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Where Taxpayers and Advisers Meet

CGT on 'clean' and 'dirty' funs

sigmund
Posts:83
Joined:Mon Nov 02, 2009 10:03 pm
CGT on 'clean' and 'dirty' funs

Postby sigmund » Sat Apr 12, 2014 1:52 pm

Can anyone help with the following problem? With the changes to the charging structures of unit trusts and OIECs I am confused as to how the capital gains for CGT purposes are calculated.

If 'dirty' funds are converted to 'clean' funds (e.g Invesco Perpetual European Equity Fund to Invesco Perpetual European Equity Z Fund), what is the situation regarding capital gains tax? I understand that no CGT liability is triggered by the conversion itself, but the two versions have different prices and, whereas I can calculate the Section 104 weighted average price for the 'dirty' fund, how can I do this after conversion? Are the two versions of the fund considered to be two entirely different holdings?

And what happens if I have holdings in both the 'clean' and 'dirty' funds and then the dirty funds are converted to clean funds are the new 'clean' funds added to the existing 'clean' funds and treated as one holding?

AvocadoK
Posts:1232
Joined:Wed Aug 06, 2008 3:46 pm
Location:Lancashire

Re: CGT on 'clean' and 'dirty' funs

Postby AvocadoK » Sat Apr 12, 2014 9:41 pm

This would probably come within s103F TCGA 1992, as a nil gain/nil loss transaction. The section "applies in the following cases.

Case 1

Where–

(a)a participant in a collective investment scheme exchanges units in the scheme for other units in the scheme (“new units”) of substantially the same value, and

(b)the property subject to the scheme and the rights of participants to share in the capital and income in relation to that property are the same immediately before and immediately after the event (ignoring any changes as a result of a variation in management charges)."

In this case, the original base costs are carried over to the new units.

AK

sigmund
Posts:83
Joined:Mon Nov 02, 2009 10:03 pm

Re: CGT on 'clean' and 'dirty' funs

Postby sigmund » Sat Apr 12, 2014 9:58 pm

Thank you Avocadok. That is what I understood the position to be historically but I am more concerned with how I can calculate the gains once the switch has taken place or when I have holdings in both versions at the same time. None of the platform websites address the matter.

AvocadoK
Posts:1232
Joined:Wed Aug 06, 2008 3:46 pm
Location:Lancashire

Re: CGT on 'clean' and 'dirty' funs

Postby AvocadoK » Sun Apr 13, 2014 10:34 am

There are no further specific rules, so you would work on the principles set out in s104 TCGA. So...
If you hold clean and dirty funds at the same time, they are different holdings, in different pools. You would work out the CGT depending on which holding you sell from.
If you switch from dirty to clean, the numbers and cost of units in the dirty fund are added to the number and cost of units in the clean fund, to calculate a new average cost per unit. You then sell out of that merged pool.
AK

sigmund
Posts:83
Joined:Mon Nov 02, 2009 10:03 pm

Re: CGT on 'clean' and 'dirty' funs

Postby sigmund » Sun Apr 13, 2014 5:05 pm

Thank you very much indeed. That clarifies the situation perfectly.


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