Fully understanding the reasons for holding Acc or Inc units generally?

ColdIron

RogerPensionGuy said:

I was previously under the impression that if I say for example sold a load of Acc units and purchased Inc units in exactly the same units at the same time, no CGT event will occur

It is my belief that a capital gains event will occur

If I sold a security (and received cash) and then bought back the same security within 30 days it is not deemed to be a disposal and you cannot use the Annual Exempt Allowance

If I sold a security and bought back a different security within 30 days it is deemed to be a disposal (and therefore taxable) and you can use the Annual Exempt Allowance

Look up the 'Bed and Breakfasting' rules for bedtime reading

but if the time between sale and purchase was longer than 28 or 30 days, then indeed it was possible for a CGT event to occur. 

Without doubt, it was a disposal

Some Google-ing says it will potentially trigger a CGT event and some say it won't if the units are swopped or switched in the same transaction.

Terminology matters

If it was a 'switch' or 'conversion', an action performed by a fund manager or fund house, there is no CG event or gain. Think back to the conversion of dirty to clean classes around 2014 or various corporate actions

If I gave an instruction to sell and then buy (via cash) that is two transactions. Some platforms will present this as a single action but that is just a convenience for their clients

So the issue revolves around whether Acc units in a fund are the same as Inc units in the same fund. Are they the same security?

There are several schools of thought on this. Those of us that have been around these parts long enough may remember bowlhead99 who made several compelling arguments on this subject

It isn't a switch or conversion, you have changed asset class (twice). Acc to cash and back to Inc. The Acc class has a different ISIN to the Inc class and they have different unit prices

As I understand it the HMRC definition of a security is a matter of interpretation

I would be interested to know if there has been any clarification on the matter

GeoffTF

RogerPensionGuy said:

I was previously under the impression that if I say for example sold a load of Acc units and purchased Inc units in exactly the same units at the same time, no CGT event will occur, but if the time between sale and purchase was longer than 28 or 30 days, then indeed it was possible for a CGT event to occur. Now I'm not so sure after google-ing. 

Some Google-ing says it will potentially trigger a CGT event and some say it won't if the units are swopped or switched in the same transaction.

My recollection is that a CGT event occurs unless the switch is carried out by the fund manager. You would need to be sure of the tax treatment before doing the transaction though.

leosayer

Different classes of the same fund have different identifiers eg. ISIN and different prices.

As far as any valuation or trading system is concerned, Inc and Acc units are different securities even if the sub-fund and umbrella entity is the same. 

EthicsGradient

ColdIron said:

RogerPensionGuy said:

I was previously under the impression that if I say for example sold a load of Acc units and purchased Inc units in exactly the same units at the same time, no CGT event will occur

It is my belief that a capital gains event will occur

If I sold a security (and received cash) and then bought back the same security within 30 days it is not deemed to be a disposal and you cannot use the Annual Exempt Allowance

If I sold a security and bought back a different security within 30 days it is deemed to be a disposal (and therefore taxable) and you can use the Annual Exempt Allowance

I have never seen anything saying that it's "not a disposal", nor that the Allowance is not usable in this case. What happens is that, if you buy back the same security within 30 days, then the acquisition cost for the sale is taken to be the price you later paid to buy it back. If you buy back fewer units/shares than you sold, then it's the cost of all that you bought back, plus a proportion of the original cost "from long ago". If you buy back more, then it's worked out from a proportion of the new purchase price, and the cost of what you've still got is a combination of the original cost, and the remainder of the new one.

eg buy 100 units in 2020.
sell the 100 units on May 1st 2025
buy 90 units on May 15th 2025
You need to find the potential gain on the 100 units you sold. The acquisition cost is the total cost of the 90 you bought on May 15th, plus 10% of the cost in 2020. Subtract that from the sale proceeds, and you have the capital gain, or loss, for the May 1st sale. Your allowance can be put against that (and any other gains you make in 2025-26).
Your acquisition cost for the 90 units you now hold is 90% of the 2020 cost.

or
buy 100 units in 2020
sell the 100 units on May 1st 2025
buy 150 units on May 15th 2025
Acquisition cost for the sale is 2/3rds of the cost on May 15th
Acquisition cost for the 150 units you now hold is 1/3rd of the May 15th cost plus all of the 2020 cost.

masonic

EthicsGradient said:

ColdIron said:

RogerPensionGuy said:

I was previously under the impression that if I say for example sold a load of Acc units and purchased Inc units in exactly the same units at the same time, no CGT event will occur

It is my belief that a capital gains event will occur

If I sold a security (and received cash) and then bought back the same security within 30 days it is not deemed to be a disposal and you cannot use the Annual Exempt Allowance

If I sold a security and bought back a different security within 30 days it is deemed to be a disposal (and therefore taxable) and you can use the Annual Exempt Allowance

I have never seen anything saying that it's "not a disposal", nor that the Allowance is not usable in this case.

A fund "switch" or unit class conversion, as opposed to a sale for a cash consideration followed by a purchase of the alternative unit class, is supposedly treated as a reorganisation of share capital by HMRC and not a disposal.

