A simple guide for CGT liability on GIA please?

[Deleted User]

1) They don’t
 2) They don’t 
3) Interest is subject to income tax. Capital gains is subject to capital gains tax. 

Hoenir

Whatever your thinking. The HMRC don't play games. Besides the tax due and interest thereon. There's penalties. 

Penalties for errors and mistakes on returns

There is a ‘behaviour based’ system of penalties for inaccuracies on tax returns. These range from 0% to 100% of the tax underpaid (or refund over claimed). 0% applies where a taxpayer has taken reasonable care, but later discovers an error and discloses this to HMRC. At the other end of the scale, 100% penalties can apply when a taxpayer deliberately makes a false return, conceals the fact and only accepts the position following a challenge by HMRC.

Reasonable care – no penalty;

Careless behaviour – 0% and 30% ; if after prompting by HMRC- 15% minimum applies.

Deliberate misstatement –20% and 70%; if after prompting by HMRC – 35% minimum applies.

Deliberate misstatement, which is then concealed – penalty between 30% and 100%; if after prompting by HMRC – 70% minimum applies.

RogerPensionGuy

Thanks for last two posts. 

I'm still confused on these MMF, they can pay a dividend, but taxed as per interest income.

The link below just confused me more, I'm looking for a simple place to park cash wealth getting a reasonable return and not filling out forms and probably getting any details wrong, it was so simple just paying income tax on PAYG and tax being taken on savings interest from the bank or organisation. 

With people getting up to like 6% interest this last year, there will be lots of people filling out self assessment forms the next few years, what fun.
☆☆☆

https://community.hmrc.gov.uk/customerforums/pt/90a8a3d4-5338-ee11-a81c-002248c8750a

Dazed_and_C0nfused

RogerPensionGuy said:

Thanks for last two posts. 

I'm still confused on these MMF, they can pay a dividend, but taxed as per interest income.

The link below just confused me more, I'm looking for a simple place to park cash wealth getting a reasonable return and not filling out forms and probably getting any details wrong, it was so simple just paying income tax on PAYG and tax being taken on savings interest from the bank or organisation. 

With people getting up to like 6% interest this last year, there will be lots of people filling out self assessment forms the next few years, what fun.
☆☆☆

https://community.hmrc.gov.uk/customerforums/pt/90a8a3d4-5338-ee11-a81c-002248c8750a

There will be more but I doubt it will be lots more.

Most people can only dream of getting £10k in interest, even with interest rates at 6%+.

RogerPensionGuy

I'm understanding more about CGT on GIAs now I think, tks all posters.

Is the following something I could or should do.

I purchased 100K of units in a GIA 9 months ago, they are now worth 106K.

To use my 6K allowance. 

I need to sell them units and get 106K cash in the GIA. 

So the above is good housekeeping I think.

But I actually like them units I sold for a long-term view.

The units I had were ABC 123 Accumulation. 

So to comply with the 30 day rule, i need to buy a 106K of ABC 123 Income units. 

Or guess I could just do a switch between the units as that is a sale and purchase and minimises time out of the market.

So if the above is sensible, to save say 10% of 6K being £600 minus the charges of selling and buying units, what a hassle.

I think I read my GIA provider pays no interest on cash in GIA, infact think I read they charge 0.1% charges on that cash PA. 

If I remember correctly,  Vanguard used to pay the BOE % rate,  but stopped that early 2023 and think they now pay about half the % rate of the BOE.

With all my learning, looks like I'll just plonk wealth in a GIA, low cost global index units and leave alone to hopefully grow and guess once a year, sell units to get a 3K profit and just plonk in an ISA. 

Then maybe, if markets are up, sell a load of units and just pay the 10% and 20% CGT accordingly. 

So much hassles, I preferred it when I was a child and putting in 50 pence a week in at my local Post Office and them updating my nice plastic blue book, thankfully that was pre Horizon times by a long chalk.

EdSwippet

RogerPensionGuy said:

...
The units I had were ABC 123 Accumulation. 

So to comply with the 30 day rule, i need to buy a 106K of ABC 123 Income units. 

Or guess I could just do a switch between the units as that is a sale and purchase and minimises time out of the market.

As a general rule, I find accumulation units awkward to use in an unwrapped investing account, and prefer distribution throughout. The reason is the 'notional' dividends. The units do not pay you a dividend, they reinvest it internally. However, HMRC makes you pay income tax anyway on the dividend that you didn't receive.

You then get to later subtract out the tax paid on the dividend you didn't receive for capital gains tax, so if you handle things right there is no actual double-tax. What you do have, though, is a potential cash flow issue, something that accountants call a 'dry' (unfunded) tax charge. And it's a fiddle to track and remember all of these 'notional' dividends, perhaps quarterly for decades until you sell. (Not, of course, that it isn't a fiddle to track multiple purchases and sales for the CGT 'section 104' cost pool rules anyway; a platform may do some of this, but few do it well, so you end up having to maintain your own records anyway, typically a spreadsheet.)

On your last sentence, none of the platforms I've used have supported direct switch between either funds or between unit types of the same fund. And to be sure to use your CGT allowance, you very much want a visible sale of units anyway. A fund 'conversion' (technical term, defined specifically as not an investor-initiated sale-and-purchase) does not create a capital gain, and so won't use up any CGT allowance.

