Question about capital gains and investments

[mrodent]

This may have been asked before (I searched). Also there may be a better subforum for this (I also had a look, but couldn't see an obvious one).

I have to complete my tax return by the end of the month. Last tax year I did do a bit of buying and selling in my GIA (with Lloyds Investment Bank). The CGT allowance for 22-23 was £12300. I think it's unlikely that growth of those funds (i.e. when sales occurred) in there will have exceeded that, but I'm not entirely sure.

From next year (23-24) the CGT allowance plummets to £3000!* I have also received some significant money from an inheritance this year meaning that my GIA accounts will be pretty significant from now on, so I will need to get my figures right in future.

I take snapshots of my portfolios every 3 months. Looking back at one I made on 2023-04-10, this shows the valuation, but also the "Book Cost" - in principle the price at which it entered the portfolio, I think. However, my understanding is that it is only *disposals* of funds which create "GGT events". Is the idea to compare the "book cost" (per unit) with the sale price (per unit) and try to work it out that way?

Is there a guide to this working this out somewhere... ?

* Or is it? https://www.gov.uk/capital-gains-tax/rates says it's £6000 for 23-24. Confused now. https://www.gov.uk/capital-gains-tax/allowances is even more mysterious: "The Capital Gains tax-free allowance is: a) £6,000 b) £3,000 for trusts". Do funds in a GIA count as "trusts" or as "[no designation]"?

[DrFfybes]

The CGT allowance for 22-23 was £12300. I think it's unlikely that growth of those funds (i.e. when sales occurred) in there will have exceeded that, but I'm not entirely sure.

From next year (23-24) the CGT allowance plummets to £3000!* I have also received some significant money from an inheritance this year meaning that my GIA accounts will be pretty significant from now on, so I will need to get my figures right in future.

I take snapshots of my portfolios every 3 months. Looking back at one I made on 2023-04-10, this shows the valuation, but also the "Book Cost" - in principle the price at which it entered the portfolio, I think. However, my understanding is that it is only *disposals* of funds which create "GGT events". Is the idea to compare the "book cost" (per unit) with the sale price (per unit) and try to work it out that way?

Is there a guide to this working this out somewhere... ?

* Or is it? https://www.gov.uk/capital-gains-tax/rates says it's £6000 for 23-24. Confused now. https://www.gov.uk/capital-gains-tax/allowances is even more mysterious: "The Capital Gains tax-free allowance is: a) £6,000 b) £3,000 for trusts". Do funds in a GIA count as "trusts" or as "[no designation]"?

This year 23/24 is £6k, next tax year 24/5 it drops to £3k. This is for Individuals trading their own assets, ie your GIA.

Correct - You only incur a gain (or loss) when you sell the asset, up to then it is only a paper gain and the value is irrelevant. With the reducing limits it is probably wise to sell some of your investments before the end of the tax year in order to realise the gain within the allowance, then rebuy them either in a Spouse's account, or wait 30 days and buy them back, or simply buy something else.

Assuming you haven't reinvested Dividends, the 'book cost' should be what you paid for them, however the contract note on their system will tell you the actual cost to you, including trading costs and stamp duty. The costs of buying and selling are deducted from the gain. On some platforms I think the 'book cost' might not include the trading fees.

Note that if you have a spouse then they also have an allowance. If you gift them a bunch of shares they are deemed to have acquired them at the date and price at which YOU bought them (not at the date of transfer), and they can then sell them to use their allowance as well. This is a LOT simpler if you both have accounts on the same investment platform

Paul

[EthicsGradient]

"23-24" is this tax year, not "next". For 23-24, the allowance for an individual is £6,000 (the "trust" they talk about is if a charitable, family etc. trust owns assets - this does not apply to you). From 25-25 onwards, the individual's CG allowance will be £3,000.

Yes, the basic idea is to find out the amount you sold assets for, how much those assets cost you, and the difference is the capital gain. For sales of only part of a holding of shares or fund units, this involves working out the average cost per share/unit (for instance, you might have bought 200 shares at £3 each, and then later another 100 shares at £3.50 - these costs must be averaged), and applying that to the number you sell. It can get complicated if you were reinvesting income or holding accumulation units, or had made partial sales earlier.

