U.K. CGT gain harvesting

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Topic Author
minimalistmarc
Posts: 517
Joined: Fri Jul 24, 2015 4:38 pm

U.K. CGT gain harvesting

Post by minimalistmarc » Mon Sep 02, 2019 4:00 pm

In my taxable account I hold VWRL (vanguard all world) and want to sell approx 100k to harvest 32k Capital gains tax free (12k allowance + 20k loss from a couple of alternative investments).

I don’t want to wait 30 days to rebuy.

Couple of questions:
1) if I sold on April 5th does the 30 day rule still apply or does it reset when we move into the new tax year
2) if rebuying a different ETF I’m considering VEVE (developed markets). Is this materially different enough to do the trade (it’s basically all world without emerging markets)
3) any pitfalls or tips ?

TedSwippet
Posts: 2571
Joined: Mon Jun 04, 2007 4:19 pm
Location: UK

Re: U.K. CGT gain harvesting

Post by TedSwippet » Mon Sep 02, 2019 5:59 pm

minimalistmarc wrote:
Mon Sep 02, 2019 4:00 pm
1) if I sold on April 5th does the 30 day rule still apply or does it reset when we move into the new tax year
It still applies. The transition to the new tax year doesn't change the 30 day repurchase requirement.
minimalistmarc wrote:
Mon Sep 02, 2019 4:00 pm
2) if rebuying a different ETF I’m considering VEVE (developed markets). Is this materially different enough to do the trade (it’s basically all world without emerging markets)
Different enough. The rule only applies when you buy the identical shares back within 30 days.
minimalistmarc wrote:
Mon Sep 02, 2019 4:00 pm
3) any pitfalls or tips ?
What are you keen to use up your £20k loss? It's usually best to hold on to a loss until there's a compelling reason to use it. Wanting to move from VWRL to VEVE might count, but from the sound of things you don't want to do that, but rather are just considering it as a workround for the 30 day rule. Capital losses are the most useful to have in your back pocket when you find you have a forced gain -- company takeover, involuntary liquidation, that sort of thing.

As for pitfalls, the major one is that same-year losses get used up before you use your CGT allowance. So if you recognise a £10k loss in one stock but a £10k gain in another in the same year, you don't get to use any of that year's CGT allowance, meaning it's effectively lost.

Topic Author
minimalistmarc
Posts: 517
Joined: Fri Jul 24, 2015 4:38 pm

Re: U.K. CGT gain harvesting

Post by minimalistmarc » Tue Sep 03, 2019 1:20 am

TedSwippet wrote:
Mon Sep 02, 2019 5:59 pm
minimalistmarc wrote:
Mon Sep 02, 2019 4:00 pm
1) if I sold on April 5th does the 30 day rule still apply or does it reset when we move into the new tax year
It still applies. The transition to the new tax year doesn't change the 30 day repurchase requirement.
minimalistmarc wrote:
Mon Sep 02, 2019 4:00 pm
2) if rebuying a different ETF I’m considering VEVE (developed markets). Is this materially different enough to do the trade (it’s basically all world without emerging markets)
Different enough. The rule only applies when you buy the identical shares back within 30 days.
minimalistmarc wrote:
Mon Sep 02, 2019 4:00 pm
3) any pitfalls or tips ?
What are you keen to use up your £20k loss? It's usually best to hold on to a loss until there's a compelling reason to use it. Wanting to move from VWRL to VEVE might count, but from the sound of things you don't want to do that, but rather are just considering it as a workround for the 30 day rule. Capital losses are the most useful to have in your back pocket when you find you have a forced gain -- company takeover, involuntary liquidation, that sort of thing.

As for pitfalls, the major one is that same-year losses get used up before you use your CGT allowance. So if you recognise a £10k loss in one stock but a £10k gain in another in the same year, you don't get to use any of that year's CGT allowance, meaning it's effectively lost.
Thanks Ted.

My thinking was to utilise my CGT allowance each year to avoid a situation in 20 years time where I have a massive gain in my taxable account.