For ETFs, you can sell one and buy a different one almost immediately; same as stocks. Easy and virtually seamless.

For OEICs though, because of 'forward pricing' you would have to wait until at least the day after the sale to buy something different with the proceeds, so a minimum 24 hours out of the market. You can paper over this by moving enough cash as a buffer to the account before the sale, then sell and buy (with the cash) on the same day. After a few days the sale settles and you then withdraw that cash and put it back from wherever you got it.

Yes, it's all a PITA, and of course the government could have organised it in any number of ways that would be far better, easier, and simpler, but haven't because they gain from obfuscated rules and investor inertia. From your perspective though, you are getting paid between £300 and £600 to go through it, and it's maybe half an hour of work, so a decent hourly rate.

Notepad_Phil

RogerPensionGuy said:

...
The units I had were ABC 123 Accumulation. 

So to comply with the 30 day rule, i need to buy a 106K of ABC 123 Income units. 
...

I may be wrong on this, but I believe it's not as simple as that as that would not be treated as a disposal for CGT purposes. E.g. https://community.hmrc.gov.uk/customerforums/cgt/ed7bd8b0-2b10-ee11-a81c-000d3a8751e3?page=1

So you'd need to look for a fund that is close but not the same, e.g. if you had a HSBC World tracker then possibly buy a Vanguard World tracker or other similar tracker.

EdSwippet

Notepad_Phil said:
I may be wrong on this, but I believe it's not as simple as that as that would not be treated as a disposal for CGT purposes. E.g. https://community.hmrc.gov.uk/customerforums/cgt/ed7bd8b0-2b10-ee11-a81c-000d3a8751e3?page=1

The HMRC response you've linked is, as ever with these responses from HMRC, less than fully clear. (Isn't it odd how they are rarely unambiguous in posts on their own forum?)

Personally, I've never felt entirely comfortable with the notion that an investor-initiated sell-and-buy between accumulation and income units of the same fund is a proper CGT disposal, but after reading through some extensive previous discussion, I've come round to a degree of acceptance. Quoting our esteemed resident IFA from the linked thread:

If you do it as a switch, it is classed as a disposal for CGT.
If you do it as a conversion then it is not classed as a disposal for CGT.
Not all platforms support conversions. The distinction is that a switch is a sale and purchase. A conversion is not a sale and purchase but a reorganisation.

Added to which, the Section 104 rules clearly state that you only pool shares of the same class, and accumulation and income units are by definition different classes, with different ISINs (for funds) or tickers (for ETFs).

Notepad_Phil said:

So you'd need to look for a fund that is close but not the same, e.g. if you had a HSBC World tracker then possibly buy a Vanguard World tracker or other similar tracker.

Right. As a passive index investor, it's nearly always as easy to move from one provider's tracker fund to another's entirely equivalent fund as to move between accumulation and income units of a single fund. Same underlying investments, just in a different basket, but now with absolute confidence that you've avoided the silly 'bed-and-breakfast' tax rule.

RogerPensionGuy

This CGT on GIAs sure doesn't look simple for me whos been just simple PAYE for 44 years.

Looks like putting in a tax return for simple interest is not to problematic for interest over £500 or 1K.

I'm aware HMRC gets data from banks on interest acheievd for all NI number details.

Am I correct that HMRC do not receive such data from GIA platforms?

Also a schoolboy question, if I buy a load of units in a GIA and say sell them in the future, say the unit buy and sell was 10K different in value, but the cost of operating the GIA is say 1k over that period. Is my GCT 9 or 10K? 

EdSwippet

RogerPensionGuy said:

Am I correct that HMRC do not receive such data from GIA platforms?

As of 2021, the (now disbanded, because it was too sensible to keep it around) OTS stated that "Data from other sources, such as investment income and dividends are not currently reported to HMRC by third parties. Instead, the third parties concerned provide individuals with the information and the individuals or their agents report to HMRC when appropriate."

I couldn't find anything newer than this, so likely still the case, then. In which case yes, HMRC don't see this directly, and it is (as ever) up to you to handle it somehow. When the dividend allowance was still a sensible amount, most taxpayers probably didn't have any reporting requirement. After multiple allowance cuts by the government though, quite a few will now have to tangle with it.

RogerPensionGuy said:

Also a schoolboy question, if I buy a load of units in a GIA and say sell them in the future, say the unit buy and sell was 10K different in value, but the cost of operating the GIA is say 1k over that period. Is my GCT 9 or 10K? 

Cost of operating? You cannot realistically deduct a platform's flat annual fee, but you can deduct purchase and sale costs. Simply, if you buy £1,000 of a fund costing £1/unit and pay £5 to trade, you end up with 995 units with a pool cost of £1,000. Say the price doubles, and you then sell all 995 units with again a £5 sale fee; you get back £1,985. Your capital gain is the £1,985 you received less the £1,000 you paid, so £985. You have effectively deducted your trading fees from your gain.

For a worked example from HMRC, see Help Sheet 284.

It's not exactly complicated, at least if you can see the logic (such that it is), but it is fiddly and annoying. After a while, you either come up with a good spreadsheet of your own or you throw up your hands in horror and pass it all off to an accountant.