[mrodent]

Thanks both for these clarifications.

Yes, it is slightly complex because I've only ever bought accumulation funds, and (confessing my sins further) I have been guilty of selling off less than 100% of a given fund and, to compound my self-flagellation, of buying second or third "helpings" of a fund from time to time.

Conversely, this suggestion of looking up "contract notes" seems good. As I say, I'd be quite surprised if this did in fact apply to my financial operations prior to 2023-04-06. But I can at least make some decent calculations now.

And thanks for confirming what I had understood: important to sell off some GIA funds before April this year. I'd also twigged to this cack-handed attempt to stop bed-and-breakfasting some years ago. Cack-handed because you can just buy another fund: as you confirm.

I wonder what HMRC is actually requiring you to do if you have accumulation units in a GIA? I suppose it is probably not beyond the wit of humanity, just a sizeable mathematical PITA, even assuming it is in fact possible to find out a history of dividends for a particular fund/ETF/share.

[swill453]

I wonder what HMRC is actually requiring you to do if you have accumulation units in a GIA?

A lot of paperwork, both to calculate the liability for income tax on the (hidden) dividends, and the base cost for CGT purposes.

Scott.

[DrFfybes]

I wonder what HMRC is actually requiring you to do if you have accumulation units in a GIA?

A lot of paperwork, both to calculate the liability for income tax on the (hidden) dividends, and the base cost for CGT purposes.

Scott.

Yes, a PITA, but not as bad as you might think as the notional dividend income reinvested in the accumumlation fund is listed on your annual tax certs, so it is quite easy to find, and then add to the cost of the units to work out the average cost. The income tax side should have been done the same as if they were income units.

Yes, it is slightly complex because I've only ever bought accumulation funds, and (confessing my sins further) I have been guilty of selling off less than 100% of a given fund and, to compound my self-flagellation, of buying second or third "helpings" of a fund from time to time.

You're doomed. From now on never sell shares worth more than the CGT allowance in any tax year (just to be on the safe side), and hold everythiing until you die and hope the CGT exemption still applies

Mind you I can talk, I've been reinvesting dollar dividends from Vanguard funds into BRKB for years, expecting I'd never sell enough to breach the combined steadily rising CGT allowance in a year. My first purchase was when a pound was worth 2 dollars. Is "hair replacement treatment" an allowable trading cost?

Paul

[JohnB]

If you have gains below the allowance, you need not report them EXCEPT if you sell more than 4 times the allowance, then you need to inform HMRC of the gain, even if it is below the threshold. You need to explain your working, i just mention all the divs in an ACC funds as reducing the gain.

If you alternate buying and selling an ACC, you need a very clear head. All holdings, even across brokers are pooled, so if you sell 10%, its the gain on all holdings/10, no matter when bought or held.

[swill453]

If you have gains below the allowance, you need not report them EXCEPT if you sell more than 4 times the allowance, then you need to inform HMRC of the gain, even if it is below the threshold.

That's another PITA then. Next tax year if you "Bed&ISA" £20Ks-worth, you'll have to report it to HMRC whatever.

Scott.

[mrodent]

If you have gains below the allowance, you need not report them EXCEPT if you sell more than 4 times the allowance, then you need to inform HMRC of the gain, even if it is below the threshold. You need to explain your working, i just mention all the divs in an ACC funds as reducing the gain.

So you mean if the *total combined sale price received* over the year 2022-23 is (£12,300 x 4 =) £49200 I have to report that, even if my *gains* are less than £12,300? Again, I'm probably in the clear, but need to check obviously.

If you alternate buying and selling an ACC, you need a very clear head. All holdings, even across brokers are pooled, so if you sell 10%, its the gain on all holdings/10, no matter when bought or held.

It certainly seems so. Is there anywhere to read up on the precise rules to apply? How have you gained this knowledge, for example? In view of what I've been told in this thread I intend to keep things as simple as feasible, and use INC funds from now on in my GIAs ... but I think I need to find out chapter and verse really, at least for when I make a disposal or two before April this year. I assumed the best place to start is HMRC so had a look at their website. But I haven't yet found things explaining about ACC funds, etc.

