The Bed'n'ISA shuffle and (declining) CGT allowance.

[mc2fool]

This is one that, I feel and am sure, should be straightforward but has had me going round in circles for a few days, and as my head is beginning to get over-scratched, I figured I might ask here for help....

I've slowly over the years been bed'n'ISAing my unsheltered holdings and, aside from some gilts (which don't attract CGT) I'm left with the three ITs below to go. I've yet to make an ISA subscription this year and am happy to, on top of that, additionally make next year's on or soon after 6-Apr if needs be. I already have a realised capital gain of £760 this year, made on a sale of £10,810.

That leaves me £11,540 to go of this year's CGT allowance. My ISA has £1,100 cash in it (yet to be reinvested dividends). So here's the three and their values & gains as of time of posting:

EPIC     Value           Gain   
RCP     £23,111         -£1,887 
CGT     £30,192          £7,654 
RICA    £33,372          £8,374

Please note, I'm not interested in discussing the merits or otherwise of those ITs, just how best to move them into my ISA over this and coming years, especially considering the forthcoming drops in CGT allowance; £6000 after 6-Apr and £3000 the year following.

I'd prefer to move whole holdings, although the only way that could be done in one go would be to generate more cash in the ISA by selling down one of the existing holdings in it. The only one I'm eyeing for that potentiality is Fundsmith (discussion of merits or otherwise of that are OK ). Otherwise, clearly, it'd have to be in two steps, across this side and the other of 6-Apr. And if push comes to shove, ending up with one of the holdings split in and out of the ISA would be tolerable.

So, the goal is to get those into ISAs, obviously over several years, while minimising CGT. What do y'all think the best way of performing this particular shuffle would be?

[Dod101]

Without thinking too deeply about it (I do not personally agonise over this sort of thing) I would move RICA as it looks as if you could get it more or less into an ISA over this year and next without paying too much CGT. If there is a leftover rump, either keep it until the next year or sell it to tidy things up.

I am going through much the same thoughts although this year’s allowance was used up on about 8 April 2022 and I am still more concerned about protecting income. That I think is easier and more obvious.

I doubt that there is a ‘correct’ answer.

Dod

[EthicsGradient]

(Sorry - was ignoring the ISA allowance - will recalculate)

[Lootman]

Capital Gearing Trust can have a wide bid-to-offer spread so I would want to take a look at that before a sale and repurchase. That spread could dwarf the commission(s) and stamp duty.

As an aside, would you not want to keep at least one holding in your taxable account if only to use up the (dwindling) annual dividend and capital gains allowances?

[kempiejon]

I've been down the same path since dividend tax limits were introduced and I have been filling my ISA and SIPP. I'll probably be all done this time next month.

I suppose I'd sell Ruffer right away and enough Capital Gearing to rinse the whole gains allowance that should leave the rest of your profit below the limit. I see an arguement for cashing the gain on Capital as soon as we're into the new tax year but where would the money go? There's a risk that something might force a tax event during the next 12 months. That's why I leave these decisions until about now, so this time next year re-visit the problem to fill the pending ISA with whatever the values are then.

[EthicsGradient]

Without selling Fundsmith (and we don't know how much of that you have that you can use as a 'float'):

Sell £21,100 of CGT now; put £20k into the ISA this tax year, and repurchase the £21,100 with that and your cash in it. This assumes you didn't have that £1,100 earmarked for anything else.

At the start of next year, sell £20k of RCP (earlier the better, in case the current loss turns into a gain), and make your ISA contribution with that, buying it back inside. At the end of the 23-24 tax year, sell RICA - the lower of £20k, or what gives you a net gain of 6k in that year (ie gain for it of 6k plus the loss RCP gave you), but use that as the contribution at the start of 24-25. After that, you'll have a bit of each outside, and gain percentages may have changed enough to make calculations now irrelevant.

