CSH2: taxation and performance

Ciprico

I fell into the trap of doing something I didn't really understand

I bought in May 2025
Sold in Sept 2025 !
Increase was about 1.5k

My plan was to maximise/use 3k CGT allowance.

...but now realise this is potentially too complex and I'll stick to low coupon gilts....

masonic

slinger2 said:

masonic said:

Ciprico said:

I bought and sold since April 2025 CSH2 in general account, and the value increased by £1500.

I sold them when I realised the tax situation was complicated.

I understood if you sold before 30 Oct all the gain was CGT.

It doesn't really matter to me if the gain is cg or interest as I can be below the lowest thresholds for both...

Is this gain a clean capital Gain...?

There is only income if you are still holding on 31st October.

But if you repurchase them within 30 days are you deemed to be holding them on 31 October? (assuming you sold them earlier in October) Or is the 30 days just a CGT rule?

I don't think so. But it is the sort of aggressive avoidance I would not risk doing.

aroominyork

LateGenXer said:

People who just bought and sold around 31/OCT/2024 will have a capital loss near the ERI.  People who happened to sold before 31/OCT/2024 or bough after it might end up with just capital gain, and no ERI.

So someone facing a CGT bill for disposal of other assets but with no taxable earnings, ie able to earn £17,570 interest, could buy CSH2 on 30 October and sell on 1 November to manufacture a CGT loss and an equivalent untaxed ERI? (This assumes ERI is taxed as income not dividend, about which I have emailed Amundi and am awaiting a response.) 

Say I hold an unwrapped equity index fund showing £8000 of capital gain. If I bought 100 units of CSH2 on 30 October 2025 and sold them on 1 November 2025 (at a 0.01% spread if I time it right), then if ERI is similar to this year’s of say €60/£50 per unit I would have a £5000 capital loss and can sell all my index fund this financial year without incurring a CGT liability. If any income tax was due it would be in the following financial year. Does that make sense?

LateGenXer

But if you repurchase them within 30 days are you deemed to be holding them on 31 October? (assuming you sold them earlier in October) Or is the 30 days just a CGT rule?

You need to not buy within 30 days after disposing (B&B rule), otherwise ERI is still liable.

See

• https://www.gov.uk/hmrc-internal-manuals/investment-funds/ifm13222 - "If a participant disposes of an interest in a reporting period and S106A TCGA 1992 (Identification of securities: capital gains tax) applies to identify the whole or part of that interest with an interest acquired in the next reporting period, then the disposal is ignored and the participant is treated as having held that interest at the end of the earlier period. (regulation 94(3A))."
• https://fund-docs.vanguard.com/uk-reporting-fund-faq.pdf - "Note: If you sell your shares and buy them back within a 30-day period (and this activity straddles the reporting period end) you’ll still need to calculate ERI for your holding, as if you continued to hold the shares at the reporting period end."
• https://monevator.com/excess-reportable-income/#comment-1748259

LateGenXer

aroominyork said:

LateGenXer said:

People who just bought and sold around 31/OCT/2024 will have a capital loss near the ERI.  People who happened to sold before 31/OCT/2024 or bough after it might end up with just capital gain, and no ERI.

So someone facing a CGT bill for disposal of other assets but with no taxable earnings, ie able to earn £17,570 interest, could buy CSH2 on 30 October and sell on 1 November to manufacture a CGT loss and an equivalent untaxed ERI? (This assumes ERI is taxed as income not dividend, about which I have emailed Amundi and am awaiting a response.) 

Say I hold an unwrapped equity index fund showing £8000 of capital gain. If I bought 100 units of CSH2 on 30 October 2025 and sold them on 1 November 2025 (at a 0.01% spread if I time it right), then if ERI is similar to this year’s of say €60/£50 per unit I would have a £5000 capital loss and can sell all my index fund this financial year without incurring a CGT liability. If any income tax was due it would be in the following financial year. Does that make sense?

In theory yes (if not with CSH2 then with any other replication bond ETF.)

But UK's "General Anti-Abuse Rule (GAAR)" gives HMRC vast power to contest such schemes, claiming (rightly so in this case) that these are artificial transactions with no other reason other than to avoid tax.  See https://monevator.com/tax-avoidance-versus-tax-evasion/

How likely HMRC is to do this I can't say.  But it's enough for me to advice against this sort practice and stay clear of it myself.

aroominyork

But I'm talking about selling them after a day with no intention to re-buy. Does the process then work? I can't quite work out the meaning of the the first link (the gov.uk one).

masonic

aroominyork said:

But I'm talking about selling them after a day with no intention to re-buy. Does the process then work? I can't quite work out the meaning of the the first link (the gov.uk one).

It will work only if HMRC doesn't challenge it. As described, the activity serves no purpose other than to manufacture an artificial capital loss for tax avoidance purposes.

aroominyork

Thanks LGX & masonic. The distinction between tax avoidance and tax abuse is a good one. 

aroominyork

I contacted Amundi about whether ERI should be treated as dividend or interest. They said ask a tax adviser! After phoning HMRC to see if they could throw any light on this (they couldn’t and said go back to Amundi – and if you do not get an answer use your best guess (not their words) on self-assessment and add a note)) I have asked Amundi again… watch this space for their answer. 

But importantly, Amundi said the ERI reporting date has been brought forward a month to 30 September. I have written back asking them to confirm this and to provide a link/documentation verifying this, because if non-zero ERI is declared this year it will mean two taxable distributions being made in the same FY, on 30/4/25 and 30/3/26. Again, watch this space.

wmb194

aroominyork said:

I contacted Amundi about whether ERI should be treated as dividend or interest. They said ask a tax adviser! After phoning HMRC to see if they could throw any light on this (they couldn’t and said go back to Amundi – and if you do not get an answer use your best guess (not their words) on self-assessment and add a note)) I have asked Amundi again… watch this space for their answer. 

But importantly, Amundi said the ERI reporting date has been brought forward a month to 30 September. I have written back asking them to confirm this and to provide a link/documentation verifying this, because if non-zero ERI is declared this year it will mean two taxable distributions being made in the same FY, on 30/4/25 and 30/3/26. Again, watch this space.

Providers won't give you tax advice so Amundi's answer is unlikely to change.