Do Bed & Breakfast rules apply to Trackers?

[SciFi]

Hi,
I'm hoping someone can clarify a Bed & Breakfast rule situation for me please.

I plan to sell a tracker fund I have then use that money for buying the same tracker but using my ISA allowance. If I sell the tracker fund and buy the same tracker fund (within 30 days) in my ISA am I breaking B&B rules?

My understanding is that selling/buying the same share (e.g Vodafone) would break the rules. But is that true of a FTSE all share tracker fund?

Thanks

[SalvorHardin]

I'm hoping someone can clarify a Bed & Breakfast rule situation for me please.

I plan to sell a tracker fund I have then use that money for buying the same tracker but using my ISA allowance. If I sell the tracker fund and buy the same tracker fund (within 30 days) in my ISA am I breaking B&B rules?

My understanding is that selling/buying the same share (e.g Vodafone) would break the rules. But is that true of a FTSE all share tracker fund?

Bed & Breakfast rules apply to all assets, including trackers and shares.

Breaking the rules" in the context of B&B means that you buy back the asset you sold before 30 days have passed (and you buy outside an ISA). If you do this then for capital gains tax purposes you are treated as never having sold them in the first place.

What you're planning to do is known as "Bed & ISA". This is a legitimate way to get around the 30 day B&B restriction. You sell your tracker fund and then buy them back in an ISA before the 30 day period has elapsed. The B&B rule doesn't apply in this case because for tax purposes a Bed & ISA only involves a sale. Your sale is a disposal for capital gains tax purposes. Your purchase in an ISA is ignored for capital gains tax purposes (so the B&B rule doesn't apply to ISAs).

[Chrysalis]

If you buy in an ISA there are no 30 day rules because the ISA holding is tax sheltered. All that counts is the disposal.

If you were to re-buy in a taxable account, then yes the 30 day rule applies, if you are buying the same fund. However you can manage this by purchasing a different tracker fund (even if it tracks the same index). So for example you could sell a Vanguard FTSE 100 tracker and purchase an ishares one immediately, and the disposal would count for CGT purposes.

That has always been my understanding, and practice.

[Dod101]

If you buy in an ISA there are no 30 day rules because the ISA holding is tax sheltered. All that counts is the disposal.

Unfortunately, the disposal is what matters for CGT. The 30 day rule is there to stop people trying to avoid CGT, but Bed and ISAing of course counts as two quite separate and independent transactions and so if you have a gain on the disposal transaction it is liable for CGT, subject to the rules applying to that.

Dod

[pochisoldi]

Hi,
I'm hoping someone can clarify a Bed & Breakfast rule situation for me please.

I plan to sell a tracker fund I have then use that money for buying the same tracker but using my ISA allowance. If I sell the tracker fund and buy the same tracker fund (within 30 days) in my ISA am I breaking B&B rules?

My understanding is that selling/buying the same share (e.g Vodafone) would break the rules. But is that true of a FTSE all share tracker fund?

Thanks

Note: this only applies of If you buying and sell outside any "tax free wrapper", it doesn't apply if you sell outside a wrapper, and buy within one. ("tax free wrapper" here means an ISA or pension)

The B&B rules apply to "funds" in the same way as shares.
So if you sell BP and buy back BP, you are subject to the same day and 30 day rules because you are dealing in exactly the same asset.
If you sell BP and buy RDS, you aren't (even though both companies are in the oil sector)
However you need to look at the asset you are buying (as in units of fund X), rather than the underlying investments.
So this means that selling and repurchasing (say) £10000 of "Legal and General UK FTSE350 tracker" is subject to the same day and 30 day rules.
Meanwhile selling £10000 of "Legal and General UK FTSE350 tracker" and buying £10000 of "HSBC UK FTSE350 tracker" will not - even though the two funds are invested in the same underlying assets, and exposed to exactly the same risk.

