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HMRC baffled by my question on s.104/CGT/ISAs/rights issues

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biscwit
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HMRC baffled by my question on s.104/CGT/ISAs/rights issues

#399237

Postby biscwit » March 26th, 2021, 2:51 pm

I wonder whether TLF members may have more luck with the following question which baffled HMRC's first-line telephone operator!

A few months after Covid decimated flight schedules, IAG undertook a rights issue. I held IAG in my ISA and planned to exercise my rights in full. However, I had already used up my 20/21 ISA allowance so the rights had to be exercised outside the ISA, in my dealing account. I paid around £0.85 for each new share. The existing shares (in my ISA) plummeted, as you would expect.

As we approach year end, I'd like to sell some of the IAG shares held in my dealing account. They are currently oscillating between around £1.90 and £2.10 per share and show a large gain. The IAG shares in my ISA show a large loss.

Because the gain outside the ISA doesn't take account of the loss inside the ISA, I had hoped to be able to calculate a section 104 pool by reference to all share purchases, whether inside or outside the ISA. However, s.104 pools don't usually include shares in an ISA.

Does anyone have any experience of this situation? Am I able to calculate the s.104 pool by reference to share purchases inside the ISA?

I have read HMRC's helpsheets "HS284" and "HS285" and also their third example (most useful) under HS284. Unfortunately none of these documents nor the web generally has anything on calculating allowable costs for rights issue shares inside/outside ISAs.

Thanks in advance.

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Re: HMRC baffled by my question on s.104/CGT/ISAs/rights issues

#399246

Postby Alaric » March 26th, 2021, 3:21 pm

biscwit wrote: I held IAG in my ISA and planned to exercise my rights in full. However, I had already used up my 20/21 ISA allowance so the rights had to be exercised outside the ISA, in my dealing account.


I didn't think that was usually allowed. Whether you had used the 20-21 ISA allowance is irrelevant surely, as you would be expected to raise cash within the ISA to exercise the rights, or allow them to lapse.

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Re: HMRC baffled by my question on s.104/CGT/ISAs/rights issues

#399250

Postby XFool » March 26th, 2021, 3:27 pm

biscwit wrote:Because the gain outside the ISA doesn't take account of the loss inside the ISA, I had hoped to be able to calculate a section 104 pool by reference to all share purchases, whether inside or outside the ISA. However, s.104 pools don't usually include shares in an ISA.

Does anyone have any experience of this situation? Am I able to calculate the s.104 pool by reference to share purchases inside the ISA?

I have read HMRC's helpsheets "HS284" and "HS285" and also their third example (most useful) under HS284. Unfortunately none of these documents nor the web generally has anything on calculating allowable costs for rights issue shares inside/outside ISAs.

No special knowledge but, AFAIK, ISAs are outside UK Tax regime. That being their purpose. So you cannot include holdings inside them in relation to any UK tax matters.

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Re: HMRC baffled by my question on s.104/CGT/ISAs/rights issues

#399259

Postby genou » March 26th, 2021, 3:37 pm

biscwit wrote: I had hoped to be able to calculate a section 104 pool by reference to all share purchases, whether inside or outside the ISA.


Sorry, but you absolutely cannot do that. Calculation must only include shares outside the ISA.

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Re: HMRC baffled by my question on s.104/CGT/ISAs/rights issues

#399278

Postby biscwit » March 26th, 2021, 4:09 pm

Alaric wrote:
biscwit wrote: I held IAG in my ISA and planned to exercise my rights in full. However, I had already used up my 20/21 ISA allowance so the rights had to be exercised outside the ISA, in my dealing account.


I didn't think that was usually allowed. Whether you had used the 20-21 ISA allowance is irrelevant surely, as you would be expected to raise cash within the ISA to exercise the rights, or allow them to lapse.


Interestingly this is possible, though not apparently common. There is a note in HMRC's online guidance to ISA managers under the heading "Rights issues and other offers to shareholders".

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Re: HMRC baffled by my question on s.104/CGT/ISAs/rights issues

#399280

Postby biscwit » March 26th, 2021, 4:14 pm

genou wrote:
biscwit wrote: I had hoped to be able to calculate a section 104 pool by reference to all share purchases, whether inside or outside the ISA.