[doug2500]

Assuming you have no interest in selling them in the next few years, and you don't sell anything else to make way, and dividends will be covered by future allowances, and you have no view on likely future performance.....also assuming you have £40k sitting around because you are tight for time otherwise, unless you can bed & ISA........

I would sell all RICA and 1/4 CGT, this would give you a gain of £10287 gain and total repurchase price of approx £40940 (two years ISA subs + £1100)

Accept you have to split holdings, the benefits outweigh the irksomeness and it's inefficient to do otherwise. No point thinking too far ahead as you have no idea how valuations and gains will look on 5th / 6th April 24

If divi tax is likely to be applied prioritise the higher yielding.

Try to ignore the tidy feeling that comes with moving whole holdings, it's much more important to get as much sheltered as possible asap.

Personally, unless your holding dwarfs these defensives I'd hold onto Fundsmith.

[tjh290633]

To my mind the one to move first is RICA. Sell the lot and use this and next year's ISA allowances to move that. You could sell some of CGT to use the rest of the ISA allowance.

You then need 3 years as it stands to move the other two, and I would use CGT first. Sell it in two stages and a portion of RCP for the second year. If you wish to sell whole holdings, then hold the cash somewhere useful until the next year. Could be gilts if you find a suitable maturity.

TJH

[DrFfybes]

The first thing that springs to my mind is "why didn't you move one at the start of the tax year?

It really depends if you want to risk price movement (which you tend to get with bed and ISA anyway) or minimise dealing charges.

Presumably this is just you, and so you have £20k each year to move?

Given the short time before the end of the tax year, some brokers (ahem) can take a week to make the transaction and might not even finish it by Weds, so in this case I would move £20k cash into the ISA this week, then on Weds sell ALL your RICA and rebuy as much as you can immediately within the ISA. This leaves about £3k CGT allowance unused. You could sell £7k ish of CGT (the IT, not the tax) to use up most of the rest of your CGT (the tax, not the IT) allowance leaving £20k in your dealing account (plus the £20 you put into your ISA which goes back into you cash fund).

On Thurs transfer the £7k cash from the sale of the CGTrust and £13k cash left over from the sale of RICA into the ISA and rebuy. The market for these shares seems a lot less volatile than trackers, so chances are it won't make a big difference being out of the market for a day.

Leaving you roughly £23k each of CGT and RCP unsheltered, which won't trouble your CGtax next year.

Unless Dividends are high enough in either to present a tax liability next year, in which case you might want to sell all the CGT and some RICA, but I haven't looked at the various yields.

Paul

[Gerry557]

I wouldn't worry about having assets split, it's nice not too but not the be all unless your OCD is tingling.

Do you have a partner that can share the allowance and or sell and rebuy. It might make things easier if you do and trust them.

If not you have scope to sell more of your in profit holdings as you have CGT allowance left and a loss can be generated if needed.

I assume there are no expected future CGT potential. So I might be tempted to sell the biggest potential gainer although there isn't much in it. Do £20k of each for this tax year and next. This should minimise any further gain on those into manageable amounts unless they really take off.

Then with the year after next you can see what the best option for sheltering the rest. Dividend timing might be a small factor but you need to move fast now to use up this year's allowance.

[nmdhqbc]

I'd prefer to move whole holdings, although the only way that could be done in one go would be to generate more cash in the ISA by selling down one of the existing holdings in it. The only one I'm eyeing for that potentiality is Fundsmith (discussion of merits or otherwise of that are OK ).

how about selling enough to use the full cap gains allowance and selling something inside the ISA to make up the difference but then re-buy it outside of the ISA. the amount invested outside the ISA will be the same but the new unsheltered holding starts again at a £0 capital gain. or maybe that's what you meant when you mentioned selling some fundsmith? open ended funds with no spread might be the best here but maybe one with less growth potential if you have one. or maybe fundsmith will underperform. hard to know isn't it.

