Intelligent Money - your investment questions answered

Intelligent Money - your investment questions answered

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rockin

9,680 posts

210 months

Saturday 19th January 2019
quotequote all
Second question. If you have a holding in one "class" and convert it into another class of the same holding it's my understanding that this is not a disposal for CGT purposes. You end up in the new class with your original purchase cost. When you eventually sell does the conversion have to be shown on the CGT return or do you just use the original purchase price and new name - in which case the number of units originally acquired is tricky to explain.

Additionally, if you hold Inc units and do a switch to Acc units of the same fund, is that a disposal for CGT purposes and how is it eventually set out for HMRC?

JulianPH

9,082 posts

79 months

Saturday 19th January 2019
quotequote all
Fantastic Steve, a whole day doing nothing so I tell Nik to clock off, then you ask two complex questions!!!

You're stuck with me now matey!

Any investments held outside of a tax wrapper are subject to tax as and when the tax event arises (by which I mean in the same tax year).

So any dividends are taxed within the tax year they are paid (this applies equally to Acc funds where HMRC describe them as 'notional dividends').

If you sell and buy units you automatically create a chargeable event for tax purposes.

Holding Acc units does not, therefore, mean you are only generating capital gins. The income distribution reamins subject to income tax (under the notional income rule).

There are some exceptions. Distribution funds holding a minimum of 40% of fixed interest exposure can (or certainly could), for example, get round this.

Second question - I think it is a capital gains event. Nik knows more on this than I do though...

Now stop making my life difficult and expensive!!! wink

Julian

V1nce Fox

3,113 posts

33 months

Saturday 19th January 2019
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Julian, what's your favourite colour?

JulianPH

9,082 posts

79 months

Saturday 19th January 2019
quotequote all
V1nce Fox said:
Julian, what's your favourite colour?
It is purple mate. What (with respect) is your point?!

V1nce Fox

3,113 posts

33 months

Saturday 19th January 2019
quotequote all
JulianPH said:
It is purple mate. What (with respect) is your point?!
Just thought it might be a pleasant change to be asked a non-finance question.

I'll see myself out.

Edited by V1nce Fox on Saturday 19th January 18:45

JulianPH

9,082 posts

79 months

Saturday 19th January 2019
quotequote all
V1nce Fox said:
JulianPH said:
It is purple mate. What (with respect) is your point?!
Just thought it might be a pleasant change to be asked a non-finance question.

I'll see myself out.
beer And it is!!!

Edited to not come across as a complete tt!!!

Edited by JulianPH on Saturday 19th January 20:49

V1nce Fox

3,113 posts

33 months

Saturday 19th January 2019
quotequote all
JulianPH said:
beer And it is!!!

Edited to not come across as a complete tt!!!

Edited by JulianPH on Saturday 19th January 20:49
beer

😀

Testaburger

2,904 posts

163 months

Sunday 20th January 2019
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Hi Julian,

Having glossed over the IM website (in particular the timeline), I see that in recent years you appear to have set up an international client service.

I couldn’t find more on that - but wondering if you provide the same management services for non-UK residents (obviously outside SIPP/ISA wrappers..

If so, I’d be keen to have a chat. One day, you may even get to buy me that cheese soufflé!

JulianPH

9,082 posts

79 months

Sunday 20th January 2019
quotequote all
Testaburger said:
Hi Julian,

Having glossed over the IM website (in particular the timeline), I see that in recent years you appear to have set up an international client service.

I couldn’t find more on that - but wondering if you provide the same management services for non-UK residents (obviously outside SIPP/ISA wrappers..

If so, I’d be keen to have a chat. One day, you may even get to buy me that cheese soufflé!
Hello mate

It is still in ongoing development but we hope to be live in first quarter of the new tax year.

The infrastructure is all in place but it is the regulatory aspect that is fiendishly complex and long winded.

As you have probably experienced much of the offshore ex-pat offerings are basically at the same point financial services in the UK was in the 80s. Allocation rates, commissions, no disclosure, etc.

The original demand stemmed from Dubai but as we started development this quickly spread to other territories (including Hong Kong) and there is a strong demand for a clean and transparent gross roll up investment solution, so despite the time it is taking we are pushing hard to launch ASAP.

I'll let you know when we go live and will happily buy you that cheese soufflé and venison dinner!

Edited to add...

Yes, it will be exactly the same management service with identical portfolios, just structured off-shore for international clients seeking gross roll-up outside of any tax wrappers.