Sorry, but you absolutely cannot do that. Calculation must only include shares outside the ISA.


Thanks for confirming. It's understandable and logical of course. Though does create problems like this.

I think an important lesson in what to include/not include in an ISA and keeping cash available. Also to think more carefully about tail swallowing in rights issues.

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Re: HMRC baffled by my question on s.104/CGT/ISAs/rights issues

#399316

Postby Gengulphus » March 26th, 2021, 5:56 pm

biscwit wrote:I wonder whether TLF members may have more luck with the following question which baffled HMRC's first-line telephone operator!

A few months after Covid decimated flight schedules, IAG undertook a rights issue. I held IAG in my ISA and planned to exercise my rights in full. However, I had already used up my 20/21 ISA allowance so the rights had to be exercised outside the ISA, in my dealing account. I paid around £0.85 for each new share. The existing shares (in my ISA) plummeted, as you would expect.

As we approach year end, I'd like to sell some of the IAG shares held in my dealing account. They are currently oscillating between around £1.90 and £2.10 per share and show a large gain. The IAG shares in my ISA show a large loss.

Because the gain outside the ISA doesn't take account of the loss inside the ISA, I had hoped to be able to calculate a section 104 pool by reference to all share purchases, whether inside or outside the ISA. However, s.104 pools don't usually include shares in an ISA.

Does anyone have any experience of this situation? Am I able to calculate the s.104 pool by reference to share purchases inside the ISA?

I've no experience of the situation, but I think I know how it should be dealt with:

Basically, you cannot move money that is outside an ISA to inside the ISA except by including it as part of an ISA allowance, and everything involved in a transaction must be on the same side of the inside-ISA / outside-ISA boundary for the transaction to take place. Since the former prevented you from getting the subscription cash into the ISA and the latter required the subscription cash and the rights to be on the same side of the boundary for the subscription to take place, the actual steps involved in exercising the rights outside the ISA would appear to me to be:

1) Withdraw the rights from the ISA - there are no restrictions of withdrawals of either cash or investments from an ISA, and rights are a (short-lived) type of investment, so there's no problem about that.
2) The subscription can then take place outside the ISA.

The other ingredient is that when investments are withdrawn from an ISA, the ISA manager is supposed to tell you their market value at the time of withdrawal, and that value is what you should use as the base value for the withdrawn securities. So I believe the answer is that the base cost of the IAG shares you now hold outside the ISA is the base cost of the IAG shares (if any) that you held outside the ISA before all this happened, plus the market value of the rights at the time of withdrawal as communicated by your ISA manager, plus the amount of cash you paid to subscribe to them.

To find out what your ISA manager has said about the market value of the rights at the time of withdrawal, first check all documentation the ISA manager sent you at the time - it's supposed to be there. If it isn't, ask the ISA manager for it - they'll hopefully be willing and able to do so (if not, the above link should be useful as a reminder of their obligations!).

If you need to ask your ISA manager for the information and they're likely to be at all slow replying, you may need to estimate the market value of the rights when they were withdrawn: a reasonable estimate is the IAG share price on the day concerned minus the ~85p subscription price. If I've read the RNSes correctly, the subscription period was between September 14th and 25th last year, during which time the IAG share price varied between 94.64p and 134.35p (closing prices). I'm afraid that gives quite a wide range of possible estimates for the market value of the rights, so I can't give any reasonable estimate myself - you'll hopefully have better knowledge of the exact date and so be able to do better.

One other point to bear in mind is that due to the date of Easter this year, the last trading day before the tax year end is next Thursday, April 1st - don't be fooled by April 5th being the following week!

Gengulphus

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Re: HMRC baffled by my question on s.104/CGT/ISAs/rights issues

#399324

Postby Alaric » March 26th, 2021, 6:25 pm

Gengulphus wrote: the actual steps involved in exercising the rights outside the ISA would appear to me to be:

1) Withdraw the rights from the ISA - there are no restrictions of withdrawals of either cash or investments from an ISA, and rights are a (short-lived) type of investment, so there's no problem about that.
2) The subscription can then take place outside the ISA.


