Should I sell underperforming shares and transfer them to my ISA?
30 July 2021
Question by Andy
I’ve been investing in stocks and shares for 20 odd years and over that time have transferred nearly all my investments into a stocks and shares ISA without having to pay cgt. I am now left though with three very underperforming shares that have lost money. My question is: should I sell these shares and transfer them into my ISA or leave them where they are. What other tax liability’s could I offset against them? I don’t have any more shares and have no plans to sell my house. I do still work and have a holiday home on my property. Many thanks
Answered by Ian Else
Thanks Andy, You have been doing the right thing.
Individual Savings Accounts (ISAs) grow free of capital gains and income tax. Each tax year adults can contribute a maximum of £20,000 to an ISA and you can invest in stocks, shares, and cash. They are a tax-efficient way of saving and less complicated because you do not have to consider the tax implication when you either switch investments within the ISA or make a withdrawal, although they are still subject to inheritance tax.
Capital gains tax is payable when you sell or dispose of an asset and make a profit. It is payable on most assets with a few exceptions, such as your main residence, your car or anything else with a limited life span such as a clock. The first £12,300 per year of any gain is currently tax free. Any gain in excess of that will be taxed at 10% or 20% depending on your other income. The only time this is different is with the sale of a residential property that is not exempt under the main residence rules, i.e., Buy to let or holiday home, when the capital gains tax increases to 18% or 28%.
As you have alluded to, if you make a loss in one year it can be carried forward and offset against gains in future years. The maximum number of years you can carry forward the loss is four from the end of the tax year the loss was made in. In practice this would mean that if you sold the underperforming shares before April 5th 2022 you could still offset the losses against gains until 5th April 2026. Is there a possibility you might sell the holiday home before then or make other gains?
There is an old saying “Don’t let the tax tail wag the investment dog”. What this means is if you put the capital gains tax issue to one side would you retain those underperforming stocks? Even if the answer is yes, if you are not going to use the loss elsewhere, there is no reason not to sell them and repurchase them in an ISA. And because you are buying them back in an ISA you would not fall fowl of the 30-day rule which states that once you sell an asset if you repurchase the asset within 30-days the base cost will revert to the original cost before the asset was sold.
I hope this helps.
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I started working in financial services in 2008. Prior to that, I sailed professionally, working for Chay Blyth's BT Challenge. I've always wanted to help people, but was never smart enough to be a Doctor, so I help people with their finances instead. I'm passionate about offering cost-effective advice to as many people as possible.