CGT management during times of a market crisis...

[Itsallaguess]

With just a couple of weeks to go of the 2019/2020 tax year, I'm hoping that I'm not the only income-investor working this topic through in their mind...

I've got a low-yielding investment that I was planning to sell some of as part of my CGT management process. It's clear that I could have done so sooner and got a better price for the shares, but I'm happy to say that even with the current market turmoil, there is value in still pursuing the use of this year's CGT allowance....

If I've got something wrong with my thought processes below, then please do shout out. It's difficult to know you're thinking clearly in these sorts of markets, but rather than take a 'rabbit in headlights' approach to this CGT management task, and do nothing and hence lose the opportunity to use some of this years CGT allowance, I am still minded to press ahead with my plan, so long as it's prudent to do so, and still logically sound in terms of process...

So, here's my thoughts -

ORIGINAL PLAN (pre market-crash..) -

1. Sell a number of the low-yielding shares, using some of this years CGT allowance.

2. Transfer funds into a Shares-ISA in the next tax year, and invest that capital into higher-yielding collective(s).

NEW PLAN (post market-crash) -

Exactly the same as the original plan.....

Now, my thoughts on this are, that so long as both sets of investments on the sell and buy-side of the equation have gone down by the same relative amounts, in percentage terms, then there is no sound reason why a market drop such as that seen in recent weeks should stop me still implementing my CGT-management plan....

Yes, I'll need to sell more 'actual shares' to claim the same amount of sale-capital that I was wishing to claim in the original plan, but the question I keep asking myself is 'Why should that matter?'....

So long as both sets of investments, on both the sale-side and the intended buy-side, have gone down in value in lock-step percentage terms, which they more or less have, then I *think* that 'technically', I'm no worse off....

In fact, it might even be better than that, as there's a chance that the percentage price-drop seen on the intended sell-side might actually be *lower* than the percentage price-drop of the intended buy-side target, so I'm actually starting to think that whilst even the above plan 'feels odd' to still be valid, it feels 'even odder' to think that I might actually make an *improved* 'plan-implementation' following the recent drastic market moves than the one I was hoping to make before the markets took their turn....

Have I got anything wrong with the above thought-processes?

Is there anyone else in 'CGT-management' mode during recent days, that's also now struggling to carry through with their original plans?

Is anyone taking a different approach now that we're in a post-crash period than the one they were originally planning to take? If so, can you please tell us why?

Thanks for your interest - I've been muddling through with these thoughts for a couple of weeks now, and the days just fly by as they head towards the end of this tax year, so I thought I'd bite the bullet and raise the subject for discussion here, in case anyone else is in a similar boat and thinks it might be worth discussing this subject collectively...

Cheers,

Itsallaguess

[PinkDalek]

A brief response as I haven't studied your post in full.

Is there anyone else in 'CGT-management' mode during recent days, that's also now struggling to carry through with their original plans?

In this present situation I wouldn't act too hastily if your main purpose is to use up your Annual Exempt Amount and would normally have no CGT to pay.

My original plan all along was to sell Micro Focus at a loss (no kidding) as I have a CGT liability (not from equities ) against which the Capital Loss can be offset. I realised I might miss the ex div date but, in any event, that's subsequently been cancelled anyway. This I have already done and am not too concerned they may have risen over the last few days or so. I was to repurchase when I've subscribed to my 2020/21 ISA. That part I'll think about when we get there.

I also presently now intend to sell British Land, where I again have scope to use the Capital Loss in its entirety. We've held on and off for XXty years and, again, I may buy back but this time after the 30+ days are up in an unsheltered account. This is a brand new current turmoil Capital Loss and, on one of the days when I was unable to deal with the sale, the shares dropped by the amount of the potential CGT saving. Still a work in progress as some might say.

In general, I'm not Spreadsheet Phil and find the whole CGT situation etc hard to track and am fully aware of tax tails potentially wagging. That's why I'm doing little else other than considering BLand.

By the way, your call of course, but Taxes practical might have been a good a place as any to discuss such thoughts, as you may find others there who are in a similar situation but not involved in High Yield Shares & Strategies per se.

[Itsallaguess]

A brief response as I haven't studied your post in full.

Is there anyone else in 'CGT-management' mode during recent days, that's also now struggling to carry through with their original plans?

In this present situation I wouldn't act too hastily if your main purpose is to use up your Annual Exempt Amount and would normally have no CGT to pay.

Thanks PD - and just to respond to your main point above, I've always tried to take a regular 'use some CGT allowance where appropriate to do so' approach to my long-term investment strategy, with a view to then creating a situation where 'I would normally have no CGT to pay', so I'd be concerned that a 'do nothing' approach might lead to an 'opportunity-cost' at some point in the future that I may regret not managing out whilst having the chance each tax year...