I wonder which ISA providers offer this as an option. With ii, I've only ever seen the option to take up the rights within the ISA in whole or in part, or let them lapse.

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Re: HMRC baffled by my question on s.104/CGT/ISAs/rights issues

#399386

Postby ursaminortaur » March 26th, 2021, 10:25 pm

Gengulphus wrote:
biscwit wrote:I wonder whether TLF members may have more luck with the following question which baffled HMRC's first-line telephone operator!

A few months after Covid decimated flight schedules, IAG undertook a rights issue. I held IAG in my ISA and planned to exercise my rights in full. However, I had already used up my 20/21 ISA allowance so the rights had to be exercised outside the ISA, in my dealing account. I paid around £0.85 for each new share. The existing shares (in my ISA) plummeted, as you would expect.

As we approach year end, I'd like to sell some of the IAG shares held in my dealing account. They are currently oscillating between around £1.90 and £2.10 per share and show a large gain. The IAG shares in my ISA show a large loss.

Because the gain outside the ISA doesn't take account of the loss inside the ISA, I had hoped to be able to calculate a section 104 pool by reference to all share purchases, whether inside or outside the ISA. However, s.104 pools don't usually include shares in an ISA.

Does anyone have any experience of this situation? Am I able to calculate the s.104 pool by reference to share purchases inside the ISA?

I've no experience of the situation, but I think I know how it should be dealt with:

Basically, you cannot move money that is outside an ISA to inside the ISA except by including it as part of an ISA allowance, and everything involved in a transaction must be on the same side of the inside-ISA / outside-ISA boundary for the transaction to take place. Since the former prevented you from getting the subscription cash into the ISA and the latter required the subscription cash and the rights to be on the same side of the boundary for the subscription to take place, the actual steps involved in exercising the rights outside the ISA would appear to me to be:

1) Withdraw the rights from the ISA - there are no restrictions of withdrawals of either cash or investments from an ISA, and rights are a (short-lived) type of investment, so there's no problem about that.
2) The subscription can then take place outside the ISA.


Or assuming you have enough money outside the ISA

1) Sell the rights in the ISA
2) Buy the rights outside the ISA
3) Take up the rights outside the ISA

Since you are selling to yourself your provider may even be willing to do it like a reverse bed-and-ISA transaction so that you only pay the fees for the repurchase rather than fees for both the sale and purchase. As I recall I did this years ago (something like 2011) with ii though I had to phone them to describe exactly what I wanted to do.

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Re: HMRC baffled by my question on s.104/CGT/ISAs/rights issues

#399389

Postby Lootman » March 26th, 2021, 10:36 pm

ursaminortaur wrote:
Gengulphus wrote:
biscwit wrote:I wonder whether TLF members may have more luck with the following question which baffled HMRC's first-line telephone operator!

A few months after Covid decimated flight schedules, IAG undertook a rights issue. I held IAG in my ISA and planned to exercise my rights in full. However, I had already used up my 20/21 ISA allowance so the rights had to be exercised outside the ISA, in my dealing account. I paid around £0.85 for each new share. The existing shares (in my ISA) plummeted, as you would expect.

As we approach year end, I'd like to sell some of the IAG shares held in my dealing account. They are currently oscillating between around £1.90 and £2.10 per share and show a large gain. The IAG shares in my ISA show a large loss.

Because the gain outside the ISA doesn't take account of the loss inside the ISA, I had hoped to be able to calculate a section 104 pool by reference to all share purchases, whether inside or outside the ISA. However, s.104 pools don't usually include shares in an ISA.

Does anyone have any experience of this situation? Am I able to calculate the s.104 pool by reference to share purchases inside the ISA?

I've no experience of the situation, but I think I know how it should be dealt with:

Basically, you cannot move money that is outside an ISA to inside the ISA except by including it as part of an ISA allowance, and everything involved in a transaction must be on the same side of the inside-ISA / outside-ISA boundary for the transaction to take place. Since the former prevented you from getting the subscription cash into the ISA and the latter required the subscription cash and the rights to be on the same side of the boundary for the subscription to take place, the actual steps involved in exercising the rights outside the ISA would appear to me to be:

1) Withdraw the rights from the ISA - there are no restrictions of withdrawals of either cash or investments from an ISA, and rights are a (short-lived) type of investment, so there's no problem about that.
2) The subscription can then take place outside the ISA.