Anywhere in particular apart from that?

[SalvorHardin]

It certainly seems so. Is there anywhere to read up on the precise rules to apply? How have you gained this knowledge, for example? In view of what I've been told in this thread I intend to keep things as simple as feasible, and use INC funds from now on in my GIAs ... but I think I need to find out chapter and verse really, at least for when I make a disposal or two before April this year. I assumed the best place to start is HMRC so had a look at their website. But I haven't yet found things explaining about ACC funds, etc.

Anywhere in particular apart from that?

The tax rules can be found on HMRC's website. Here is the link to the CGT basics regarding share pooling:

https://www.gov.uk/hmrc-internal-manuals/capital-gains-manual/cg51550

And here for accumulation units (a real PITA once you need to pay CGT; keep good records)

https://www.gov.uk/government/publications/shares-and-capital-gains-tax-hs284-self-assessment-helpsheet/hs284-shares-and-capital-gains-tax-2022#accumulation-units

There are a lot of articles about tax online. Search using the key words you're looking for. IMHO accountants' articles are more user friendly than HMRC's website (they're looking for clients, HMRC doesn't have to do this).

Information gets absorbed by investors over time. I've been doing CGT returns every year for the last 20+ tax years since I retired; I know a lot more now than when I started!

You can always hire an accountant. Or have a look at some accounting courses

[JohnB]

You can find HMRC advice at this level online easily enough, its quite readable.

And, yes

[mrodent]

Thanks to both again.

Well the good news (for me) is that I've gone back and looked at my Lloyds GIA transaction histories ... and things could be a LOT worse (more complicated). None of the funds, only 4 currently, I've got there (or sold off in 2022-23) has seen any increase in the number of units held since purchase. And my buying/selling was never too complicated or bitty.

And my other GIAs in other platforms have been pretty dormant for several years, so no complications there (I am planning to use more than one platform from now on).

So my plan now is to sell off all these ACC funds before April and move into INCs, which will mean proceeds of a lot more than £6000 x 4, but that's OK.

And ... above all acquaint myself intimately with HMRC's rules.

Thanks to everyone who's helped me start understanding this stuff!

[Alaric]

So my plan now is to sell off all these ACC funds before April and move into INCs, which will mean proceeds of a lot more than £6000 x 4, but that's OK.

If you stay in the same fund, it's not a Capital Gain event converting from Acc to Inc. When I held OEICs directly, rather than through a Broker nominee, all I did was ask the Fund Managers to convert from one to the other.

[mrodent]

If you stay in the same fund, it's not a Capital Gain event converting from Acc to Inc. When I held OEICs directly, rather than through a Broker nominee, all I did was ask the Fund Managers to convert from one to the other.

Wow, thanks for that tip. Who'd have guessed that. Of course, with a rapidly diminishing £6000 CGT allowance 2023-24, I do want to mop all that up, so in fact I will thus *positively avoid* doing that ...

[EthicsGradient]

If you have gains below the allowance, you need not report them EXCEPT if you sell more than 4 times the allowance, then you need to inform HMRC of the gain, even if it is below the threshold.

That's another PITA then. Next tax year if you "Bed&ISA" £20Ks-worth, you'll have to report it to HMRC whatever.

Scott.

It's not as bad as that. In the past (up to and including 22-23), the sale amount was 4 times the allowance, but when they decided to decrease the tax-free allowance, they decided to fix the sale amount at £50,000, presumably to avoid too much reporting, typically in bed&ISA situations:

https://www.rossmartin.co.uk/capital-ga ... ital-gains

Another thing to note, though, is that if your total gains before deducting any losses are over the tax-free allowance, you still have to report them all, even if losses take you back below the allowance. So in 24-25 you make a gain of £2,000 on share A, a gain of £1,500 on share B, and a loss of £1,000 on share C, the total gross gain is £3,500, so you must report it all, even though the net capital gain will be £2,500, and you won't have anything to pay.