My FIRE update - great position but massive concentration risk

[dingdong]

OK so I'm well past the point of being able to FIRE, but over a third of my net worth is tied up in one stock (Accenture) which has recently increased to six figures given the ongoing rise in the US market. I worked there many moons ago and put 15% of my salary into their employee share saving scheme which has obviously worked out amazingly well given how cheap the shares were back then.

SIPP: 960k
ISA: 620k
GIA: 100k
Emergency fund: 70k
Accenture Shares: 1m
Net worth: 2.75m

Age 50 - mortgage is also currently fully offset whilst interest rates are high

My strategy in recent years has been to sell Accenture shares up to the CGT allowance each year and transfer into Vanguard funds in my ISA, but clearly it's a risk to have that level of concentration in one company, with the added USD currency risk too. The CGT allowance also drops to 3k from April.

Options I've been debating:

1) Taking the hit on CGT by selling a large amount each year and then offsetting the tax hit by transferring as much as possible into the SIPP (although I'm wary of the SIPP lifetime limit being reintroduced which puts me off... there's 7 years before I could access it and rules will no doubt change many times in that time)

2) As above but transferring into the GIA and creating a lower-risk income focussed portfolio (accenture div yield is only 1% or so)

3) Cash the whole lot in and spend on a nicer house to live in (on basis I've got lots of other exposure to the market and a healthy balance even without this)

4) Leave where it is but hedge the risk using options/covered calls (I don't understand anything about those so it would be a very steep learning curve)... or just use a stop-loss order to protect against the next market crash (but i've always been comfortable with volatility to date)

Outside of that I'm now adopting the coasting approach to FIRE so have an easy job which is covering most of my living expenses. I tried not working at all and missed the intellectual challenge and am now a big fan of the coasting strategy

I clearly do need to learn how to make the mindset switch from building up my portfolio to actually spending it.... and should probably start to think about adjusting to a more cautious approach for the rest of the portfolio given I've already hit my FIRE target.

I realise this is a very fortunate problem to have, but am interested to know how others would handle such a concentrated (but well performing to-date) position.

[scotview]

but over a third of my net worth is tied up in one stock (Accenture) which has recently increased to six figures given the ongoing rise in the US market.
Accenture Shares: 1m

Are you paying UK tax on the Accenture share dividends and is withholding tax involved, that can be a pain.

You are in a great situation, well done !

[JohnB]

What is the %age gain on the accenture shares, to give a feel how much CGT is possible.

When you stop working (yesterday!!!) what will your spending be. If it can be funded below HRT then selling expenditure+20k+CGT and paying the CGT at 10% seems good, unless the GIA has a better gains profile

[dingdong]

but over a third of my net worth is tied up in one stock (Accenture) which has recently increased to six figures given the ongoing rise in the US market.
Accenture Shares: 1m

Are you paying UK tax on the Accenture share dividends and is withholding tax involved, that can be a pain.

You are in a great situation, well done !

Yes I'm paying 25% Irish withholding tax and can only reclaim 15% on my self assessment so it's costing me thousands. I've been on a painful journey getting nowhere fast trying to get the Irish tax office to refund the difference as they make the refund process almost impossible to comply with!!

[dingdong]

What is the %age gain on the accenture shares, to give a feel how much CGT is possible.

When you stop working (yesterday!!!) what will your spending be. If it can be funded below HRT then selling expenditure+20k+CGT and paying the CGT at 10% seems good, unless the GIA has a better gains profile

The gain is basically 900% so pretty huge! Thanks for the suggestion that's an interesting idea.

[DrFfybes]

Wow - a great position to be in.

You don't say if you are still working or not, although as you talk about moving large amounts to a SIPP presumably you still have earned income? Otherwise your SIPP contribution limit is £2880. Also no mention of a property, but given the figures we can assume no mortgage?

Is there a spouse who's tax allowances you can use?

Personally I'd get a chunk out of Accucenture and diversify, having circa 30% of your net worth in one single company is quite a tight exposure. Sure they've done well, so did Texaco, Pan Am, Blockbuster, Kodak, Enron, Jarvis, and Carillion for a while and whilst you'd still not starve it would rankle somewhat if they took a hit. Also given the amount in their shares, you're never going to be able to dispose of it without paying CGT unless you hold until death, so taking the hit now means the risk can be spread sooner.

Depending upon your other taxable income, you could sell it up to (say) the higher rate tax band and just live on the money, presumably you're not taking anything from SIPPs or ISAs any time soon anyway.

Paul

[JohnB]

So £100k nets you £900k if you keep under HRT while disposing, Give the government a share of your good fortune!

[monabri]

Do you have any loss making shares in your GIA that could be sold to offset capital gains from sale of some of your Accenture shares?

(Maybe YOU can sell from your GIA and Mrs Ding-dong ( assumptions regarding your personal details made.....no offence intended) could buy such that you as a family continue to hold the shares but in her account ? )

[Dod101]

Selling too soon is often as bad as hanging on too long but I do not think you could be accused of that with Accenture. I would sell at least half of the holding and apply some of the net proceeds to something you and/or your wife has always wanted, say upgrading your property or buying something bigger(but not just for the sake of it!) Ask yourself why you are hanging on to it? You do not need more from it as you have amply demonstrated. If you have no use for the funds released then reinvest in something like your passive funds but spread the proceeds around.