Edited by JulianPH on Sunday 20th January 12:09

JulianPH

9,082 posts

79 months

Sunday 20th January 2019
quotequote all
rockin said:
If you hold Acc units you might expect all growth to be Capital Gain (not Income) but this doesn't always seem to be the case, with some "non-cash income" turning up on the end of year tax statement. Again, how is this handled in reality when you eventually sell the investment and need to address CGT?
Just to address this point before Nik gets back to you, you need to keep a note of all notional income received by your Acc units so when you come to sell you don't inadvertently pay CGT on top of the income tax (as there is no CGT payable on this element).

Cheers Steve.

Intelligent Money

Original Poster:

293 posts

28 months

Sunday 20th January 2019
quotequote all
rockin said:
Second question. If you have a holding in one "class" and convert it into another class of the same holding it's my understanding that this is not a disposal for CGT purposes. You end up in the new class with your original purchase cost. When you eventually sell does the conversion have to be shown on the CGT return or do you just use the original purchase price and new name - in which case the number of units originally acquired is tricky to explain.

Additionally, if you hold Inc units and do a switch to Acc units of the same fund, is that a disposal for CGT purposes and how is it eventually set out for HMRC?
Hi Rockin,

Julian never mentioned anything about double time, I'll have to chase that up!

As long as the conversion is on the basis that no consideration is given or received then you are right the conversion would not be treated as a disposal for CGT purposes. The new class will be treated as having the same date of acquisition, and the same capital gains cost, as the old class.

You are also right that disposal can be tricky! Since 2008 the conversion is likely to be grouped in a "section 104" holding.
The section 104 was introduced to make disposal calculations easier in cases where investors had aquired the same units or shares but at different times. The Identical units/shares in an investment holding are now treated as a single asset, known as a Section 104 holding, and when the holding is sold, the aggregate purchase price is used to calculate any gains or losses.

The disposal of the assets follows the below process :
1. acquisitions on the same day as the disposal
2. acquisitions within 30 days after the day of disposal
3. units/shares comprised in the ‘section 104 holding’
4. if the units/shares disposed of are still not exhausted, units/shares acquired subsequent to the disposal (and beyond the above-mentioned 30-day period).

Given the vagaries that can surround the interpretation of tax legislation I would suggest that you run any final calculations via an accountant if it's not a straightforward situation.

Your second query is a little easier, a switch from income to accumulation units in the same fund is not a disposal for CGT purposes.

Any additional units purchased by reinvested distributions from income funds will be treated as additions to the Section 104 holding.

Regards

Nik


Testaburger

2,904 posts

163 months

Monday 21st January 2019
quotequote all
JulianPH said:
Hello mate

It is still in ongoing development but we hope to be live in first quarter of the new tax year.

The infrastructure is all in place but it is the regulatory aspect that is fiendishly complex and long winded.

As you have probably experienced much of the offshore ex-pat offerings are basically at the same point financial services in the UK was in the 80s. Allocation rates, commissions, no disclosure, etc.

The original demand stemmed from Dubai but as we started development this quickly spread to other territories (including Hong Kong) and there is a strong demand for a clean and transparent gross roll up investment solution, so despite the time it is taking we are pushing hard to launch ASAP.

I'll let you know when we go live and will happily buy you that cheese soufflé and venison dinner!

Edited to add...

Yes, it will be exactly the same management service with identical portfolios, just structured off-shore for international clients seeking gross roll-up outside of any tax wrappers.

Edited by JulianPH on Sunday 20th January 12:09
Hi Julian,

Many thanks for the information. I’ll keep my eyes peeled for developments.

Indeed - my experience thus far trying to invest overseas, with the exception of Fundsmith, has been underwhelming to say the least.

sma

96 posts

100 months

Monday 21st January 2019
quotequote all
A question of where to start!

Not so much for me as I am a savings failure. More so for my children 6, 8 & 10 where is £100pm per child best placed for long term investing.

Also given that we overpay our mortgage, pay into our workplace pensions. How best should £500pm be invested/saved seeing as we still have 29 years until 67, although I'd like to retire earlier!

If push came to shove I have the contingency of selling our car(s) to meet any disaster, but have no accumulated savings.

Thanks for your time

Intelligent Money

Original Poster:

293 posts

28 months

Monday 21st January 2019
quotequote all
Hi sma

With the usual caveats of “it depends on what you are trying to achieve, and the level of risk/reward you are comfortable with” I can give you some generally accepted rules of thumb that I hope will give you something to work with.

For the £100 p.m. you are considering for your Children as a longer term saving, a simple but obvious first consideration would be Junior ISAs . You can contribute up to £4,260 per child per year.

You should be able to find a risk/reward balance that you are comfortable with. You have the choice of using a deposit-based fund or stocks/shares/equity based fund or a mixture of both. The returns are tax efficient and once the children reach 18 it simply becomes an adult ISA.