[doug2500]

I'd prefer to move whole holdings, although the only way that could be done in one go would be to generate more cash in the ISA by selling down one of the existing holdings in it. The only one I'm eyeing for that potentiality is Fundsmith (discussion of merits or otherwise of that are OK ).

how about selling enough to use the full cap gains allowance and selling something inside the ISA to make up the difference but then re-buy it outside of the ISA. the amount invested outside the ISA will be the same but the new unsheltered holding starts again at a £0 capital gain. or maybe that's what you meant when you mentioned selling some fundsmith? open ended funds with no spread might be the best here but maybe one with less growth potential if you have one. or maybe fundsmith will underperform. hard to know isn't it.

Smart idea, more than one way to skin a cat.

[mc2fool]

Thanks for the replies, which I will cogitate on later, when I have more dedicated cogitating time. To answer some of the questions and points raised...

... would you not want to keep at least one holding in your taxable account if only to use up the (dwindling) annual dividend and capital gains allowances?

Not sure I really see the point. What are you suggesting, that rather than having the holdings inside the ISA and not have to worry about CGT or dividends at all, instead I keep one outside and, in effect, force myself to sell enough of it each year to fill the CGT allowance, just 'because it's there? Sounds very much like tail wagging dog there! But in any case, it'll take a few years to get them all into the ISA so it's not a point I have to worry about, for now. Good point about spreads though, I'll check.

I see an arguement for cashing the gain on Capital as soon as we're into the new tax year but where would the money go? There's a risk that something might force a tax event during the next 12 months. That's why I leave these decisions until about now, so this time next year re-visit the problem to fill the pending ISA with whatever the values are then.

Well, the money would go straight into the ISA as part of next year's subscription, to rebuy the remaining Capital Gearing, but I get what you say, 'cos I too have been in the long term habit of doing my "bed'n'ISA shuffles" at the end of the tax year, for the same reason. Although I think the risk of an unexpected CGT event with these is pretty small (famous last words there, no doubt!)

Without selling Fundsmith (and we don't know how much of that you have that you can use as a 'float'):

£27K, although I'm still umming and ahhing about whether to sell some (or, indeed all) of it off. There's another thread with lots of other people umming and ahhing about Fundsmith too.

The first thing that springs to my mind is "why didn't you move one at the start of the tax year?

See exchange with kempiejon just above. Yes, it's only me. And to be clear, I always do bed'n'ISAs manually, myself, temporarily raiding a savings account to get money into the ISA up front and I then do the sell and buy (indeed, sometimes the other way round!) in rapid succession. The extra few quid for the double dealing fee is small beer on this size of trade, and worth paying anyone for being able to minimise movement and just generally for being in control.

how about selling enough to use the full cap gains allowance and selling something inside the ISA to make up the difference but then re-buy it outside of the ISA. the amount invested outside the ISA will be the same but the new unsheltered holding starts again at a £0 capital gain. or maybe that's what you meant when you mentioned selling some fundsmith?

Hmmm .. I hadn't thought of that, I'll cogitate on it! (What I meant about selling some fundsmith was just to generate more cash inside the ISA).

[Lootman]

Thanks for the replies, which I will cogitate on later, when I have more dedicated cogitating time. To answer some of the questions and points raised...

... would you not want to keep at least one holding in your taxable account if only to use up the (dwindling) annual dividend and capital gains allowances?

Not sure I really see the point. What are you suggesting, that rather than having the holdings inside the ISA and not have to worry about CGT or dividends at all, instead I keep one outside and, in effect, force myself to sell enough of it each year to fill the CGT allowance, just 'because it's there? Sounds very much like tail wagging dog there! But in any case, it'll take a few years to get them all into the ISA so it's not a point I have to worry about, for now. Good point about spreads though, I'll check.

I guess I was assuming that you had the funds to subscribe in full to an ISA anyway, from other sources. in which case you do not have to sell all of your taxable holdings to avoid tax. You could keep (say) one of those and there would still be no tax, and you still maximise subscriptions and tax savings in your ISA.