Then once you have digested that, sell say another half of the remainder. Fortunately, CGT is levied as a flat rate so as far as I know so you will not be pushed into a higher rate of tax. Leave the balance to its own devices. By that stage you do not need to worry as you have reaped the benefit of your years of investment.

Difficult to do that sort of thing but that is certainly what I would do. Obviously put the proceeds into ISAs if you can. I would be wary of putting too much more into your SIPP as it can be a bit of a political football, especially at the moment.

Dod

[Gilesyb27]

Honestly, I'd sell most (if not all), take the hit as its still easy money and realistically you wont, in practice, miss the bit you lose to CGT. But I suspect you WILL sleep better once you dismiss thoughts of the concentration risk and the tax bill.

[genou]

Fortunately, CGT is levied as a flat rate so as far as I know so you will not be pushed into a higher rate of tax.
Dod

Unfortunately not. 10% if you are a basic rate taxpayer, 18% if higher ( and pretend the CG is income to work out which rate(s) you are chargeable at )
( https://www.gov.uk/capital-gains-tax/rates ). Residential property is 18% / 28%.

[Dod101]

Fortunately, CGT is levied as a flat rate so as far as I know so you will not be pushed into a higher rate of tax.
Dod

Unfortunately not. 10% if you are a basic rate taxpayer, 18% if higher ( and pretend the CG is income to work out which rate(s) you are chargeable at )
( https://www.gov.uk/capital-gains-tax/rates ). Residential property is 18% / 28%.

I did not know that as I otherwise pay very little tax. Still, 18% is not too bad, much lower than if the gain were taxed as income. The op would probably want to work out how to minimise his tax paid but I will let my comments stand.

Dod

[hiriskpaul]

Reminds me of a university friend who used to work for Microsoft. He is in an even more extreme position with over 90% of his investments still in Microsoft shares. He has not been able bring himself to paying CGT either. I have been telling him he is nuts for years, but he keeps proving me wrong. One thing I would point out is that there has been a lot of talk about "normalising" CGT and income tax rates, ie increasing the CGT rates. My view is you should bite the bullet and sell some of the shares, especially if you can do that and only pay 10% CGT.

It is hard though and I am guilty of letting the tax tail wag the investment dog. I have a large position in the NatWest preference share NWBD. I turned down a tender offer for them a couple of years ago. Had I sold and paid the CGT I would still be better off compared with selling now.

[BigB]

Reminds me of a university friend who used to work for Microsoft. He is in an even more extreme position with over 90% of his investments still in Microsoft shares....

Back in the 90s I played in a squash team for a company in the Berks Business League - we used to play Microsoft, who had set up in Reading in the early 80s I think. After the match you'd go for a beer with the opposition, and maybe some nibbles. One year we played them, I was chatting to one of their players and he told me that 2 of the team's players were both in the first 10 employees in the UK, had stuck with them, and by the early-mid 90s they had equity running into millions and tens/millions respectively. Right time, right place.

[Adamski]

I'd start selling the Accenture in stages. Starting in this tax year. Given your position I'd see a financial adviser. And think about inheritance planning too.

I'm semi retired, but on a budget. Just set amount spend each month. But in your position I'd set another figure for travel. New house, new cars, frequent travel plans and regular gifting. Before Rachel Reeves gets her mits on it.

[Dod101]

I'd start selling the Accenture in stages. Starting in this tax year. Given your position I'd see a financial adviser. And think about inheritance planning too.

I'm semi retired, but on a budget. Just set amount spend each month. But in your position I'd set another figure for travel. New house, new cars, frequent travel plans and regular gifting. Before Rachel Reeves gets her mits on it.

Certainly IHT planning but otherwise a financial adviser? How to spend it is a separate issue.

Dod

[swill453]

It (probably) would never be as bad for you, but I personally knew several RBS employees who had their retirement nest-eggs in their employer's various share saving schemes, and watched as 100s of £K dropped in value to buttons.

Scott.

[JohnB]

Fortunately, CGT is levied as a flat rate so as far as I know so you will not be pushed into a higher rate of tax.
Dod

Unfortunately not. 10% if you are a basic rate taxpayer, 18% if higher ( and pretend the CG is income to work out which rate(s) you are chargeable at )
( https://www.gov.uk/capital-gains-tax/rates ). Residential property is 18% / 28%.

10%/20% for not property, If the OP has no earned income (and with a wad like that, why work!), the £100k GIA generate £4k dividends, the Accenture £10k,<< PA so HRT CGT kicks in for disposals > £37700+£6000. Assuming you want to feed £20k into an ISA and have a nice lifestyle, you will be paying 20% CGT on some of those gains.

[scrumpyjack]

Emigrate for a few years to somewhere nice but with no CGT, then sell the shares when no longer subject to CGT before you return?

[scotview]

I'd start selling the Accenture in stages.

That would also begin to remove the dividend withholding tax aggravation.