Or assuming you have enough money outside the ISA

1) Sell the rights in the ISA
2) Buy the rights outside the ISA
3) Take up the rights outside the ISA

Since you are selling to yourself your provider may even be willing to do it like a reverse bed-and-ISA transaction so that you only pay the fees for the repurchase rather than fees for both the sale and purchase. As I recall I did this years ago (something like 2011) with ii though I had to phone them to describe exactly what I wanted to do.

Yes, although the bid-to-offer spreads on many rights issues would make this quite expensive.

So if the situation that the OP described is allowed by your broker then it seems preferable i.e. booking the rights outside of the ISA even if the base holding is within the ISA. Then use the cost basis for the exercised rights as described by Gengulphus.

That said, what I would have done (and have done) is sell something else within the ISA to fund the exercise of the rights issue.

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Re: HMRC baffled by my question on s.104/CGT/ISAs/rights issues

#399391

Postby Dod101 » March 26th, 2021, 10:44 pm

The platform manager has caused the problem. They can of course carry out the transaction because all the shares will be held in the name of their nominee but I would have thought that the ISA ought to have been ringfenced in a water tight manner so as to disallow what you have managed to do.

As it is, presumably you claim the cost for the shares now outside of the ISA as the value of the rights acquired plus whatever premium you had to pay.

It would not have occurred to me to do what you have managed to do' If I did not have cash in the ISA I would just have tail swallowed and taken what shares I could have bought that way.

Dod

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Re: HMRC baffled by my question on s.104/CGT/ISAs/rights issues

#399409

Postby ursaminortaur » March 27th, 2021, 1:52 am

Lootman wrote:
ursaminortaur wrote:
Gengulphus wrote:I've no experience of the situation, but I think I know how it should be dealt with:

Basically, you cannot move money that is outside an ISA to inside the ISA except by including it as part of an ISA allowance, and everything involved in a transaction must be on the same side of the inside-ISA / outside-ISA boundary for the transaction to take place. Since the former prevented you from getting the subscription cash into the ISA and the latter required the subscription cash and the rights to be on the same side of the boundary for the subscription to take place, the actual steps involved in exercising the rights outside the ISA would appear to me to be:

1) Withdraw the rights from the ISA - there are no restrictions of withdrawals of either cash or investments from an ISA, and rights are a (short-lived) type of investment, so there's no problem about that.
2) The subscription can then take place outside the ISA.

Or assuming you have enough money outside the ISA

1) Sell the rights in the ISA
2) Buy the rights outside the ISA
3) Take up the rights outside the ISA

Since you are selling to yourself your provider may even be willing to do it like a reverse bed-and-ISA transaction so that you only pay the fees for the repurchase rather than fees for both the sale and purchase. As I recall I did this years ago (something like 2011) with ii though I had to phone them to describe exactly what I wanted to do.

Yes, although the bid-to-offer spreads on many rights issues would make this quite expensive.

So if the situation that the OP described is allowed by your broker then it seems preferable i.e. booking the rights outside of the ISA even if the base holding is within the ISA. Then use the cost basis for the exercised rights as described by Gengulphus.

That said, what I would have done (and have done) is sell something else within the ISA to fund the exercise of the rights issue.


As I said I did this many years ago but as I recall the bid-offer spread on the rights was pretty small and I only had to pay a single fee for the transaction so it worked out well at that time.

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Re: HMRC baffled by my question on s.104/CGT/ISAs/rights issues

#399426

Postby Gengulphus » March 27th, 2021, 9:24 am

ursaminortaur wrote:
Gengulphus wrote:
biscwit wrote:I wonder whether TLF members may have more luck with the following question which baffled HMRC's first-line telephone operator!

