What to know about Bed and ISA after investing via GIA

[RememberDecember]

What do I need to know if I plan on doing Bed and ISA at the end of this tax year (26/27), after saving into a GIA?
I will have maxed out ISA allowance this year. Thinking of putting in a lump sum now and then adding to it every couple of months.

I am assuming I will need to declare CGT gain if sale is above 3k and also maybe dividend tax? How easy is it to work out these amounts if I am drip feeding over the year? Is it better to use income funds rather than accumulation units to clearly identify dividend income? Does the provider provide a summary for tax purposes, similar to an interest tax certificate from a bank, for example? Thanks!

Yes, use income funds in a GIA.

For capital gains you need to subtract the average purchase price from the sale price.

For dividends you get an annual statement from the platform

Thank you. But surely it is going to be difficult to work out the average cost of any holding if bought monthly and only selling part of the investment? Maybe I need to have multiple small investments and sell off in entirety to ensure easy to calculate CGT implementations? How have others handled Bed and Isas?

Many platforms will tell you the average price. But it's easy enough to keep a spreadsheet. You only need to log purchase price and number of units bought each month, 2 numbers, if you stick with buying 1 fund. Total pounds spent ÷ total number bought gives you an average price per unit. Then multiply that by the number of units you're selling. Or you can buy a different fund each month, but that's more work choosing them and keeping track.

Don't buy income funds in the GIA. Why would you want to pay more tax by generating more income?

You will receive a dividend statement after the tax year end. If it is a decent platform you will receive a CGT report when you sell.

'Income' (or distributing) fund as opposed to 'accumulation'. Not 'income' as in 'high dividend yeild'.

Income is generated and liable for tax either way, it's a question of whether you can easily see and report it on your tax return or whether it's rolled up automatically into new investments and harder to extract the numbers.

@FinancialGuru do you know if HL or ii give a CGT return please?

I tried to do this from my GIA at Hargreaves Lansdown as I need to move quite a lot over in stages to my ISA either side of the tax year. I downloaded the portfolio and asked ChatGPT to devise a strategy to minimise CGT exposure and it worked it all out for me.
First thing it got wrong though is that I couldn’t do Bed & ISA transfers with the funds investments, I had to sell them first, transfer the money to my ISA and then reinvest. I also transferred 50% of the funds investments tax free to my husband and am doing the same process with that as well, selling it and moving it into an ISA. Doing the same over the next couple of tax years will mean I won’t pay any CGT on the investments in the original GIA.

CGT isn't just a straight forward average price, there are various pooling rules depending on timing of purchases. Obviously if you sell the entire holding you use the entire base cost of the holding.

The IA provider "should" provide a CGT report following the end of the tax year.

This is what I was wondering about, how on earth you determine the gain if it has been bought at various prices over time - simple average buying cost or something more complicated? People must come up against this all the time though, unless buying discrete investments they leave untouched for years I guess.

Disposals of shares on or after 6 April 2008 are to be identified with acquisitions by the same person of shares of the same class in the same company in the following order:

1. acquisitions on the same day as the disposal;
2. acquisitions within 30 days after the day of disposal (thus countering 'bed and breakfasting');
3. shares comprised in the 'section 104 holding' (see below);
4. if the shares disposed of are still not exhausted, shares acquired subsequent to the disposal (and beyond the above-mentioned 30-day period).

In the above list, 1, 2 and 4 are easy to understand but what about number 3, the section 104 holding? Section 104 holding Taxation of Chargeable Gains Act (TCGA) 1992, s104 tells us that: 'Any number of securities of the same class acquired by the same person in the same capacity shall for the purposes of this Act (subject to express provision to the contrary) be regarded as indistinguishable parts of a single asset growing or diminishing on the occasions on which additional securities of the same class are acquired or some of the securities of that class are disposed of.' This effectively means that all shares, apart from those in 1, 2 and 4 above, are pooled and treated as a single asset. When a proportion of the shares held within the pool are sold, the value of the pool of share is apportioned to determine the base cost of the shares being sold. Any shares which were held at 1 April 1982 are subject to the 'general re-basing rule', as prescribed by TCGA 1992, s35(4). This means that, for capital gains tax purposes, the shares are treated as having been acquired at their market value as at 1 April 1982 and the actual cost becomes irrelevant. There is an exception to this rule if the client has made a global election by 6 April 1990 for actual cost to apply, in which case, original cost will normally apply. It should be remembered that indexation no longer applies to disposals made by individuals and trusts.

You're making this sound WAY more complicated than it is!

The OP presumably did not own any shares in a GIA before 1982. The rest of what you've quoted in number 3 literally just means that whenever you sell units of a specific share or fund, you calculate your gain per unit by taking your average purchase price across all the units you own of that type. Some platforms will even display your average purchase cost per unit, to save you the trouble of calculating it. (Of course that may be inaccurate if you've changed platform, as the current one won't know about your previous buying history.)

The waters would be muddied if you were to buy units within the GIA less than 30 days after selling the exact same thing. You can hold two different funds in order to avoid that problem. Say for example you sell some units in one fund in late March 2027 in order to make use of your £3k annual capital gains allowance, and then you want to reinvest some of the resulting money back into the GIA - you just buy your other favourite fund instead of re-buying the one you just sold. They can be very very similar, they just mustn't be identical.

Here's an example of working out capital gain. Suppose I sell all the holdings in VWRL. Average purchase price is £121.90. If I sell 328 units at £124.88, my gain is 328 x (124.88 - 121.90) = 977.44

Oops, here's the screenshot meant to accompany my CGT example

Thanks @Saracen!
im a bit unsure whether it makes sense for me to do this in my financial situation, will need to see how much ‘spare’ cash I have for investing after Ida’s and pensions.