Also, my understanding is that the 20k loss can only be used in the next 3 years.

TedSwippet
Posts: 2571
Joined: Mon Jun 04, 2007 4:19 pm
Location: UK

Re: U.K. CGT gain harvesting

Post by TedSwippet » Tue Sep 03, 2019 2:09 am

minimalistmarc wrote:
Tue Sep 03, 2019 1:20 am
My thinking was to utilise my CGT allowance each year to avoid a situation in 20 years time where I have a massive gain in my taxable account.
Definitely do that. I do.
minimalistmarc wrote:
Mon Sep 02, 2019 4:00 pm
Also, my understanding is that the 20k loss can only be used in the next 3 years.
Where did you read about any limit? From HMRC:
TCGA92/S2 (2) (3), TCGA92/S3
Allowable losses must be deducted
- as far as possible from chargeable gains accruing in the same year of assessment, and
- any balance must be carried forward without time limit and deducted from chargeable gains accruing in the earliest later year.
That said, the 'in the earliest later year' might argue for doing what you plan anyway. Sorry, no direct experience, as I've never had carry-over losses.

Topic Author
minimalistmarc
Posts: 517
Joined: Fri Jul 24, 2015 4:38 pm

Re: U.K. CGT gain harvesting

Post by minimalistmarc » Tue Sep 03, 2019 4:07 am

TedSwippet wrote:
Tue Sep 03, 2019 2:09 am
minimalistmarc wrote:
Tue Sep 03, 2019 1:20 am
My thinking was to utilise my CGT allowance each year to avoid a situation in 20 years time where I have a massive gain in my taxable account.
Definitely do that. I do.
minimalistmarc wrote:
Mon Sep 02, 2019 4:00 pm
Also, my understanding is that the 20k loss can only be used in the next 3 years.
Where did you read about any limit? From HMRC:
TCGA92/S2 (2) (3), TCGA92/S3
Allowable losses must be deducted
- as far as possible from chargeable gains accruing in the same year of assessment, and
- any balance must be carried forward without time limit and deducted from chargeable gains accruing in the earliest later year.
That said, the 'in the earliest later year' might argue for doing what you plan anyway. Sorry, no direct experience, as I've never had carry-over losses.
https://www.gov.uk/capital-gains-tax/losses

“Reporting losses
Claim for your loss by including it on your tax return. If you’ve never made a gain and are not registered for Self Assessment, you can write to HMRC instead.

You do not have to report losses straight away - you can claim up to 4 years after the end of the tax year that you disposed of the asset.”

HMRC rules clear as mud lol.

I’ll just make sure to bank the 12k every year and have a think about the rest

glorat
Posts: 344
Joined: Thu Apr 18, 2019 2:17 am

Re: U.K. CGT gain harvesting

Post by glorat » Tue Sep 03, 2019 4:13 am

Ignoring the loss harvesting aspect...

Does that mean there is a viable strategy for UK investors with taxable accounts to harvest the CGT tax free gain every year, and then immediately reinvest that in a similar-but-not-same fund in order to reset cost basis?

actuallyxy
Posts: 35
Joined: Wed May 24, 2017 6:25 am

Re: U.K. CGT gain harvesting

Post by actuallyxy » Tue Sep 03, 2019 4:30 am

glorat wrote:
Tue Sep 03, 2019 4:13 am
Ignoring the loss harvesting aspect...

Does that mean there is a viable strategy for UK investors with taxable accounts to harvest the CGT tax free gain every year, and then immediately reinvest that in a similar-but-not-same fund in order to reset cost basis?
Exactly. Other options are to sell and then invest in exactly the same fund, but in an ISA, or in your spouse's account. Or wait one month and then reinvest.

international001
Posts: 1195
Joined: Thu Feb 15, 2018 7:31 pm

Re: U.K. CGT gain harvesting

Post by international001 » Tue Sep 03, 2019 5:32 am

I got confused.

How is this different that the regular TLH you would do in US? When stock A goes down, you sell it so you can buy more units of A. You'll have to pay more taxes in the future. But this is fine, because it's tax deferral and it's like the taxman is loaning you money.

