worth of units from the GIA, I still have 20K worth of units in the ISA account, although less units because the ISA unit price is higher than the unit price in the GIA ( acc V inc).

Bed & ISA tends to refer to selling unwrapped holdings and buying back exactly the same ones within the ISA, so if you want to sell GIA units and buy something different within the ISA then that's not really Bed & ISA as such, just a sale and then a purchase of something else.

lindabea said:
But am I correct that I can offset the loss against future gains    

Yes.

It would appear that the more I delve into these matters, the more confusing it becomes.  I may have mis-understood the concept of bed & ISA.  Suppose I have VLS 80% acc fund in an ISA and VLS 80% inc fund in a GIA.  If I sell 20K worth of units from the GIA, and buy the equivalent units in the ISA, are you saying that's not a bed & ISA?  

That being the case, your earlier comment about the 8% loss not being relevant, would that still stand in this scenario. The way I see it following your comment, is that although I am making a loss by selling the inc units in the GIA for a lower price than the acquisition value, I still have the same amount of money invested in the ISA acc fund and that is why you say the loss is irrelevant.  Or have I misinterpreted what you said.   

Bed & ISA is effectively just a label for bundling three separate activities together for administrative ease, but ultimately it is still three separate things - sell some unwrapped investments, move the proceeds into the ISA wrapper, and buy back the same investments.  If you wish to buy different investments from what you've just sold, then there's nothing to stop you from doing that, but I don't believe that providers will generally bundle this as Bed & ISA, so you'd need to do them separately.

The comment about the 8% loss effectively being irrelevant still applies even if you're switching between inc and acc units of the same fund.