On the CGT side of things, and knowing myself well enough in this area, I don't think I'll ever leave CGT considerations alone until 'issues arise'....I try to use at least some of my allowance when it's appropriate to do so to help *avoid* those issues arising in the first place...

A bit of a side-question then, I suppose, but am I alone in wanting to take that approach?

Cheers,

Itsallaguess

[Dod101]

Thanks for that reminder IAAG. I do not think I can help you much with your dilemma, but I have gains from the sale of part of my holding in Unilever at £50 and ironically from the sale of Imperial Brands to place them in my 2019/20 ISA at (whisper it) £24.26 per share!

I will have no difficulty in finding losses to offset these gains because it would be folly to pay CGT in these times but I will leave it for some day next week.

Dod

[mike]

For the Bed & ISA-ing at the tax year end, in previous years I have tried to proritise, in order

1 - Avoid any GCT liability this year, or try to avoid for the future (I have a variable in my Spreadsheet I can set so that I would sell down so a (say) 60% rise gives 0% GCT on any single share)
2 - Sell down quartley payers outside and move inside the ISA if appropriate
3 - Bring the higher yielders inside the ISA if appropriate

I am also moving away from a shares-only portfolio to mainly IT

This year I had sold down the high gainers - low yielders of CPG, DGE, REL and RB and replaced them with ITs up to December 2019 (my ULVR is already in an ISA), so there was a hefty GCT liabilty built up.

I had begun planning in mid February how to get rid of this .... and then boom !

So, a couple of points of which to be aware -
- The tax year end is at a week-end this year. Stocks are really volatile at the moment, and that gives 63 hours between Friday evening and Monday morning for some news to come out that could send prices soaring
- There is a possibility, albeit a very small one, that the markets go into such free fall that they decide to close them. What would happen if you had built up CGT liability and could not get rid of it ?

So I bit the bullet last week, and sold down some CNA and WG (inherited from AMEC/AMFW) to remove all CGT liability.

This year, I will now not be selling before the end of the tax year, but will sell and buy early in the new tax year. As the shares are cheaper to buy, we can currently we can shelter much more income in the ISA, although cuts this year may take their toll. I am fortunate that I can loan myself the new year's ISA money until the sales settle.

Assuming we are receiving our income by dividends from ITs or shares, then either the NET income transferred will increase, or it will cost us less.

Just as a quick example using figures from my records from Friday evening for HINT (Henderson International Income). This example includes selling and buying commissions, and Stamp Duty, but not a buy/sell spread.

Unsheltered Sell 10,000 shares     Receive £11,540       Net Income (after 7.5% Tax) £592
ISA Buy 9,933 shares               Cost £11,540          Net income (No tax in ISA)  £635 
ISA Buy 9,250 shares               Cost £10,747          Net Income (No tax in ISA)  £592

So you either get more income for the same cost, or get the same income for rather less cost, so while the spread would of course work against you, unless it is ridiculous, you will benefit

For this year, I shall be moving (on the equal income basis above) those RDSB & BATS that remain outside into the ISA, and also move LGEN and PSN inside. Any surplus will be into ITs.


On a related matter, I am living off my portfolio and drawing down ISA income by using it to fund purchases in the ISA, and then selling down outside. I used to buy as appropriate and sell down as I felt, and keep a running total so it didn't get too far out of line. When the next time to withdraw income from the ISA comes, I shall be buying and selling the same item at the same time to move it into the ISA. The volatility is just too much and the direction of travel unknown at the moment to take the more relaxed approach.

Not sure if that helps your thoughts !

[77ss]

.....

ORIGINAL PLAN (pre market-crash..) -
1. Sell a number of the low-yielding shares, using some of this years CGT allowance.
2. Transfer funds into a Shares-ISA in the next tax year, and invest that capital into higher-yielding collective(s).....

Is there anyone else in 'CGT-management' mode during recent days, that's also now struggling to carry through with their original plans?

Is anyone taking a different approach now that we're in a post-crash period than the one they were originally planning to take? If so, can you please tell us why?.....
Itsallaguess

I regularly use my annual CGT allowance (I regard this as a form of insurance), but I never leave it until the last minute. Quite the reverse.

If I understand your post correctly, you sell towards the end of the current tax year - realising your current CGT allowance and put the proceeds into an ISA in the following tax year.

I do it differently (and I don't say its better - I expect some years will be better your way and some mine). I sell at the beginning of the tax year, realising the bulk (this year it was 2/3rds in April) of my CGT allowance and liberating enough cash for the year's ISA. The residue of my CGT allowance I get by occasional top-slicing throughout the year.

