GIA - Capital Gains Tax

DoDa

Soon I will be investing £100,000 in a stocks and shares general investing account across 10 distributing investment funds. Each year I will transfer £20,000 to a stocks and shares ISA. 

Please can someone clarify how capital gains tax is applied in this situation. I am assuming each fund is considered individually for capital gains and with careful management of the transfers I should be able to stay within the £3,000 capital gains tax free limit for each fund over the next 6-years or so. 

masonic

The capital gain is calculated on the units you sell. Providing the gain across those units is less than the annual allowance, and you have no other gains, you wouldn't have anything to pay. This will start to become challenging when you reach around 15% growth of your investments, so it might not take long for some CGT to be payable.

GeoffTF

You will either need to hire a qualified accountant or do a lot of learning yourself. You will find some of the story here:

https://techzone.abrdn.com/public/investment/Guide-Taxation-of-Collectives

and some more of it here:

https://www.vanguardinvestor.co.uk/investing-explained/general-account-tax-information

I do not know of any single source that gives all the information that you might need.

EthicsGradient

Yes, each fund is considered individually - meaning that when working out gains for a year, you only look at the realised gains on funds you've sold in that year, and their acquirement cost is only based on figure for that fund.

You may find that, if you want to avoid CGT altogether, it'll take you a few more years. In the first couple of years, if you sell £20k of any funds so that you can put that in the ISA, it's unlikely that you'll reach the £3,000 allowance. But once the accumulated gain reaches 15% of the total value, then that exceeds the allowance - and annual growth at 5.6% a year (quite reasonable for an investment) would reach that in 3 years. So after that, you'd be selling less than £20k each year, and it'll take a few more years to go through it all.

You would have the option of selling more in the first couple of years, to fully use the CGT allowance, and buying another fund in the GIA. This would mean there's less unrealised gain left in the GIA, which means from year 3 onwards you can sell a bit more, and contribute a bit more into the ISA each year. That gets everything transferred into the ISA quicker; but it would involve some dealing costs and spreads because you're selling more. Whether that would be worth it may depend on what happens with income tax - with a dividend allowance of £500, you'll probably pay some tax on dividends, unless you're picking growth-only funds.

If you don't want to repurchase funds in the GIA, then a rule of thumb would be: at first, sell £20k a year of the funds that have the biggest cumulative gain. When that would exceed the £3k CGT allowance, sell ones that enable you to just stay inside it. Eventually, all your remaining funds will have a gain of more than 15% of their value, so sell those with the least gain to get exactly £3k.  It may take 10 years, this way, all depending on growth rates.

As said above, either get an accountant to model it/do the calculations each year, or use a spreadsheet to both keep track of what you could do with some scenarios, and what you actually end up doing (your tactics may change, depending on growth, allowances etc.)

One more thing: in theory, it should be better to do the selling and ISA contribution at the start of the tax year. This is because the allowances are fixed for the tax year, but you'd expect, on average, the value of your GIA funds to go up during the year. So it's better to, say, sell £20k of a fund at the start of a tax year, with a gain of £3k, rather than wait till the end, when the value has gone up to £21k, and the gain is £4k, meaning you either pay CGT on £1,000, or you can only sell £15,750 with a gain of £3k.

Notepad_Phil

I'm not sure whether I'm misreading your post, but just in case I'm not, the amount of gain you can make before CGT is payable is not per fund but is the total that you make across your full GIA portfolio per tax-year. It sounds to me that you potentially think that in each tax-year you could make a profit of £2999 on selling down from each of your funds (i.e. a total of £29,990) and not have any CGT to pay.

Apologies if I have misread you.

talexuser

Good point, the 6k this year and 3k next applies to the total gain of all funds sold in the tax year.

MX5huggy

Have you considered using pension as well as ISA as a tax wrapper? 

John464

Why 10 funds?
To maintain that balance you would have to make 10 trades every time you sell
Wheras you could get one low fee world tracker ETF like VWRL that would give you plenty of diversification

DoDa

Thank you for all your responses.

I misunderstood how CGT worked and now having completed some worked examples I can see it does not make any difference if I hold 1-Fund of £100,000 or 10-Funds of £10,000 wrt to CGT paid.  

Both CGT and dividend tax are negligible as I pay basic rate tax and I estimate it will take around 7-years to move the GIA into an S&S ISA. 

nmaria

Soon I will be selling a small piece of land and wonder if I can gift the money (partly) to my children to avoid paying capital gains tax
anybody any idea?

EthicsGradient

The gain is made when you sell the land; giving the proceeds to your children won't avoid the gain, or the tax.