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)
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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.
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.)
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.
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