But yes, if your goal is to eventually not have a taxable account at all, and maybe not even have to submit a tax return, then I get that. I would like to be in that position myself but, like you, am a few years away from that being a reality. And of course the taxation of dividends and gains could change again. As could the ISA rules.

[mc2fool]

Thanks for the replies, which I will cogitate on later, when I have more dedicated cogitating time. To answer some of the questions and points raised...

Not sure I really see the point. What are you suggesting, that rather than having the holdings inside the ISA and not have to worry about CGT or dividends at all, instead I keep one outside and, in effect, force myself to sell enough of it each year to fill the CGT allowance, just 'because it's there? Sounds very much like tail wagging dog there! But in any case, it'll take a few years to get them all into the ISA so it's not a point I have to worry about, for now. Good point about spreads though, I'll check.

I guess I was assuming that you had the funds to subscribe in full to an ISA anyway, from other sources. in which case you do not have to sell all of your taxable holdings to avoid tax. You could keep (say) one of those and there would still be no tax, and you still maximise subscriptions and tax savings in your ISA.

But yes, if your goal is to eventually not have a taxable account at all, and maybe not even have to submit a tax return, then I get that. I would like to be in that position myself but, like you, am a few years away from that being a reality. And of course the taxation of dividends and gains could change again. As could the ISA rules.

Umm...well I do have the funds anyway, as I say above, I always raid a savings account for the subscription, then do the transactions myself, buy and sell right after each other, and then replenish the raided savings a/c a few days later when the sells settle, but, yes, I'd like to have a CGT free trading account, used only for any gilts I may fancy.

Of course I can always (corporate actions aside) avoid CGT by never selling those ITs, and indeed I do consider those "forever" holdings. But I know life happens and there's not really any such thing so ISAing them seems a good idea (they'll join, amongst others, PNL, which got ISAd last year), and, within reason, sooner rather than later for the reasons you mention (all take a deep breath and remember, politics is OT on this board. )

[Lootman]

I guess I was assuming that you had the funds to subscribe in full to an ISA anyway, from other sources. in which case you do not have to sell all of your taxable holdings to avoid tax. You could keep (say) one of those and there would still be no tax, and you still maximise subscriptions and tax savings in your ISA.

But yes, if your goal is to eventually not have a taxable account at all, and maybe not even have to submit a tax return, then I get that. I would like to be in that position myself but, like you, am a few years away from that being a reality. And of course the taxation of dividends and gains could change again. As could the ISA rules.

Umm...well I do have the funds anyway, as I say above, I always raid a savings account for the subscription, then do the transactions myself, buy and sell right after each other, and then replenish the raided savings a/c a few days later when the sells settle, but, yes, I'd like to have a CGT free trading account, used only for any gilts I may fancy.

Of course I can always (corporate actions aside) avoid CGT by never selling those ITs, and indeed I do consider those "forever" holdings. But I know life happens and there's not really any such thing so ISAing them seems a good idea (they'll join, amongst others, PNL, which got ISAd last year), and, within reason, sooner rather than later for the reasons you mention (all take a deep breath and remember, politics is OT on this board. )

You and I have a similar approach. My "keeper" funds are PNL, CGT, RCP, RICA, CLDN, LTI, SMT and FundSmith, And I manually do a"bed-and-ISA" on whichever one annoyed me in a taxable account.

So last year it was RICA/Ruffer because it did a corporate action that messed with my cost basis.

This year it was CLDN/Caledonia because it did a special dividend that cost me a bunch of tax.

Next year probably PNL as the dividend is the largest.

The "problem" is that my taxable position sizes are larger, typically 30K to 50K. So staying within the annual CGT-free allowance does not move the needle. So instead I try and stay within the band for 10% CGT rather than 20% CGT.

No politics here, agreed. But back of mind has to be what CGT changes we might see with a new party in charge in 2024. That may cause me to be more aggressive with disposals in 2023 than otherwise.

[77ss]

This is one that, I feel and am sure, should be straightforward but has had me going round in circles for a few days, and as my head is beginning to get over-scratched, I figured I might ask here for help....