Nevertheless, planning has to be done for the next tax year and I thought I had it all worked out, but it was back to the drawing board, with the major falls in prices making my original plans obsolete. The ratio of cash liberated to capital gain realised swung massively against CG (ideally it should be about 2:1). Fortunately I have one holding (Pennon) which has held up very well, so barring last minute changes I shall just move it from my dealing account into an ISA. Job done with a bit of CG leeway left for the rest of the year (being optimistic). Not in my original plans.

Off-topic for this board I guess, but when it comes to switching funds from my dealing account to a tax shelter, I do not worry too much about yield - ISAs shelter capital gains as well as dividends.

[JohnB]

I sell at the end of the year to use CGT allowance. If this year I can't find any CG I'll defer to early next tax year, so the loss will offset the next round of CG calculations in March 2021. The argument against normally selling at the start of a year is you can't predict if some corporate action will trigger an involuntary gain later on, or you need to sell more later for a unexpected purchase.

[77ss]

....The argument against normally selling at the start of a year is you can't predict if some corporate action will trigger an involuntary gain later on...

True, but if you a basic rate taxpayer (as I am) 10% on excess CG is not particularly worrisome. Even 20% is not crippling - by comparison with income tax. Maybe it's just the shares I hold, but over my 18 years of active investing the only time a late corporate action has come close to causing me a problem was the takeover of Scottish and Newcastle - and that never became an issue because the proceeds were spread out over two tax years.

I also have a couple of duds, (well, you never know....) which I am really only hanging on to as 'loss reservoirs' should I need to offset excess CG - indeed, last week I sold some Centrica for just that reason.

[Itsallaguess]

Well, earlier today I thought it was time to dip my toe into this market.

I've no idea if there's further falls to come, but I do know that today we're closer to any future-bottom than we were a month ago, and if promising numbers start to come out of the global lock-down areas in the coming weeks, then there will be some wider encouragement with those situations, I would imagine. Here's hoping...

I sold some of my Avon Rubber shares today. I want to yet again publicly thank PaulyPilot for encouraging me into Avon Rubber nearly 17 years ago now back in the Motley Fool days, and today I sold a slice of them to realise some capital gains for this tax year, and have bought some of the following -

1. Merchants Trust (MRCH)

2. Henderson International Income Trust (HINT)

3. Vanguard LifeStrategy 80/20

Recognising that the Vanguard holding is simply a diversification position, nonetheless on a blended view, the above will allow me to take advantage of an Avon sale that was yielding just 1% for me, and achieve a much better income-return on at least two of the above purchases. I already own all three of the above, so this is adding to existing positions at prices that are somewhat discounted lately...

Avon Rubber has been my first ever 10-bagger. The holding was showing a 1059.58% profit before I top-sliced some away, and I will continue to hold my remaining Avon shares..

I've never really been good at selling, although I'm much better now than I used to be, but after holding this share for nearly 17 years (£2.13 buy vs £24.70 sale), I'm over the moon to be rotating some of that growth capital into some generally higher-yielding holdings, and at a relative discount to an Avon Rubber price that has managed to maintain some strength during recent weeks.

It was that relative strength that led me to starting this thread. I was looking to take advantage of this years CGT allowance, at the same time as rotating out of a relatively strong holding and into a few holdings that have seen some price weakness in recent weeks.

That was the plan, and today I acted on it.

Thanks again PP - I'll raise another glass of red in your honour tonight...

Cheers,

Itsallaguess

[kempiejon]

I've got a little tax planning, luckily I had a bit of a tidy in January. I've not looked at the portfolio for a couple of days, I've lost use of the laptop as the SO is working from home and I'm relegated to chromebook and ipad and Halifax does not like my browsers.
I hold Plus500 probably my best performing share this week up 10% today and currently at a 12 month high. If I can get to the windows machine later I'll set a limit order.
I honestly wasn't expecting to see enough profit in my unsheltered holdings to justify any sales this year.

[88V8]

I think in terms of the index, yesterday was the bottom. Always exceptions, but that was it. No more Shell at a tenner.
If we weren't going to be without electric all day tomorrow, I'd be continuing my buying while the sweetshop is open.
So I don't see this as a moment at which to be selling to save basic rate tax.

Luckily, my gains are in the bag, some months ago.
I had been debating which of my losses to crystallise, spoilt for choice now of course.

I have a lot of unsheltered holdings, and always use my allowance; given that imho we can't rely on such a benign tax rate in future, I think this should be routine.

V8

[odysseus2000]

Well, earlier today I thought it was time to dip my toe into this market.