A few months after Covid decimated flight schedules, IAG undertook a rights issue. I held IAG in my ISA and planned to exercise my rights in full. However, I had already used up my 20/21 ISA allowance so the rights had to be exercised outside the ISA, in my dealing account. I paid around £0.85 for each new share. The existing shares (in my ISA) plummeted, as you would expect.

As we approach year end, I'd like to sell some of the IAG shares held in my dealing account. They are currently oscillating between around £1.90 and £2.10 per share and show a large gain. The IAG shares in my ISA show a large loss.

Because the gain outside the ISA doesn't take account of the loss inside the ISA, I had hoped to be able to calculate a section 104 pool by reference to all share purchases, whether inside or outside the ISA. However, s.104 pools don't usually include shares in an ISA.

Does anyone have any experience of this situation? Am I able to calculate the s.104 pool by reference to share purchases inside the ISA?

I've no experience of the situation, but I think I know how it should be dealt with:

Basically, you cannot move money that is outside an ISA to inside the ISA except by including it as part of an ISA allowance, and everything involved in a transaction must be on the same side of the inside-ISA / outside-ISA boundary for the transaction to take place. Since the former prevented you from getting the subscription cash into the ISA and the latter required the subscription cash and the rights to be on the same side of the boundary for the subscription to take place, the actual steps involved in exercising the rights outside the ISA would appear to me to be:

1) Withdraw the rights from the ISA - there are no restrictions of withdrawals of either cash or investments from an ISA, and rights are a (short-lived) type of investment, so there's no problem about that.
2) The subscription can then take place outside the ISA.

Or assuming you have enough money outside the ISA

1) Sell the rights in the ISA
2) Buy the rights outside the ISA
3) Take up the rights outside the ISA

Since you are selling to yourself your provider may even be willing to do it like a reverse bed-and-ISA transaction so that you only pay the fees for the repurchase rather than fees for both the sale and purchase. As I recall I did this years ago (something like 2011) with ii though I had to phone them to describe exactly what I wanted to do.

I agree one could do it that way - though I wouldn't advise it. As you've described it, it won't achieve the same result as the process I described (withdrawing the rights from the ISA and subscribing to them outside the ISA) - it leaves more cash in the ISA and demands more cash outside the ISA. That can be fixed (give or take trading cost differences) by inserting an extra step "1.5) Withdraw the sales proceeds from the ISA". But that then leads on to the question "Why withdraw cash from the ISA and lose that part of the tax sheltering provided by the ISA?", and the only answer I know of to that is "Because otherwise I won't have enough cash outside the ISA to complete the plan". That answer won't apply to the vast majority of people in such situations, I suspect.

So in most cases, I would leave out that step 1.5 and accept the different cash outcome. But either way, the question also arises of whether to do steps 2 and 3 rather than simply combine them into buying a number of shares equal to the number of rights you had inside the ISA before step 1. Since the price of a right is generally very close to the price of a share minus the subscription cost of a right during a rights issue, buying rights and subscribing to them is unlikely to save money compared with buying the shares (and that goes for trading costs as well - yes, I suspect many brokers would do your "reverse bed-and-ISA transaction" for just one commission, but just buying the shares definitely involves just one commission. There is a potential stamp duty advantage, I think: buying rights and subscribing to them presumably only involves paying stamp duty on the cost of the rights, whereas buying the shares involves paying stamp duty on the cost of the shares, which will generally be greater by about the total cost of subscribing to the rights.

Against that, besides the somewhat greater admin complexity of buying rights and subscribing to them, there is also a possible disadvantage, namely that there is an exception to the rule that the price of a right is generally very close to the price of a share minus the subscription cost of a right during a rights issue: if the price of a share drops to very close to the subscription cost, the price of a right can be expected to be noticeably higher than that general rule suggests. The overall result is that buying rights and subscribing to them might save money compared with buying the shares, but the amount it will save can be expected to be very little at best and it also might cost you rather more. Not saying you'll never encounter a situation where it will save you a worthwhile amount of money - but I am saying that any time you come up with the idea of buying rights in order to then subscribe to them, check as close as possible to the time you trade that it's actually going to save you money compared with simply buying the shares, and I am predicting that almost all of the time, the answer is going to be "No", or possibly "Yes, but so little that it's not going to be worth my while dealing with the extra admin".

