Unit Trust Switch - CGT Disposal?

[jpcentral]

I have a client who had a holding in a unit trust. She sold part of her holding and switched the rest to a different unit trust with the same fund manager.

My view is that the switch is a disposal for CGT purposes (based on Help Sheet IR284 and CG57701). The IFA is saying that a switch is not a disposal but can't say where that information comes from.

I would love the IFA to be correct because it will save my client quite a bit of CGT. Can anyone throw light on this and point me to a definitive answer?

Many thanks in anticipation.


John Perry

[bob.fraser@towrylaw.]

John,
I fear that you are right, unless the unit trust was held within a "fund of funds" environment, in which switches between funds are not considered disposals.
A switch of one unit trust fund for another is a disposal for CGT, irrespective of the fund manager.
A switch of a unit trust from one platform (say Fidelity) to another platform (say Cofunds) whilst maintaining the same fund and fund manager would not be a disposal.
I think that you will find that this "switch" actually involved a sale of one unit trust, and the purchase of the new unit trust.

Bob Fraser
Chartered Financial Planner

[Andy Wood.]

John,

I'm not an IFA but I believe it's possible to switch funds (without CGT charge) within a platform such as Co-Funds.

Maybe they're worth contacting for back up / confirmation?

Cheers
Andy Wood
Chartered Tax Adviser

awood@clbcoopers.co.uk
01204 551124

[Andy Wood.]

Whoops! I've just been told I'm wrong! Ignore me...

[jpcentral]

Thanks for the responses.

I also asked another IFA. He decided to go direct to the fund managers and ask them direct. His responses so far are:

Cofunds say that a switch triggers a chargeable event.

Invesco say that it won't.

Fidelity say that it will.

He is waiting for others to come back to him.

I find it amazing that something as simple as this which must happen thousands of times a year doesn't seem to have a definitive answer.

John Perry

[bob.fraser@towrylaw.]

John,
The confusion may stem from how the question is being posed. The word "switch" means different things.
Is the sale of BP shares to buy Shell shares in a portfolio a switch or a diposal?
Similarly, selling an Invesco Income unit trust to buy an Invesco Growth unit trust is a sale and purchase.
I hope I'm wrong, but am certain that I'm not.

[jpcentral]

Bob

I don't know where the confusion arises from. At the end of the day, the client has two contract notes, one of which says Sale of X and another which says Purchase of Y so there has been a disposal. Invesco, who are the company involved, is the only one saying that a switch between their funds is not a disposal - but they issue two contract notes - and I think they are wrong.

Unfortunately I think that the IFA who gave the advice got it wrong and has definitely lost a client and could end up with a compensation claim.

There was a time (briefly in about 1986 I think) when transferring between unit trusts with the same manager was not a disposal but that was quickly changed.

Thanks to all who responded and generally confirmed what I thought to be the case.

John Perry

[bob.fraser@towrylaw.]

Incidentally, if your client was acting under advice from the IFA, and there is a CGT liability of which the IFA did not warn the client, then your client should speak to the IFA about this.

[Confused Virgin]

Stumbled across this thread with the aid of Google. I realise it's almost 5 years old but I'm a Virgin Money customer and am a tad confused (hence the username, honest!) as far as the CGT on my Unit Trust investments with them are concerned and the initial question seemed at least semi-relevant.

In May 2009, I invested in all three of their Unit Trust funds, initially in UK Index Tracking Trust (henceforth UKINDEX), a couple of days later the Income Trust (INCOME) and then a week later the Climate Change Fund (CLIMATE). I made subsequent additions to each of them before at the end of September I switched the majority of the funds held in each of UKINDEX and CLIMATE to INCOME.

First question is whether these two switches each need to be considered as disposals for CGT purposes? I think the answer is yes, but hope I'm wrong. When I log into my online account the value of all three funds is initially amalgamated and seemingly treated as one single unit trust (although I can also of course view each fund's units and values separately), but HMRC's Helpsheet 284 briefly mentions umbrella schemes and I assume that's pretty much what this is and so they have to be treated as disposals for CGT purposes.

OK, this is where it starts to get a bit messy. 10 days later, I switched more units (of greater combined financial value than I had originally switched out / disposed of) back from INCOME to both UKINDEX AND CLIMATE. I made a further cash investment in both CLIMATE and UKINDEX the same day, before withdrawing the majority of my investment from all three funds a further 10 days later.

As I understand it, the 'same day' rule only apply to units purchased in the exact same fund (in my case UKINDEX or CLIMATE or INCOME) on the same day. Otherwise the first switches into INCOME detailed above would fall under this category and not be considered as disposals. However, as far as the 'bed and breakfasting' rule is concerned, where do I stand if the shares acquired in the 30 days following the original disposal exceed the amount (in unit and £ terms) than I originally switched out?

And as far as the final withdrawals were concerned, will their capital gain or loss only then be relevant to a rather complex and messy Section 104 holding as I didn't make any further investments that day or in the 30 days following?

So, your thoughts, please? I've tried to keep it as clear and concise as I possibly can. Needless to say, Self Assessment this year is proving rather more intricate than in previous years. Oh and thanks in advance. And congrtaulations for making it this far!