For your own savings of £500 p.m. The first consideration is building up a deposit based “emergency fund” Good practice is build up a fund that would cover 3-4 months of expenses.
This foundation is designed to prevent you dipping into other savings or having to stop saving plans that you have in place if an unexpected expense crops up.

Beyond the emergency fund it does depend what you plan to use the savings for.

If you main objective is providing an income in retirement and you are unlikely to need access before you reach 55 then maximising your pension contributions would be a consideration. You will still gain tax relief on your contributions up to the same level as your earnings subject to an annual allowance of £40,000 p.a.

If pension savings feel a little too restrictive then ISA’s would be your next consideration. Each individual can invest £20,000 p.a. into an ISA and as said earlier you should be able to find a risk/reward that you are comfortable with or chose a portfolio that manages this for you.

While being far from exhaustive I hope that this at least helps with your question of “where to start”

Regards

Nik

river_rat

554 posts

168 months

Monday 21st January 2019
quotequote all
Nik,

Isn't there a barrier to setting up a Junior ISA for children born before a certain date, ie when the child trust fund free £250 was given and had to be invested in a 'trust fund' or whatever it was called?

Reason I suspect this is because I recently set up a Vanguard Junior ISA for my 5 year old daughter, but when I tried to do the same for my 9 year old son I couldn't (on the same platform) because he has a child trust fund?

Or am I missing something here?

If I'm right it is even more frustrating because the trust fund return has been pathetic over the last 9 years, when equities have provided decent returns!

Intelligent Money

Original Poster:

293 posts

28 months

Monday 21st January 2019
quotequote all
Hi River Rat,

My understanding is that originally only children born after 02/01/2011 or before 01/09/2002 could have a Junior ISA because as you say, children born between these dates were eligible for a Child Trust Fund.

Since April 2015 it has been possible for you to transfer a Child Trust Fund into a Junior ISA, good news if you want to move your sons CTF for the potential of better returns.

Based on that I believe that you cannot hold a Child Trust Fund and a Junior ISA but as-long as you transfer the CTF into a Junior ISA then you can hold the funds in the ISA going forward.

Nothing like changes in goverment thinking and legislation to make what should be a simple idea a little more complicated!!

Regards

Nik



JulianPH

9,082 posts

79 months

Monday 21st January 2019
quotequote all
river_rat said:
Nik,

Isn't there a barrier to setting up a Junior ISA for children born before a certain date, ie when the child trust fund free £250 was given and had to be invested in a 'trust fund' or whatever it was called?

Reason I suspect this is because I recently set up a Vanguard Junior ISA for my 5 year old daughter, but when I tried to do the same for my 9 year old son I couldn't (on the same platform) because he has a child trust fund?

Or am I missing something here?

If I'm right it is even more frustrating because the trust fund return has been pathetic over the last 9 years, when equities have provided decent returns!
Hi mate

I'll let Nik respond if there is anything further (I'm guessing he is on the phone to another client right now), but you have been able to transfer CTFs to JISAs since 2015, so I am not sure why Vanguard won't allow this.

One option would be to use Hargreaves Lansdown (as I know they do allow this) and then at a later date move the converted CTF (that is now a JISA) to Vanguard.

We are also looking at adding a JISA for the children (or grandchildren) of our Private Clients soon.

Cheers

Julian

Edited to add...

I see Nik had already responded whilst I was writing mine! biggrin


Edited by JulianPH on Monday 21st January 12:51

river_rat

554 posts

168 months

Monday 21st January 2019
quotequote all
Hi Julian & Nik

Thanks for the replies - maybe I need to 'transfer' rather than try to set up a new Junior ISA, which is why Vanguard wouldn't allow it.

I'll look into it further!

Edit to add - Vanguard do allow a transfer - looks fairly simple to arrange.

Edited by river_rat on Monday 21st January 14:00

Phooey

10,790 posts

134 months

Monday 21st January 2019
quotequote all
I'm sure for some weird reason Vanguard do not allow you to 'transfer' a CTF into their JISA. I might be wrong but I think somebody on here mentioned it a wee while ago. You'd have to use someone like HL to invest in a Vanguard JISA, then as Julian says - switch your HL (Vanguard) JISA direct to Vanguard.

I could be talking b o ll o x so apologies if so biggrin

river_rat

554 posts

168 months

Monday 21st January 2019
quotequote all
Phooey said:
I'm sure for some weird reason Vanguard do not allow you to 'transfer' a CTF into their JISA. I might be wrong but I think somebody on here mentioned it a wee while ago. You'd have to use someone like HL to invest in a Vanguard JISA, then as Julian says - switch your HL (Vanguard) JISA direct to Vanguard.

I could be talking b o ll o x so apologies if so biggrin
Damn, you are correct Phooey.....I saw the transfer link and thought it would apply for a CTF, but it doesn't!
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