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What to Tax Shelter?

Index tracking funds and ETFs
GeoffF100
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What to Tax Shelter?

#404884

Postby GeoffF100 » April 17th, 2021, 7:45 am

Here is an interesting video from PensionCraft:

https://www.youtube.com/watch?v=2lHVs1XfbZ8

Treasury bond yields are increasing rapidly in the US. The same could happen here. Here is link to the other PensionCraft videos, by the way:

https://www.youtube.com/c/Pensioncraft/videos

(PensionCraft is required viewing if you are lemon and a fool. Even if you are neither, it is worth a look.)

I have just completed a manoeuvrer in which I sold directly held UK shares and bought a FTSE 100 tracker in my ISA and VEVE in my SIPP. I evicted bond holdings to achieve that. Equities in the tax shelters and bonds outside works well for now, while interest rates are very low.

If interest rates went back to 4%, my income tax would sky rocket. My manoeuvrer also has the merit of being reversible. I can sell equities in my ISA and SIPP, and buy bonds. Even so, I would be worth while to keep the FTSE 100 tracker in my ISA. I was considering moving some VFEM into my ISA. That is more problematic. It will take more than two years iSA allowance to do that, and I will have to pay a spread, and potentially pay another spread if the manoeuvrer has to be reversed.

GeoffF100
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Re: What to Tax Shelter?

#404902

Postby GeoffF100 » April 17th, 2021, 10:18 am

A further thought is that moving my overseas trackers into my ISA would currently increase my tax bill, rather than reduce it. There was good case for buying VEVE in my SIPP, because I was selling high yielding UK shares outside any tax shelter, which reduced my UK equity allocation. Holding VEVE also avoided a hefty platform fee with Youinvest, and allowed me to transfer to Vanguard, where I have a free account. I could now sell and buy the Vanguard Global Bond fund or VAGP, but that will not be great if interest rates rise.

When I sold my directly held UK shares, I was able to keep most of my three biggest losers, which gives me some bottled tax loss to deploy as and when I need it. I will need to use a little of it at the end of this tax year, but I am inclined to hang on the the rest of it.

My best plan here is probably to do as little as I reasonably can, and await developments.

mc2fool
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Re: What to Tax Shelter?

#404931

Postby mc2fool » April 17th, 2021, 12:08 pm

GeoffF100 wrote:Even so, I would be worth while to keep the FTSE 100 tracker in my ISA. I was considering moving some VFEM into my ISA.

One consideration for keeping common-indices-trackers outside of a shelter is that you can swap them for another following the same index each year (or two or whatever) to use the capital gains allowance, and so continually keep your "base cost" for CGT purposes low, while maintaining your exposure to the index.

E.g. alternate between VUKE (Vanguard FTSE 100 tracker) and ISF (iShares same). All individual circumstances dependent of course...

GeoffF100
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Re: What to Tax Shelter?

#404946

Postby GeoffF100 » April 17th, 2021, 1:14 pm

mc2fool wrote:
GeoffF100 wrote:Even so, I would be worth while to keep the FTSE 100 tracker in my ISA. I was considering moving some VFEM into my ISA.

One consideration for keeping common-indices-trackers outside of a shelter is that you can swap them for another following the same index each year (or two or whatever) to use the capital gains allowance, and so continually keep your "base cost" for CGT purposes low, while maintaining your exposure to the index.

E.g. alternate between VUKE (Vanguard FTSE 100 tracker) and ISF (iShares same). All individual circumstances dependent of course...

That is true. In my case, the 4% FTSE 100 tracker dividend equates to a lot of income. I was bobbing along just under the 40% tax band. I am well clear for now. Rising interest rates would spoil that. Nonetheless, my bonds are on a 5 year ladder, so I would have some time to reposition my investments.

Most of my money will go to charity on my death. Under current legislation, there will be no CGT to pay, but that could change. My big unsheltered equity holding is Vanguard Developed World ex UK. I could use L&G International Index Trust I Fund for bed and breakfast. I could also bed and ISA. In either case, I can buy back the Vanguard fund after 30 days. Alternatively, I can build up a market weight holding in Vanguard Global Small Cap fund. I do not know what the market weight is, but I expect that 10% would do. The CGT allowance is perishable, so it makes sense to use that, but I can hang on to my bottled capital loss (unless one of the companies gets taken over for cash). I am unlikely to ever be able to wash out all my capital gains, but I feel that I should do what I can.


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