EthicsGradient

masonic said:

EthicsGradient said:

ColdIron said:

RogerPensionGuy said:

I was previously under the impression that if I say for example sold a load of Acc units and purchased Inc units in exactly the same units at the same time, no CGT event will occur

It is my belief that a capital gains event will occur

If I sold a security (and received cash) and then bought back the same security within 30 days it is not deemed to be a disposal and you cannot use the Annual Exempt Allowance

If I sold a security and bought back a different security within 30 days it is deemed to be a disposal (and therefore taxable) and you can use the Annual Exempt Allowance

I have never seen anything saying that it's "not a disposal", nor that the Allowance is not usable in this case.

A fund "switch" or unit class conversion, as opposed to a sale for a cash consideration followed by a purchase of the alternative unit class, is supposedly treated as a reorganisation of share capital by HMRC and not a disposal.

Yes, but ColdIron specified receiving cash, and then buying the same security, not a switch.

RogerPensionGuy

Thanks for all the replies.

I'll use an example similar to what I was hoping to do if it doesn't cause me negativity. 

My GIA on the Vanguard platform. 

I purchased £100K of LS100% accumulation in say 2022.

Value now is say £125K.

I wish to switch that 125K value from LS100% Acc to LS100% Inc units. 

I though I could just do the switch to Inc and just record that these Inc units cost me £100K.

Use the Income as I desire over time. 

Then if in the future I sell all the Income units, I would use £100K as purchase price and use the sell price to work out CGT or maybe a Loss. 

I read thro the HMRC site and still very unsure of the way I should go. 

masonic

RogerPensionGuy said:

Thanks for all the replies.
I'll use an example similar to what I was hoping to do if it doesn't cause me negativity. 
My GIA on the Vanguard platform. 
I purchased £100K of LS100% accumulation in say 2022.
Value now is say £125K.
I wish to switch that 125K value from LS100% Acc to LS100% Inc units. 
I though I could just do the switch to Inc and just record that these Inc units cost me £100K.
Use the Income as I desire over time. 
Then if in the future I sell all the Income units, I would use £100K as purchase price and use the sell price to work out CGT or maybe a Loss. 
I read thro the HMRC site and still very unsure of the way I should go. 

You cannot do that. Vanguard potentially would have the capability to process as a conversion so there would be no disposal. It may be worth contacting them to find out whether they can support this - then you'd be able to do as you suggest. If you separately sell Acc units for cash and then buy Inc units for cash, then you'll have a £25k capital gain (less income accrued) on which there will be a fair amount of tax due.

RogerPensionGuy

masonic said:

RogerPensionGuy said:

Thanks for all the replies.
I'll use an example similar to what I was hoping to do if it doesn't cause me negativity. 
My GIA on the Vanguard platform. 
I purchased £100K of LS100% accumulation in say 2022.
Value now is say £125K.
I wish to switch that 125K value from LS100% Acc to LS100% Inc units. 
I though I could just do the switch to Inc and just record that these Inc units cost me £100K.
Use the Income as I desire over time. 
Then if in the future I sell all the Income units, I would use £100K as purchase price and use the sell price to work out CGT or maybe a Loss. 
I read thro the HMRC site and still very unsure of the way I should go. 

You cannot do that. Vanguard potentially would have the capability to process as a conversion so there would be no disposal. It may be worth contacting them to find out whether they can support this - then you'd be able to do as you suggest. If you separately sell Acc units for cash and then buy Inc units for cash, then you'll have a £25k capital gain (less income accrued) on which there will be a fair amount of tax due.

Tks for post. 

I though a switch just values them Acc units and aquires Inc units at that same moment in time, I didn't think it even generated cash for a moment. 

InvesterJones

RogerPensionGuy said:

masonic said:

RogerPensionGuy said:

Thanks for all the replies.
I'll use an example similar to what I was hoping to do if it doesn't cause me negativity. 
My GIA on the Vanguard platform. 
I purchased £100K of LS100% accumulation in say 2022.
Value now is say £125K.
I wish to switch that 125K value from LS100% Acc to LS100% Inc units. 
I though I could just do the switch to Inc and just record that these Inc units cost me £100K.
Use the Income as I desire over time. 
Then if in the future I sell all the Income units, I would use £100K as purchase price and use the sell price to work out CGT or maybe a Loss. 
I read thro the HMRC site and still very unsure of the way I should go. 

You cannot do that. Vanguard potentially would have the capability to process as a conversion so there would be no disposal. It may be worth contacting them to find out whether they can support this - then you'd be able to do as you suggest. If you separately sell Acc units for cash and then buy Inc units for cash, then you'll have a £25k capital gain (less income accrued) on which there will be a fair amount of tax due.

Tks for post. 

I though a switch just values them Acc units and aquires Inc units at that same moment in time, I didn't think it even generated cash for a moment. 

If you do a switch via your platform, then the ACC units are sold on day 1, and the cash is used to buy INC units on day 2 (assuming vanguard don't require funds to clear/settle first), so you are subject to a days movement, not to mention CGT liability. As mentioned, you might be able to ask Vanguard to do something special to convert the unit types, but it's probably not the same thing as a switch you'd normally initiate.