Share this content

CGT IDENTIFICATION RULES-UNIT TRUST SAME DAY SALES

Monthly Same Day Disposals For Returns to Investor and Service Charges-How Is the CGT Sale Matched?

Didn't find your answer?

Client holds units in a unit trust investment held within an Old Mutual Collective Investment Account. Each month, on the same day two disposals of units occur.

One of the disposals of units raises £600 each month to pay back to the investor and the other disposal raises around £30 each month for the monthly Collective Investment Account service charges.

The units were originally acquired as to 100,000 units costing £200,000 (£2 per unit). Only the £600 monthly disposal has CGT implications. But what is the order of CGT matching. Suppose on 5 October 2020 the following disposals occurred:

5.10.20 sold 200 units for £600 (£3 per unit) (the monthly return to the investor)

5.10.20 sold 10 units for £30 (£3 per unit) (to pay the monthly service charge)

Is the CGT sale of the 200 units matched as:

a) 200/100,000 x £200,000,

b) 200/99,990 x £200,000, or

c) does a different identification occur for the two sales on the same day each month, one sale being a CGT transaction and the other ignored for CGT purposes. If so, I cannot quite think how it should be identified, because both sales occur on the same day but only one is caught for CGT.

Any ideas?

 

 

 

 

 

Replies (6)

Please login or register to join the discussion.

avatar
By Tax Dragon
09th Apr 2021 06:59

I don't believe your premise. If you go from holding 100,000 units to holding 99,990 units, you have made a disposal of 10 units and, unless you know a section that says such a disposal of units isn't within scope of TCGA, then the disposal is within scope of TCGA.

Thanks (1)
Replying to Tax Dragon:
By penelope pitstop
09th Apr 2021 14:13

For quite a number of years client was receiving £600 per month from monthly sales of units. These were all reported for CGT using normal CGT apportionments of base cost.

Then several years ago I noticed on the Collective Investment Account statements that monthly service charges started being imposed and then paid from the monthly sale of small numbers of units. My instant reaction was that they were CGT sales.

I then phoned Old Mutual technical for confirmation. They said that the small monthly sales were not treated as CGT disposals and that the CGT cost was maintained despite these sales. In other words, in the CGT records there is no cost deduction when these units are sold.

I assume this is because the £600 proceeds end up in my client's bank account, whereas the £30 proceeds end up in Old Mutual's bank account.

I assumed that Old Mutual knew what they were talking about. But this then creates a share identification problem for the continuous two monthly disposals on the same day, one being subject to CGT and the other not.

Thanks (0)
Replying to penelope pitstop:
avatar
By Tax Dragon
09th Apr 2021 14:26

Shame you didn't get a citation. The closest I know about would be s122, which a) has changed since you spoke with OM and b) in my view, would not have applied in any of its incarnations. So, sorry, but I can't help. (These amounts are well within AEAs though, so I'm hoping it's not too much damage.)

Thanks (0)
By Paul D Utherone
09th Apr 2021 09:57

On what basis does only the £600 disposal have a CGT consequence? Surely there are two disposals on the day: one to pay funds to the client; and another smaller one to pay a management fee that the client owes the fund managers.

Your apportioned cost should broadly be:
Cost remaining (as adjusted for previous disposals and any accumulations from distributions by the UT) x units sold / units held

I think the only divergence from that might be if accumulations for distributions during the year purchased new units rather than just adding to the fund, and the new units from accumulation were acquired same day, or within 30 days.

Thanks (1)
Replying to Paul D Utherone:
By penelope pitstop
09th Apr 2021 14:22

Thanks Paul, and please see my response to Tax Dragon.

These are accumulation units not reinvestment units so there are no further purchases apart from the tiny monthly purchases of units through the "Reinvested Rebate" amounts received (approximately £3-£4 per month to buy one and a fraction of a unit).

The CGT matching rules mean that it takes hours to create a complex share (unit trust) record each year for this holding.

Thanks (0)
Replying to penelope pitstop:
By Paul D Utherone
09th Apr 2021 15:20

penelope pitstop wrote:

The CGT matching rules mean that it takes hours to create a complex share (unit trust) record each year for this holding.


I know, and feel your pain. Luckily for the couple I had, I had a good relationship with the IFA involved, and they managed to get a CGT schedule from OM that looked to cover this, and could be accepted & used - also latterly it was the only holding and within CGT AE so became largely academic
Thanks (0)
Share this content