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

masonic

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. 

That's not impossible, but you should confirm it. I know that on some platforms, they are done as two separate trades on the same day where one transaction is pre-funded. This is different than a direct exchange. I have not heard of a DIY platform doing the latter, except by special arrangement (e.g. when people were moving out of more expensive unit classes after the FCA banned trail commission).

RogerPensionGuy

For information. 

I just looked back at a switch I did on vanguard, switching Acc to Inc reference LS100% Acc & Inc. 

The transaction between selling and buying was 30mins. 

I will ask Vanguard & HMRC for their viewpoint. 

Cheers Roger. 

GeoffTF

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. 

You said your investments are on the Vanguard platform. Here is what Vanguard says about switching funds:

https://www.vanguardinvestor.co.uk/need-help/answer/how-do-i-switch-funds

So there is no hope unless Vanguard offers you a service that it does not advertise. I do not believe that there is much chance of that. In practical terms, I believe that you are stuck with the Acc units, unless you are willing to pay a big tax bill.

masonic

There's a definitive answer in the link GeoffTF shared.

You have the option to sell a portion of the fund each tax year to keep your gain below £3k. It's going to take at least 7 tax years with the allowance at that level, not allowing for any further growth. It probably isn't worth it if this is all in the name of simplification. Vanguard are probably issuing an adequate consolidated tax certificate, in which case the calculation to remove income from your overall gain to get your capital gain is fairly straightforward providing you retain the information.

GeoffTF

masonic said:

There's a definitive answer in the link GeoffTF shared.

You have the option to sell a portion of the fund each tax year to keep your gain below £3k. It's going to take at least 7 tax years with the allowance at that level, not allowing for any further growth. It probably isn't worth it if this is all in the name of simplification. Vanguard are probably issuing an adequate consolidated tax certificate, in which case the calculation to remove income from your overall gain to get your capital gain is fairly straightforward providing you retain the information.

Vanguard's consolidated tax certificate shows only income, and not capital gains. (They still show tax credits, but they are all set to zero.) I transferred over my account from Vanguard’s old telephone and fax based system. They did not carry over base costs. I still have a free account, so I cannot complain too much.

masonic

GeoffTF said:

masonic said:

There's a definitive answer in the link GeoffTF shared.

You have the option to sell a portion of the fund each tax year to keep your gain below £3k. It's going to take at least 7 tax years with the allowance at that level, not allowing for any further growth. It probably isn't worth it if this is all in the name of simplification. Vanguard are probably issuing an adequate consolidated tax certificate, in which case the calculation to remove income from your overall gain to get your capital gain is fairly straightforward providing you retain the information.

Vanguard's consolidated tax certificate shows only income, and not capital gains. (They still show tax credits, but they are all set to zero.) I transferred over my account from Vanguard’s old telephone and fax based system. They did not carry over base costs. I still have a free account, so I cannot complain too much.

Sure, but the income for each year can be deducted from the overall growth to determine the capital gain. It requires more calculation than if Inc units were held, but as long as the information is retained, or a running calculation is maintained in a spreadsheet, it is not too bad.

RogerPensionGuy

Thanks for all the comments, most helpful and I'm certainty in the view of not allowing the tax tail to wag the dog.

I'll read up, read up, review and try plotting a long term stratagy that I like and has minimum intervention or work on my behalf.

Another idea has popped in my head, CGT is 18% if basic tax rate person, but 24% if higher rate, so maybe doing some selling and hopefully realising CGT at 18% maybe before pensions put a person in higher rate CGT.

I'm not overly bothered about  tax, beit CGT or any variety, but just want simple investments and the least filling out of forms possible.

I think I was sleeping at the wheel and felt a CGT allowance of 12.3K PA wouldn't cause much time or paperworks, unfortunately 12.3K went to 6K and now just 3K PA, thats over a 75% chop in just a few years, that's a big rate of change in a small time and swimming against inflation to boot.

As a poster mentioned Vanguard do send a nice year end certificate showing interest, shame it doesn't include Capital Gains, not sure if it shows dividends, I did switch a few Acc to Inc LS100% in my ISA to see it work for myself, but the divvy was paid the first few day of May 2025, so I'll look forward to the Vanguard certificate for 2025/26.

I think I'm more understanding this whole matter a lot more now. 

Thanks for all the help. 

GeoffTF

As a poster mentioned Vanguard do send a nice year end certificate showing interest, shame it doesn't include Capital Gains, not sure if it shows dividends, I did switch a few Acc to Inc LS100% in my ISA to see it work for myself, but the divvy was paid the first few day of May 2025, so I'll look forward to the Vanguard certificate for 2025/26.

The Vanguard tax certificate does show dividends.

EdSwippet

RogerPensionGuy said:

Another idea has popped in my head, CGT is 18% if basic tax rate person, but 24% if higher rate, so maybe doing some selling and hopefully realising CGT at 18% maybe before pensions put a person in higher rate CGT.

Well, perhaps. But. Only if you are certain that you will have to pay 24% later on. You escape CGT on death; or more accurately, your heirs escape it! - although at that point IHT would be the worse evil. And tax rates could go down, or allowances increase, in the (far?) future. Also, selling, paying CGT, and then reinvesting means less money invested, meaning lower annual dividends.

Personally, when I buy an investment I assume that I will hold it forever. More like buying a (flexible!) annuity or other stream of income than anything else.

RogerPensionGuy said:

I'm not overly bothered about  tax, beit CGT or any variety, but just want simple investments and the least filling out of forms possible.

I think I was sleeping at the wheel and felt a CGT allowance of 12.3K PA wouldn't cause much time or paperworks, unfortunately 12.3K went to 6K and now just 3K PA, thats over a 75% chop in just a few years, that's a big rate of change in a small time and swimming against inflation to boot.

There's being not too bothered, and then there's not being bothered enough. Investing "passively" doesn't mean that you shouldn't actively manage your own tax position. "Bed and breakfast" to take the allowance every year that you have enough gain, and the savings easily run to £thousands.

On average, stocks gain around 7%/year, of which around 3% is purely inflation. At 24% of nominal gains, CGT is taking fully 42% of your real (post-inflation) gain. Worse even than higher rate tax then, when viewed in that light.

RogerPensionGuy said:

... I'm certainly in the view of not allowing the tax tail to wag the dog.

I can't think offhand of any dog breed having a tail that is 40% or more of the weight of the dog. :-|

bobfredbob

I had never heard about not paying CGT on death.  That applies to spouse inheriting shares too?  I'm guessing this benefit will go before I do.

How would you determine the price on date of death to determine any post-death CGT?

Say a share made 5k profit post-death and prior to final accounts, I assume CGT is due on the 5k profit (but not on the original profit since I originally bought it)?  Or are the shares assumed to be instantly inherited so the post-death 5k profit is now only if the beneficiary sells it themselves?  (Assume one beneficiary).

Assuming the broker can't migrate shares between the deceased and the beneficiary, requiring a sale, how would you recommend re-purchasing?  Would you really just put in a "market buy" order?  Or drip-feed 5k/10k an hour or day to avoid getting a bad price?

I have an "on my death" document of advice so I want to update it with this new information.
Thanks.