B&B for share portfolio

[zico]

The subject title is misleading. I thought B&B was still possible, which shows how out of date my thinking is!

Seems like the best way to avoid/minimise CGT is to put share assets in joint names.
I've got quite a lot (>>£150k) in shares, and though I'm happy to withdraw it gradually over the next 10-15 years, I realised I should start thinking about legally minimising tax, so would appreciate any thoughts.
Ideally, I'd also like to invest in ISAs, so would prefer not to simply transfer it gradually into ISAs.

[EthicsGradient]

The subject title is misleading. I thought B&B was still possible, which shows how out of date my thinking is!

Seems like the best way to avoid/minimise CGT is to put share assets in joint names.
I've got quite a lot (>>£150k) in shares, and though I'm happy to withdraw it gradually over the next 10-15 years, I realised I should start thinking about legally minimising tax, so would appreciate any thoughts.
Ideally, I'd also like to invest in ISAs, so would prefer not to simply transfer it gradually into ISAs.

Putting an asset in joint names means half of it is transferred to your spouse - who then takes on the original cost basis that you paid, for that half. So this does mean you can then both use the £6,000 allowance this year, and £3,000 for the foreseeable future after that.

What is the current capital gain that £150k of shares represents? Is it all shares in "true" companies that you want to hang on to (in which case Bed & ISA is a good move - would doing that, and then buying whatever you intended inside the ISA outside be such a bad thing?), or is some in collective vehicles (ITs, ETFs, or funds) that you might be able to find equivalents of to repurchase immediately?

[zico]

If I understand you correctly, are you saying that if I sold (say) £50k of a Vanguard World Tracker Fund, and immediately bought £50k of a Fidelity World Tracker Fund, that would crystallise any CGT gains, but wouldn't fall foul of B&B rules because I'm not simply re-purchasing the same shares, even though I'd expect (and hope) their performance would be very similar.

Is that right?

[Lootman]

If I understand you correctly, are you saying that if I sold (say) £50k of a Vanguard World Tracker Fund, and immediately bought £50k of a Fidelity World Tracker Fund, that would crystallise any CGT gains, but wouldn't fall foul of B&B rules because I'm not simply re-purchasing the same shares, even though I'd expect (and hope) their performance would be very similar.

Is that right?

Historically HMRC has declined to interpret the B&B rules as being strict, meaning that swaps like you are suggesting between identical indexes offered by different fund managers are allowable.

Obviously you would most likely only do that when showing a loss. Or perhaps to use up your diminishing annual CGT-free allowance.

It would not shock me if the taxman closed this loophole at some point as I see no good reason for it.

[EthicsGradient]

If I understand you correctly, are you saying that if I sold (say) £50k of a Vanguard World Tracker Fund, and immediately bought £50k of a Fidelity World Tracker Fund, that would crystallise any CGT gains, but wouldn't fall foul of B&B rules because I'm not simply re-purchasing the same shares, even though I'd expect (and hope) their performance would be very similar.

Is that right?

Yes, that's right. Since they come from different providers, there is no doubt at all that those 2 are entirely separate investments, and you can buy one immediately. I can't conceive of any argument that any government could make in the future to claim that they are in fact the same investment. Lootman is free to attempt to explain such an argument. I suspect it would have to get deep into philosophical terms about existence, the meaning of life, the purpose of investment, and perhaps quantum mechanics, Schrodinger's Cat, and the Many Worlds Theory.

Some (here and elsewhere on the web) argue that if you sell the Income version of a fund, and then immediately buy the Accumulation version, then the taxman would not count that as repurchasing the same shares. Perhaps they're right, but I'd like to see a story that someone has done it, and HMRC has been aware of it and agreed with them, before relying on it - or a clear statement from HMRC on the subject (ha! Fat chance of that).

[Lootman]

If I understand you correctly, are you saying that if I sold (say) £50k of a Vanguard World Tracker Fund, and immediately bought £50k of a Fidelity World Tracker Fund, that would crystallise any CGT gains, but wouldn't fall foul of B&B rules because I'm not simply re-purchasing the same shares, even though I'd expect (and hope) their performance would be very similar.

Is that right?

Yes, that's right. Since they come from different providers, there is no doubt at all that those 2 are entirely separate investments, and you can buy one immediately. I can't conceive of any argument that any government could make in the future to claim that they are in fact the same investment. Lootman is free to attempt to explain such an argument. I suspect it would have to get deep into philosophical terms about existence, the meaning of life, the purpose of investment, and perhaps quantum mechanics, Schrodinger's Cat, and the Many Worlds Theory.

Take a look at the way the US tax authority handles such a situation, which it calls a "wash sale".

If you sell a security and then re-purchase a "substantially similar" security within 30 days then any loss is disallowed for tax purposes. This would obviously include another fund tracking the same index. It also covers (say) selling a share position and buying an in-the-money call option on that same share (also allowed in the UK, as far as I know).

https://www.schwab.com/learn/story/primer-on-wash-sales

If the UK is sanguine about such tax-avoidance tactics then that is probably because not many people attempt them, rather than because HMRC is feeling generous. That could change.

[EthicsGradient]

Yes, that's right. Since they come from different providers, there is no doubt at all that those 2 are entirely separate investments, and you can buy one immediately. I can't conceive of any argument that any government could make in the future to claim that they are in fact the same investment. Lootman is free to attempt to explain such an argument. I suspect it would have to get deep into philosophical terms about existence, the meaning of life, the purpose of investment, and perhaps quantum mechanics, Schrodinger's Cat, and the Many Worlds Theory.

Take a look at the way the US tax authority handles such a situation, which it calls a "wash sale".

If you sell a security and then re-purchase a "substantially similar" security within 30 days then any loss is disallowed for tax purposes. This would obviously include another fund tracking the same index. It also covers (say) selling a share position and buying an in-the-money call option on that same share (also allowed in the UK, as far as I know).

https://www.schwab.com/learn/story/primer-on-wash-sales

If the UK is sanguine about such tax-avoidance tactics then that is probably because not many people attempt them, rather than because HMRC is feeling generous. That could change.

I'd be interested to know if they've ever had a case where the deplorably-fuzzy "substantially similar" phrase was put to the test. In 2010, some were arguing that 2 trackers for the same index wouldn't fall foul of it:

“Some go as far as saying two S&P 500 index funds are not identical,’’ says Kaye Thomas, an author who maintains the tax website www.fairmark.com.

https://www.cnbc.com/2010/12/14/rebalan ... -rule.html

It does seem strange to argue that it's investing style or past performance that should count, rather than whether it's the same investment. When your ongoing charges are going to a different company, it's clearly a new investment. The tax is on assets, not an investing philosophy.