If you sell outside an ISA, and buy within an ISA, you won't get caught, because "fund X inside an ISA" <> "fund X outside an ISA"

PochiSoldi

[DrBunsenHoneydew]

Another way to think about it is that the reason is that the ISA is not "you".
It is a trust with you as beneficiary, so although it is you who sells it is not you who buys back, so the transactions are not linked together by B&B rules.

[csearle]

Hi,
I'm hoping...

Sorry this a bit late, but... ...Welcome to The Lemon Fool!

Regards,
Chris

[absolutezero]

I'm hoping someone can clarify a Bed & Breakfast rule situation for me please.

I plan to sell a tracker fund I have then use that money for buying the same tracker but using my ISA allowance. If I sell the tracker fund and buy the same tracker fund (within 30 days) in my ISA am I breaking B&B rules?

My understanding is that selling/buying the same share (e.g Vodafone) would break the rules. But is that true of a FTSE all share tracker fund?

Bed & Breakfast rules apply to all assets, including trackers and shares.

Breaking the rules" in the context of B&B means that you buy back the asset you sold before 30 days have passed (and you buy outside an ISA). If you do this then for capital gains tax purposes you are treated as never having sold them in the first place.

What you're planning to do is known as "Bed & ISA". This is a legitimate way to get around the 30 day B&B restriction. You sell your tracker fund and then buy them back in an ISA before the 30 day period has elapsed. The B&B rule doesn't apply in this case because for tax purposes a Bed & ISA only involves a sale. Your sale is a disposal for capital gains tax purposes. Your purchase in an ISA is ignored for capital gains tax purposes (so the B&B rule doesn't apply to ISAs).

Does this also apply to SIPPs?

[mutantpoodle]

Does this also apply to SIPPs?

yes

[absolutezero]

Does this also apply to SIPPs?

yes

Suspected so. Tax shelter is a tax shelter. But you never know with bizarre HMRC rules.

[DrBunsenHoneydew]

Does this also apply to SIPPs?

yes

Suspected so. Tax shelter is a tax shelter. But you never know with bizarre HMRC rules.

It's for the same reason as for ISAs. The SIPP is not "you" doing the transaction but a trustee.

[TUK020]

Even if this is unsheltered, one thing you can do to use your annual Capital Gains Tax allowance, but not be out of the market, is to buy a different tracker of the same thing from the one you have just sold - multiple FTSE100 trackers are available from different providers: Fidelity, Vanguard, iShares etc.
Don't think this matters if you are selling in a GIA, buying in an ISA.

[absolutezero]

Even if this is unsheltered, one thing you can do to use your annual Capital Gains Tax allowance, but not be out of the market, is to buy a different tracker of the same thing from the one you have just sold - multiple FTSE100 trackers are available from different providers: Fidelity, Vanguard, iShares etc.
Don't think this matters if you are selling in a GIA, buying in an ISA.

Swap VUSA for IUSA, VUKE for ISF etc.

[helfordpirate]

It's for the same reason as for ISAs. The SIPP is not "you" doing the transaction but a trustee.

While a SIPP can be considered a trust where the SIPP administrators are the trustees, the same is not true for an ISA. There is no trust express or implied by an ISA agreement. Indeed for most cash ISA there is not even a nominee relationship - the cash is on the balance sheet of the bank and is a essentially a loan agreement. An ISA, unlike a SIPP, is also not outside your estate for IHT purposes - though there is now the permitted additional contribution for spouses.

An ISA is best seen as a "tax invisible" account - transactions within it are not visible to the taxman, gains are not visible and income is not visible.

In the old thread above, it was implied the 30-day rule means that the disposal is deemed as "not occurring". This is not the case. The 30-day rule is part of how a disposal transaction is matched with a corresponding acquisition - first, shares acquired on the day; then shares acquired in the next 30 days; then the section 104 holding. Bed & ISA works because the acquisition in the ISA is "invisible" and so does not match with the disposal in the taxable account.