Quick sense check - capital gains

Hey guys, 

I'm considering selling some units in a fund to realise a capital gain to take advantage of the allowance/zero rate band of £6,000 before it's reduced to £3,000 the following year. I've been an investor in an unsheltered sense for a couple of years, and to be honest, not had gains to realise before!

So, before I embark upon this I just wanted to sense check my logic:

The capital gain bit
Working out the gain:
Market Price on sale - Average Price   (this will be partial disposal)
So, in my example:
Average Purchase: £2.18
Market Price: £2.50
Gain per share = £0.32

Selling 15,625 shares would equate to approximately a £5,000 gain in my book. This would generate just over £39,000.

I'm aware this is under the limit of 6k, but I wanted some head space on the off chance the sale price was higher than I had expected - with this being an OEIC. 

The 'time out of the market'/matching rules bit
I'm guessing the optimal thing to do here, cash dependant, would be to:
a. Buy the same amount, £39,000 of something similar (this is an index fund) on the same day - which will probably be a similar price
b. Use the £39,000 from the sale for something else - just as long as it's not the fund sold!
c. Only buy more units of the sold fund once 30 days has elapsed, possibly selling the fund holdings in a. if desired, or building up to allow swaps like this in future tax years

The overall tax position bit
From what I understand, using this allowance will not have an impact on other things, such as:
* Income from Savings and Dividends
* Personal allowance
* Overall tax rate

So, if I was getting say £49,000 in income from say savings and dividends, and then declared gains of £5,500, this doesn't push me over the £50,270 figure and nudge me up a band (with the implications this has too).

Mad when I think about it - sitting on a loss and having savings at 0.25% not long ago, now sitting on a (small) gain (at last) and lots of savings over 5%. Wonder what the next 5 years will have in store in this regard :o

Thanks as always for reading :)



Comments

  • Keep_pedalling
    Keep_pedalling Posts: 16,218
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    Can you bed and ISA some of the proceeds or have you already used your allowance up? 
  • ChilliBob
    ChilliBob Posts: 2,041
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    All used up, for me, Mrs and children! - But a good idea for sure, cheers :)
  • Keep_pedalling
    Keep_pedalling Posts: 16,218
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    edited 29 January at 9:35AM
    ChilliBob said:
    All used up, for me, Mrs and children! - But a good idea for sure, cheers :)
    If you do the disposal just before the end of the financial year then you will only be out of the market for a few days for most of it.
  • masonic
    masonic Posts: 22,895
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    edited 29 January at 9:38AM
    That all looks ok, but it is unlikely the proceeds of the sale would be available to reinvest on the same day, unless the order is placed as a switch or you have another £39,000 to cover the buy order. If you are doing a fund switch, you should avoid different unit classes of the same fund, as a switch could be considered a reorganisation of capital rather than a disposal. I'm not sure if you've included allowable costs in your average acquisition cost, but this would just allow you to sell a little more, which, given you not trying to maximise the number of units sold, is probably of no consequence.
  • ColdIron
    ColdIron Posts: 8,679
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    edited 29 January at 9:58AM
    Sounds about right
    I assume your average is a weighted average and not just halfway between the min and max price
    I also assume this is an Inc OEIC as you haven't accounted for any retained dividends. If it was Acc they would reduce your real gain and maybe allow you to sell a little more
    If Inc how about equalisation payments? These would reduce your base cost and increase your gain, though with your £1,000 headroom probably not a worry
  • ChilliBob
    ChilliBob Posts: 2,041
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    Thanks Masonic.

    Yeah, I was thinking of putting what I roughly expect the proceeds to be into the GIA before the sale, so the two instructions could be done almost at once tbh. The proceeds could then either be put back from where they were taken (easy access) or something else really. 

    I'd not factored costs into it (3.99). I never got round to this last year (selling to make use of CGT) as my portfolio was always teetering between gain and loss - so to sell enough to make a gain would have been massive, and with the potential I'd make a loss!

    I did have a quick look at 'Net Adjusted Income' as I know that's used to assess other stuff, but it seems CGT doesn't factor into this.


  • ChilliBob
    ChilliBob Posts: 2,041
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    ColdIron said:
    Sounds about right
    I assume your average is a weighted average and not just halfway between the min and max price
    I also assume this is an Inc OEIC as you haven't accounted for any retained dividends. If it was Acc they would reduce your real gain and maybe allow you to sell a little more
    If Inc how about equalisation payments? These would reduce your base cost and increase your gain, though with your £1,000 headroom probably not a worry
    Interesting, sorry I didn't see this response when I posted, must have come in at a similar time... 

    Yes, it's an OEIC, Fidelity World P inc.

    The average is just based on what Interactive Investor tell me. The units have been purchased in different size chunks at different times over a couple of years. Not sure on their methodology.

    I think I looked into this ages ago and total number of units purchased / total paid gave me the average, then I saw the II figure, I think they were the same. I think I tried a more convoluted methodology and got the same result.

    I assume once sold the average price remains the same until new purchases are made, which will nudge it up a bit.

    I hadn't even considered equalization payments, how do I go about factoring this in?

    Thanks :) 
  • ColdIron
    ColdIron Posts: 8,679
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    ChilliBob said:
    ColdIron said:
    Sounds about right
    I assume your average is a weighted average and not just halfway between the min and max price
    I also assume this is an Inc OEIC as you haven't accounted for any retained dividends. If it was Acc they would reduce your real gain and maybe allow you to sell a little more
    If Inc how about equalisation payments? These would reduce your base cost and increase your gain, though with your £1,000 headroom probably not a worry
    The average is just based on what Interactive Investor tell me. The units have been purchased in different size chunks at different times over a couple of years. Not sure on their methodology.

    I think I looked into this ages ago and total number of units purchased / total paid gave me the average, then I saw the II figure, I think they were the same. I think I tried a more convoluted methodology and got the same result.
    They might be right but I would work it out myself to be certain. You are on the right track. Add up your total units and your total costs (including any transaction fees, those £3.99s?) and divide one by the other
    I assume once sold the average price remains the same until new purchases are made, which will nudge it up a bit.
    Or down. But yes, sales do not affect your cost of acquisition
    I hadn't even considered equalization payments, how do I go about factoring this in?
    As I say, with plenty of headroom equalisation won't likely be an issue to you now but one day it might be
    At a high level when you buy between ex dividend dates you are effectively purchasing any accrued dividend built up since the last distribution and you shouldn't pay dividend tax on it. When the next 'dividend' is paid it will be split into two separate payments. A real dividend that is taxable and an equalisation payment which isn't. This won't happen again unless you buy again
    That equalisation payment (which was paid as cash into your account) is a return of capital so if you paid £1,000 initially your base cost is now less, e.g. £998. That increases your capital gain on sale (what you got minus your base or book cost)
    One of the responsibilities of a GIA is keeping full and accurate records, so you would add up all those equalisation payments and deduct them from your costs (or add them to you gain if you like). You will see them in your statements or summarised in you annual Consolidated Tax Certificate
    Like you I don't often go right up to the limit to avoid that bothersome calculation but you should be aware of it
  • ChilliBob
    ChilliBob Posts: 2,041
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    Thanks ill try a roll my own approach and see how close it is to IIs. I'll do a with and without equalization and see what the difference is. 


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