BTW, I didn't know wash sale rules were present in UK (like they are in US). Is it common across other European countries?

TedSwippet
Posts: 2571
Joined: Mon Jun 04, 2007 4:19 pm
Location: UK

Re: U.K. CGT gain harvesting

Post by TedSwippet » Tue Sep 03, 2019 6:00 am

minimalistmarc wrote:
Tue Sep 03, 2019 4:07 am
https://www.gov.uk/capital-gains-tax/losses

“Reporting losses
Claim for your loss by including it on your tax return. If you’ve never made a gain and are not registered for Self Assessment, you can write to HMRC instead. ... You do not have to report losses straight away - you can claim up to 4 years after the end of the tax year that you disposed of the asset.”
Claiming the loss and writing off the loss against CGT are not the same thing, though. You have as long as you like to use up the loss once you have claimed it and (potentially) started carrying it forwards. Some examples in this document:

https://www.jameshay.co.uk/OldCMS/Docum ... entID=2959

Contrary to what I thought the HMRC stuff above suggested, it seems like you can use up your CGT carry forward losses and still get your annual CGT allowance. It's just if the gain and loss happen in the same year that you have to net them out before using the allowance. Apparently.

This happened to me some years ago, forced sale of one asset that was mostly gain and another similarly sized asset that went to zero, but with no other gains I could take. I lost an entire year's CGT allowance over that, and it still smarts.
minimalistmarc wrote:
Tue Sep 03, 2019 4:07 am
I’ll just make sure to bank the 12k every year and have a think about the rest.
Were your losses realised in the same tax year? If yes, you would have to net them against gains before you get to your £12 allowance; see above. Otherwise, it looks like you may be good to go (though as you say, as clear as mud).

Treat all this as speculation anyway. As already mentioned, I've never been able to carry forward losses, so no firsthand experience.

TedSwippet
Posts: 2571
Joined: Mon Jun 04, 2007 4:19 pm
Location: UK

Re: U.K. CGT gain harvesting

Post by TedSwippet » Tue Sep 03, 2019 6:19 am

international001 wrote:
Tue Sep 03, 2019 5:32 am
How is this different that the regular TLH you would do in US? When stock A goes down, you sell it so you can buy more units of A. You'll have to pay more taxes in the future. But this is fine, because it's tax deferral and it's like the taxman is loaning you money.
One main difference is that in the UK you cannot offset capital losses against ordinary income. So voluntarily taking a capital loss only makes sense to the extent that it offsets a capital gain you might be taking (or be forced to take) elsewhere. Otherwise there's no point in taking the loss (though of course it might be forced, for example an asset price drops to zero).

In the US, taking a voluntary capital loss can let you trade off a higher income tax now for a lower capital gains tax in the future, subject to a $3k/year limit. The US has no annual capital gain tax allowance, and the UK does, so that also changes the equation for UK investors.
international001 wrote:
Tue Sep 03, 2019 5:32 am
BTW, I didn't know wash sale rules were present in UK (like they are in US).
The UK term is 'bed and breakfast', but it is sort-of the same. Less bite to it though. For example, you can get round it by asset swapping with your spouse. And to get caught by it the asset has to be absolutely identical. Perhaps even to the point of distribution or accumulation share classes of the same ETF or unit trust, so that switching from one to the other might be enough avoid it.

And then, there's always futures, options, spread betting, or any other number of ways to get around it. In practice, it is nearly always avoidable without any actual time out of the market. Just a matter of finding the cheapest way to avoid it.

international001
Posts: 1195
Joined: Thu Feb 15, 2018 7:31 pm

Re: U.K. CGT gain harvesting

Post by international001 » Thu Sep 05, 2019 6:44 pm

Thanks a lot for the explanation.

Wash sales are relatively easy to workaround in the US, since there are so many different similar funds. I guess UK may be handicapped there, despite regulations being more relaxed.

I guess it's something worth investigating in any particular country you invest in.

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