Confuseddotcom101 Posts: 11 Forumite
11 November 2018 at 2:02PM in
Hi all,
I am new to posting on forums but I have been directed to this one a lot when trying to find answers to specific cgt questions online, and found most threads very useful when I've managed to sort the wood from the trees! My financial adviser was previously my Dad but he is sadly no longer with us and has left us with all sorts of questions which now need answering.
My specific questions are as follows:-
1. Would a change (conversion) from A Class units to R class units in Investec UK Smaller Cos count as a trigger for cgt? I've seen lots of discussions about conversion between "dirty" and "clean" classes. I am not 100% sure what these are, but I do know that I was advised to make the conversion to benefit from a lower management charge. When the conversion happened, my original investment had actually decreased in value, so I am really asking whether I can use the original sum invested as my base cost, or whether I have to use the newer, smaller amount, hence a larger gain and more cgt when selling now. If the conversion is a trigger for cgt, I know that I could offset the loss in theory against the gain, but I don't think I would be able to do this in practice as it is 4 years since the conversion, and I think I had cgt to pay in the same tax year that the conversion happened in.
2. I am intending to invest the amount for the time being in Fundsmith, which has consistently outperformed Investec. I already have T Class Accumulation Units with Fundsmith, but would want to invest this time in the Income Units, as they are generally a lot less hassle when working out cgt. Would the separate investments in Accumulation and Income Units all count as one holding under the section 104 rules? I know that you can convert to one set of units from the other without triggering a cgt liability, but not sure about the answer to this question. If the answer is yes, I may as well just continue to invest in the Accumulation Units. I was just trying to make my life simpler when I come to sell the Income Units, which may be relatively soon.
3. With regards to the equalisation element of dividends for Accumulation Units, is it best to show the equalisation as being deducted from your acquisition costs, and then added back with the accumulated dividends, even though the net effect would be the same as ignoring the equalisation altogether, just so HMRC can see that you understand and have applied the principle; or do they not really care as long as the amounts are the same under both sets of computations.
4. Has anyone ever found HMRC helpful when asking a specific question? I.E. is it worth my while bothering?
Hope I have made my questions clear enough. Thank you to all those who have previously posted on these topics, and in advance for any help you may be able to give me.
Tom99 Posts: 5,371
Forumite
11 November 2018 at 4:21PM
[FONT=Verdana, sans-serif]Re your question 3, I don't think its necessary to complicate the uploaded calculation with equalisation amounts.[/FONT]
[FONT=Verdana, sans-serif]These are the headings on the calculations I submit:[/FONT]
[FONT=Verdana, sans-serif]- Date Acquired[/FONT]
[FONT=Verdana, sans-serif]- Number of Units[/FONT]
[FONT=Verdana, sans-serif]- Date Sold[/FONT]
[FONT=Verdana, sans-serif]- Base Cost[/FONT]
[FONT=Verdana, sans-serif]- Transaction Fee[/FONT]
[FONT=Verdana, sans-serif]- Stamp Duty[/FONT]
[FONT=Verdana, sans-serif]- Total Cost[/FONT]
[FONT=Verdana, sans-serif]- Sale proceeds[/FONT]
[FONT=Verdana, sans-serif]- Less Transaction Fee[/FONT]
[FONT=Verdana, sans-serif]- Net proceeds[/FONT]
[FONT=Verdana, sans-serif]- Profit/Loss[/FONT]londoninvestor Posts: 1,350
Forumite11 November 2018 at 9:19PM
1. As long as you process as it as a conversion (not as a sale and repurchase) it's not a CGT-relevant event, i.e. your base cost is the original one. Conversion is CGTable only if the different "classes" actually correspond to different portfolios (HMRC manual) - so not the case for income vs accumulation, or classes that are identical apart from their fees.
(Link to a similar question on another forum - in this case the switch was inc/acc rather than clean/dirty, but the key principle is that the classes relate to the same underlying portfolio.)
2. I don't think they could count as one holding, because the different classes trade at different prices, and so an overall average purchase price (which is the point of s104) wouldn't be meaningful. For example, say you've bought 10,000 Acc units at £1.30 and 20,000 Inc units at £1. Your total cost is £33,000 - so in some sense your average unit price is £1.10 for your 30,000 units. But it wouldn't make sense to say that if you then sell 5,000 units, the applicable base cost is £5,500 regardless of whether they are Acc or Inc units.
In some sense this is at odds with the principle behind answer 1 - but I just don't see how the mechanics could work of treating the two classes as part of the same holding.
Open to correction on this one if anyone has something more definitive.
3. Agree with Tom99 - no need to show the two offsetting entries. Omitting the equalisation shows perfectly that you understand and have applied the principle
At most if you want, you could put a comment in a "Notes" column to the effect of "received £200 dividend plus £100 of equalisation".4. No experience on this topic. Generally I think their written documentation could be improved - a few decent worked examples around fund scenarios would go a long way. But could be they're much clearer if you phone them up - I never have.
Tom99 Posts: 5,371
Forumite12 November 2018 at 12:33AM
[FONT=Verdana, sans-serif]Re your question 2:[/FONT]
[FONT=Verdana, sans-serif]Personally I think Acc Funds are simpler.
With an Acc Fund:[/FONT]- [FONT=Verdana, sans-serif]Equalisation – Ignore [/FONT]
- [FONT=Verdana, sans-serif]Dividend – Add to income for income tax and add to base cost for CGT [/FONT]
[FONT=Verdana, sans-serif]With an Inc Fund:[/FONT]
- [FONT=Verdana, sans-serif]Equalisation – deduct from base cost for CGT [/FONT]
- [FONT=Verdana, sans-serif]Dividend – Add to income for income tax [/FONT]
- [FONT=Verdana, sans-serif]Arrange for dividend to be reinvested [/FONT]
- [FONT=Verdana, sans-serif]Reinvested dividend – Add number of new units and cost to base cost for CGT [/FONT]
- [FONT=Verdana, sans-serif]Account for any cash left over than could not be reinvested. [/FONT]
[FONT=Verdana, sans-serif]With an Inc fund, if you reinvest the dividends you will probably have very small equalisation payments at every dividend date whereas with Acc Units you will only have one equalisation payment with your 1st dividend after purchase.[/FONT]
Confuseddotcom101 Posts: 11 Forumite
12 November 2018 at 10:35AM
Thanks guys, you've been very helpful. It is nice to have someone concurring with the conclusions I have reached after my extremely swift baptism of fire. I didn't even know what equalisation was until a couple of days ago when I was directed to a previous thread after searching for an answer with regard to gross or net dividends being added to the base cost of accumulation nets. Previously all my Dad had said was to ignore it for income tax purposes.
Tom99, your explanation above with regard to accumulation units being simpler does make a lot of sense, it's just that I wanted to keep the two pots of money separate as I may well need the money for something else in due course. If they are all added together I would have to pay CGT on the amount withdrawn later on, whereas unless the fund does extremely well in a very short space of time, keeping them separate will probably avoid it. Thanks again.
At most if you want, you could put a comment in a "Notes" column to the effect of "received £200 dividend plus £100 of equalisation".This discussion has been closed.
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