Question
I read your answer to a previous question about capital gains tax when selling funds. But what about CGT on switching funds?
What happens when you switch within the same fund supermaket (i.e. no sale just switch ), is there potential for CGT?
I'm fairly sure the answer is no (ref : I've just done a large switch to trackers whilst keeping a about a third active in more specialist areas re. recent articles about bonus charges in active funds). Please can you confirm?Answer
In this context a switch is the same as a sale/purchase - if you switch from fund A into fund B then it involves selling units in fund A and using the money to purchase units in fund B. This might be seemlessly handled by the fund supermarket, but it does nevertheless mean that any gains on the fund(s) you've switched out of (i.e. sold) are subject to capital gains tax (unless the funds are held within a tax wrapper such as an ISA, pension or investment bond).
You can obviously offset your annual capital gains tax allowance (£10,100 for 2010/11) against the gains, but I'm afraid any gains in excess of this will be taxed at either 18% or 28% depending on whether the gains, when added to your income, fall into the basic or higher rate tax bands.
The only exception to this is switching between income and accumulation units within the same fund, in which case HMRC does not view the switch as a sale.
Sorry this is not the answer you were looking for.
I read your answer to a previous question about capital gains tax when selling funds. But what about CGT on switching funds?
What happens when you switch within the same fund supermaket (i.e. no sale just switch ), is there potential for CGT?
I'm fairly sure the answer is no (ref : I've just done a large switch to trackers whilst keeping a about a third active in more specialist areas re. recent articles about bonus charges in active funds). Please can you confirm?Answer
In this context a switch is the same as a sale/purchase - if you switch from fund A into fund B then it involves selling units in fund A and using the money to purchase units in fund B. This might be seemlessly handled by the fund supermarket, but it does nevertheless mean that any gains on the fund(s) you've switched out of (i.e. sold) are subject to capital gains tax (unless the funds are held within a tax wrapper such as an ISA, pension or investment bond).
You can obviously offset your annual capital gains tax allowance (£10,100 for 2010/11) against the gains, but I'm afraid any gains in excess of this will be taxed at either 18% or 28% depending on whether the gains, when added to your income, fall into the basic or higher rate tax bands.
The only exception to this is switching between income and accumulation units within the same fund, in which case HMRC does not view the switch as a sale.
Sorry this is not the answer you were looking for.
Read this Q and A at http://www.candidmoney.com/questions/question278.aspx
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