I've slowly over the years been bed'n'ISAing my unsheltered holdings and, aside from some gilts (which don't attract CGT) I'm left with the three ITs below to go. I've yet to make an ISA subscription this year and am happy to, on top of that, additionally make next year's on or soon after 6-Apr if needs be. I already have a realised capital gain of £760 this year, made on a sale of £10,810.

That leaves me £11,540 to go of this year's CGT allowance. My ISA has £1,100 cash in it (yet to be reinvested dividends). So here's the three and their values & gains as of time of posting:

EPIC     Value           Gain   
RCP     £23,111         -£1,887 
CGT     £30,192          £7,654 
RICA    £33,372          £8,374

Please note, I'm not interested in discussing the merits or otherwise of those ITs, just how best to move them into my ISA over this and coming years, especially considering the forthcoming drops in CGT allowance; £6000 after 6-Apr and £3000 the year following.h

I'd prefer to move whole holdings, although the only way that could be done in one go would be to generate more cash in the ISA by selling down one of the existing holdings in it. The only one I'm eyeing for that potentiality is Fundsmith (discussion of merits or otherwise of that are OK ). Otherwise, clearly, it'd have to be in two steps, across this side and the other of 6-Apr. And if push comes to shove, ending up with one of the holdings split in and out of the ISA would be tolerable.

So, the goal is to get those into ISAs, obviously over several years, while minimising CGT. What do y'all think the best way of performing this particular shuffle would be?

Neatness is nice, but not worth obsessing about - particularly if you are are a LTBH investor.

Simply put, it seems to me that you have 87K to shift and that you are sitting on a CG of 14K.

Assuming that ISA limits remain unchanged, the 87K will take 5 years but the CG realisation will only take 2 years (your residual £11,540 plus next year's £6,000 should cover the 14K nicely, with some margin for capital appreciation).

In terms of the cash generation/CG realisation ratio there is virtually nothing to choose between CGT and RICA. Just sell 20K of one of them. If you have a particular view that one of them might outperform then choose that one.

Then wait until next year. Good luck. Parenthetically, why not do next year's shift at the beginning of the tax year? That way you could easily move one of your entire holdings in short order.

[mc2fool]

So last year it was RICA/Ruffer because it did a corporate action that messed with my cost basis.

? I was wondering if I'd missed something, but I have the same number of shares as I bought 5 years ago, and no cash rebates (dividends aside), so, what corporate action ???

Parenthetically, why not do next year's shift at the beginning of the tax year? That way you could easily move one of your entire holdings in short order.

Yes, as I said in my OP, I'm happy to make next year's on or soon after 6-Apr. As I explained later on, my habit generally has been to do it at the end of the tax year so that all capital gain events for the year were known (or rather, that the time window for an unexpected one would be very narrow), but in the case of these holdings I think the chance of some unexpected corporate event wrong footing me is small (crosses fingers!)

[Lootman]

So last year it was RICA/Ruffer because it did a corporate action that messed with my cost basis.

? I was wondering if I'd missed something, but I have the same number of shares as I bought 5 years ago, and no cash rebates (dividends aside), so, what corporate action ???

It was an offer to subscribe to new shares at a discount. (Not a rights issue). If you did not subscribe then of course your cost basis and #shares did not change. But I did and so they did.

Not really complaining but in general I do not want to see corporate actions in a taxable account. Nor special dividends.

[mc2fool]

? I was wondering if I'd missed something, but I have the same number of shares as I bought 5 years ago, and no cash rebates (dividends aside), so, what corporate action ???

It was an offer to subscribe to new shares at a discount. (Not a rights issue). If you did not subscribe then of course your cost basis and #shares did not change. But I did and so they did.

Not really complaining but in general I do not want to see corporate actions in a taxable account. Nor special dividends.

Oh right, yes, I was focussing on involuntary events, but I do remember that and no, I didn't subscribe, feeling I had my "fill" already.