Transfer lossy investment to ISA? Does this make economic sense?

edited 30 November -1 at 1:00AM in ISAs & Tax-free Savings
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C_MababejiveC_Mababejive Forumite
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edited 30 November -1 at 1:00AM in ISAs & Tax-free Savings
Consider this situation...
A person has a shareholding in a major blue chip FTSE listed company. The share price has hit a bad patch . The shares have been held for quite a few years and reaped decent divis and the yield is still good. The capital value of the investment is currently in the red. It is also held outside of an ISA so taxable divis which affects the overall tax situation.

PLAN>> Sell all the shares,make a note of the now crystallised loss. Buy back the same volume of shares within an ISA. This will allow for non taxable hopefully future capital gain and tax free dividends on the stock which it is planned to hold long term.

The crystallised loss could also of course be used to offset any gains..

All views welcome
Feudal Britain needs land reform. 70% of the land is "owned" by 1 % of the population and at least 50% is unregistered (inherited by landed gentry). Thats why your slave box costs so much..

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  • Reed_RichardsReed_Richards Forumite
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    "Bed and ISA" is what they call the manoeuvre you are contemplating. It's a way to crystallise a loss or a gain. However you must currently be in a minority in thinking that the share price of your major blue chip company will recover; if the majority thought that way then it would recover.
    Reed
  • eskbankereskbanker Forumite
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    As ever with questions like this, the answer is 'it depends'!

    Buying high and selling low is obviously not something to aim for but conversely there is the sunk cost fallacy angle that needs to be considered, i.e. if you had the cash now, would you buy into these shares?

    Buying individual shares as a concept is obviously quite high risk versus something more diversified so there is also the fundamental issue of whether or not it makes sense to retain a holding in whatever form.

    Holding in an ISA is obviously better than outside as a general rule but mention of taxable divis affecting the overall tax situation means that there are presumably other taxable assets held, so it's difficult to know whether moving these ones in particular into a tax shelter is optimal.

    Likewise crystallising a loss to offset gains - are there taxable gains to offset against?

    So, to me it's not really practical to consider this question in a vacuum, as the answer may be different depending on the size, structure and tax status of the entire portfolio....
  • Tom99Tom99 Forumite
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    Work out the payback period.
    In the past I have bed & ISA a number of individual shares.
    There will be a buy/sell spread, stamp duty and probably two dealing fees.
    With mine the payback was about 3yrs after taking into account the income tax saving on the dividends.
    You may also be out of the market for a week between sell and buy.
  • C_MababejiveC_Mababejive Forumite
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    Thanks all,,,a loss is a loss. The stock is VOD. Obviously its going through a wobbly patch at the moment with the divi cut but thats been managed now and i reckon its bottomed out. Surely if i buy the same volume but within an ISA i am better paced for long term recovery . I can fit the same volume in but it occupies a smaller proportion of my ISA than before the drop and all future divis are tax free... I appreciate the point about taking the portfolio as a whole though,,very true,,i think i do have some gains to offset also....
    Feudal Britain needs land reform. 70% of the land is "owned" by 1 % of the population and at least 50% is unregistered (inherited by landed gentry). Thats why your slave box costs so much..
  • bearsharebearshare Forumite
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    It is better to transfer into an ISA when the stock is down, rather than when it is up and incurr a possible capital gains tax charge....
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