BUT all of the above is pretty much besides the point as far as the question raised by the OP is concerned. That question was not how to deal with a rights issue, but how to deal with the CGT computations following a rights issue that had been dealt with in a certain way: biscwit had not had the cash available in the ISA to subscribe to the rights, and had instead taken them up outside the ISA. That option of taking them up outside the ISA was presumably offered by biscwit's broker, and I would be practically certain that such an option offered by a broker would be done by withdrawing the rights from the ISA and then subscribing to them outside the ISA: it's the simplest way to do it, both as regards having just two steps and as regards not involving extra communications with their client about things like "you need to have more cash available outside the ISA than just the subscription price", "this will involve a cash withdrawal from your ISA", "this will involve a rights purchase outside the ISA and subscribing to them, which may well be disadvantageous to you compared with just buying the shares", etc. Basically, a broker who wants to implement client instructions to take the rights up outside the ISA would IMHO have to be insane to take on that extra complexity.

Anyway, all of this was done last September, when the IAP rights issue happened. It was done the way it was, and no amount of advice given now about how to do it is going to change that. I'd guess that biscwit doesn't currently know the technical details of exactly how it was done, as otherwise he or she would probably know how to deal with the CGT computations and so wouldn't be asking the question. So my suggestion to check all the documentation provided by the ISA manager and (if that fails) asking the ISA manager stands. You're right to point out that it could have been done in other ways, so the documentation check should involve keeping an eye open for hints that it was done some other way. But it seems so unlikely to me that if it comes down to asking the ISA manager, I would ask simple questions based on the assumption that it was done by withdrawing the rights and subscribing to them, leaving the ISA manager reply along "You've made incorrect assumptions about how the transaction was done" lines if necessary.

Gengulphus

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Re: HMRC baffled by my question on s.104/CGT/ISAs/rights issues

#399431

Postby Gengulphus » March 27th, 2021, 9:54 am

ursaminortaur wrote:
Lootman wrote:
ursaminortaur wrote:Or assuming you have enough money outside the ISA

1) Sell the rights in the ISA
2) Buy the rights outside the ISA
3) Take up the rights outside the ISA

Since you are selling to yourself your provider may even be willing to do it like a reverse bed-and-ISA transaction so that you only pay the fees for the repurchase rather than fees for both the sale and purchase. As I recall I did this years ago (something like 2011) with ii though I had to phone them to describe exactly what I wanted to do.

Yes, although the bid-to-offer spreads on many rights issues would make this quite expensive.

So if the situation that the OP described is allowed by your broker then it seems preferable i.e. booking the rights outside of the ISA even if the base holding is within the ISA. Then use the cost basis for the exercised rights as described by Gengulphus.

That said, what I would have done (and have done) is sell something else within the ISA to fund the exercise of the rights issue.


As I said I did this many years ago but as I recall the bid-offer spread on the rights was pretty small and I only had to pay a single fee for the transaction so it worked out well at that time.

Yes - bed-and-ISA type transactions don't really require the broker to put the sale and the purchase through the market: they've got a sale and a purchase they can 'match' in their internal systems without involving market makers (or equivalents such as RSPs) at all, without the broker needing to take on any risk of being left with a long or short position in the stock, and so there is no real need to pay a spread to those market makers. I'm reasonably certain that I've heard of cases of brokers doing bed-and-ISA deals for a commission and no spread at all in the past, though that was many years ago.

That memory might be mistaken, though, and even if it isn't, a regulatory need to go through the market might have arisen since then, or the broker might want to use a market maker because the market maker's systems deal with the matched transactions more efficiently than the broker's. So I'm not saying that no-spread bed-and-ISA deals are available now (they might be, but I simply don't know). But even if the broker does put bed-and-ISA transactions through market makers, they can doubtless negotiate low spreads on them with market makers, because what the market makers primarily charge a spread for is to compensate them for the risk of being left holding a long or short position, and a bed-and-ISA deal doen't create any such risk.

