Question
In view of the new clean fund classes, it will often make sense to switch existing fund investments into the new clean class because of the lower AMC. However, if you sell the old fund class and buy the same amount of the new clean class of the same fund, does this trigger a gain for CGT purposes?
You would think that it would count as repurchasing the same shares within 30 days, so the new investment will just be treated as having the same cost as the old investment. You would also think that it would be treated as a share reorganisation, similar to the treatment when you switch from accumulation units to income units or vice versa.
Either way, there should be no gain triggered. However, is this correct, and does it depend on whether you convert or switch?Answer
My understanding is that switching between different unit classes of the same fund is treated as a share reorganisation - that is, it won't trigger a gain for capital gains tax purposes.
There are two HMRC references that appear to confirm this. The first CG57709 says:
"Any switch from one class to another within the same unit trust should be treated as a share reorganisation."
The second is CG51700 which says:
"For capital gains purposes a share reorganisation is not treated as a disposal of the taxpayer's existing shares or an acquisition of any new shares and new shares issued are treated as though they were acquired at the same time as the existing shares."
So, in layman's terms. If you switch from Fund A Retail units (e.g. charging 1.5% a year) to Fund A Clean units (e.g. charging 0.75% a year) it won't trigger a capital gain. But when you eventually sell the Clean units the purchase price to calculate the gain will be the original price you paid for the Retail units.
In view of the new clean fund classes, it will often make sense to switch existing fund investments into the new clean class because of the lower AMC. However, if you sell the old fund class and buy the same amount of the new clean class of the same fund, does this trigger a gain for CGT purposes?
You would think that it would count as repurchasing the same shares within 30 days, so the new investment will just be treated as having the same cost as the old investment. You would also think that it would be treated as a share reorganisation, similar to the treatment when you switch from accumulation units to income units or vice versa.
Either way, there should be no gain triggered. However, is this correct, and does it depend on whether you convert or switch?Answer
My understanding is that switching between different unit classes of the same fund is treated as a share reorganisation - that is, it won't trigger a gain for capital gains tax purposes.
There are two HMRC references that appear to confirm this. The first CG57709 says:
"Any switch from one class to another within the same unit trust should be treated as a share reorganisation."
The second is CG51700 which says:
"For capital gains purposes a share reorganisation is not treated as a disposal of the taxpayer's existing shares or an acquisition of any new shares and new shares issued are treated as though they were acquired at the same time as the existing shares."
So, in layman's terms. If you switch from Fund A Retail units (e.g. charging 1.5% a year) to Fund A Clean units (e.g. charging 0.75% a year) it won't trigger a capital gain. But when you eventually sell the Clean units the purchase price to calculate the gain will be the original price you paid for the Retail units.
Read this Q and A at http://www.candidmoney.com/askjustin/808/will-switching-to-clean-fund-units-trigger-cgt
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