I've no idea if there's further falls to come, but I do know that today we're closer to any future-bottom than we were a month ago, and if promising numbers start to come out of the global lock-down areas in the coming weeks, then there will be some wider encouragement with those situations, I would imagine. Here's hoping...

I sold some of my Avon Rubber shares today. I want to yet again publicly thank PaulyPilot for encouraging me into Avon Rubber nearly 17 years ago now back in the Motley Fool days, and today I sold a slice of them to realise some capital gains for this tax year, and have bought some of the following -

1. Merchants Trust (MRCH)

2. Henderson International Income Trust (HINT)

3. Vanguard LifeStrategy 80/20

Recognising that the Vanguard holding is simply a diversification position, nonetheless on a blended view, the above will allow me to take advantage of an Avon sale that was yielding just 1% for me, and achieve a much better income-return on at least two of the above purchases. I already own all three of the above, so this is adding to existing positions at prices that are somewhat discounted lately...

Avon Rubber has been my first ever 10-bagger. The holding was showing a 1059.58% profit before I top-sliced some away, and I will continue to hold my remaining Avon shares..

I've never really been good at selling, although I'm much better now than I used to be, but after holding this share for nearly 17 years (£2.13 buy vs £24.70 sale), I'm over the moon to be rotating some of that growth capital into some generally higher-yielding holdings, and at a relative discount to an Avon Rubber price that has managed to maintain some strength during recent weeks.

It was that relative strength that led me to starting this thread. I was looking to take advantage of this years CGT allowance, at the same time as rotating out of a relatively strong holding and into a few holdings that have seen some price weakness in recent weeks.

That was the plan, and today I acted on it.

Thanks again PP - I'll raise another glass of red in your honour tonight...

Cheers,

Itsallaguess

I remember Paulypilot plugging these shares, nice that they gave you such a fabulous return.

Paulypilot had some real good ideas as well as some stinkers & he made that board quite special when he was active, trading every way to Sunday as the mood or the latest bottle steered him. He was on Twitter for a while and had his own spot in a small cap value newsletter, but I lost contact as I am not a fan of small caps.

As I recall Avon made gas masks and other stuff, so perhaps the relative strength in this market is due a belief that their ability to make masks could have opportunities for profit in the current crisis.

Interesting that you like these managed funds. I still prefer individual equities, the more growth the better, but they do need watching whereas these income funds need much less attention and just spit out cash which can be nice.

Thanks for the heads up to how you are managing your portfolio and your investment tactics.

Regards,

[PinkDalek]

Paulypilot ... but I lost contact as I am not a fan of small caps.

For those who do follow AIM etc he, along with Graham Neary, continues to contribute to the daily Small Cap Value Report over at Stockopedia:

https://app.stockopedia.com/home

Not that there is much mention of High Yield Shares & Strategies over there but there are plenty of familiar user names in the comments section.

[AleisterCrowley]

Well, earlier today I thought it was time to dip my toe into this market.

Avon Rubber has been my first ever 10-bagger. The holding was showing a 1059.58% profit before I top-sliced some away, and I will continue to hold my remaining Avon shares..

Itsallaguess

Wouldn't 1059% be an 11-bagger ?!

(I was looking at Avon a while back, without delving deeply into the finances. They make military gas masks and a lot of other gubbins, and have been based in sleepy Melksham for 130 years.)

[Itsallaguess]

Well, earlier today I thought it was time to dip my toe into this market.

Avon Rubber has been my first ever 10-bagger. The holding was showing a 1059.58% profit before I top-sliced some away, and I will continue to hold my remaining Avon shares..

Wouldn't 1059% be an 11-bagger ?!

Well I think PaulyPilot might well have to get another toast of Malbec tonight then!

I was looking at Avon a while back, without delving deeply into the finances. They make military gas masks and a lot of other gubbins, and have been based in sleepy Melksham for 130 years.

They really are a peculiar bunch, and have had over time one of the oddest business and market-mixes that I've ever had the pleasure of owning, but perhaps that begins to explain why I've not had too many 10-baggers! (11-Baggers!)...

Cheers,

Itsallaguess

[AleisterCrowley]

They are odd - they are ,or were, into agricultural equipment (milking machines?) and car parts, alongside making military respirators
I spotted them too late...

[88V8]

So there I was on the last day of the tax year, perusing a couple of blue islets bobbing in a sea of red.

Generally, I like to leave it until the last week or so to decide what if anything to sell to use up the allowance. Not that CGT should dominate one's selling decisions, but at the higher rate it is a factor.

Well, for 2019/20, it remained part unused. Even if there had been more islets, who wants to sell desired shares into a rising market.

Perhaps a little earlier in future

V8