Gengulphus

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Re: HMRC baffled by my question on s.104/CGT/ISAs/rights issues

#399678

Postby biscwit » March 28th, 2021, 12:36 am

Dod101 wrote:As it is, presumably you claim the cost for the shares now outside of the ISA as the value of the rights acquired plus whatever premium you had to pay.


Interesting discussion - thank you all.

To come back on this one point alone: having investigated, it seems that the ISA manager did assign a book cost to the shares purchased outside the ISA, per Dod. So (example quantities) 1,000 rights @ c£1.29 + 1,500 new shares @ c£0.84 = average cost per share of c£1.70. Hopefully HMRC will accept that this is a proper way to calculate the cost for CGT purposes in this particular situation.

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Re: HMRC baffled by my question on s.104/CGT/ISAs/rights issues

#399688

Postby Dod101 » March 28th, 2021, 7:36 am

biscwit wrote:
Dod101 wrote:As it is, presumably you claim the cost for the shares now outside of the ISA as the value of the rights acquired plus whatever premium you had to pay.


Interesting discussion - thank you all.

To come back on this one point alone: having investigated, it seems that the ISA manager did assign a book cost to the shares purchased outside the ISA, per Dod. So (example quantities) 1,000 rights @ c£1.29 + 1,500 new shares @ c£0.84 = average cost per share of c£1.70. Hopefully HMRC will accept that this is a proper way to calculate the cost for CGT purposes in this particular situation.


Glad we are in agreement. I doubt very much that that will ever be challenged. What your ISA manager has done seems to be a transfer out of your ISA of the rights in specie. All it needed was a book entry to transfer the rights from your ISA to a Trading Account outside the ISA. For them it otherwise will make no difference since your shares and the rights will still be held in the name of their nominee. I have never come across that before but I cannot see that that is not allowed.

I would not trouble HMRC again.

Dod

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Re: HMRC baffled by my question on s.104/CGT/ISAs/rights issues

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Postby Gengulphus » March 28th, 2021, 1:43 pm

Dod101 wrote:
biscwit wrote:
Dod101 wrote:As it is, presumably you claim the cost for the shares now outside of the ISA as the value of the rights acquired plus whatever premium you had to pay.

Interesting discussion - thank you all.

To come back on this one point alone: having investigated, it seems that the ISA manager did assign a book cost to the shares purchased outside the ISA, per Dod. So (example quantities) 1,000 rights @ c£1.29 + 1,500 new shares @ c£0.84 = average cost per share of c£1.70. Hopefully HMRC will accept that this is a proper way to calculate the cost for CGT purposes in this particular situation.

Glad we are in agreement. I doubt very much that that will ever be challenged. What your ISA manager has done seems to be a transfer out of your ISA of the rights in specie. All it needed was a book entry to transfer the rights from your ISA to a Trading Account outside the ISA. For them it otherwise will make no difference since your shares and the rights will still be held in the name of their nominee. I have never come across that before but I cannot see that that is not allowed.

Withdrawals of investments from ISAs definitely are allowed (HMRC's guidance for ISA managers about them are in https://www.gov.uk/guidance/how-to-mana ... rom-an-isa), and yes, such book entries (one for the ISA account and a matching one for the trading account) are the obvious way for an ISA manager who is a nominee broker to do such a withdrawal when the ISA and trading account are both held with them. There is the issue of what value the ISA manager places on the transferred investments in those book entries - which makes no difference to whether the ISA manager's books balance (as long as it's the same value in both of them) but does make a difference to the information the ISA manager reports to the investor and HMRC.

Anyway, unless I knew pretty definitely that the information reported to me by the ISA manager was wrong, I would assume they knew what they were doing and use that information as reported. In particular, I would be able to truthfully declare that my tax return was complete and correct to the best of my knowledge and belief. It's deliberately or recklessly making a false declaration in a tax return that get one into bad trouble with HMRC - inadvertent mistakes tend to simply result in the mistake being corrected by a payment of the underpaid tax (or refund of the overpaid tax) and a bit of interest. And if the mistake happened because the ISA manager had given me the wrong information, I strongly suspect that the ISA manager would be in worse trouble than me!

Gengulphus


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