Consolidating Funds/Shares - Book cost?

AndyRichardsAndyRichards Member
edited January 2020 in Technical stuff

Hi everyone,

We're in the process of consolidating investments onto one platform via a re-reg (to avoid CGT).

There's some stock overlap between the two portfolios, obviously each holding will have a different book cost/average unit book cost.

How will this affect the book cost going forward if the overlaps are merged? Would the average of the two be used?

Thanks

Comments

  • Add the book cost of both holdings together

  • I'd have thought it would the average book cost of the 2 purchases?

  • It's the pool cost isn't it.....

    The lot of them are lumped together and averaged.

  • It cant be an average.
    Buy fund for £10,000 on one platform.
    Buy same fund for £20,000 on second platform.
    Consolidate both.
    How much has client invested - £30,000 (total) NOT £15,000 average.

  • edited January 2020

    yeah but we're talking about the units, aren't we?

    If the client spent £10,000 and that gave him units that cost 50p
    then he spent £20,000 on units that cost £1

    The units when merged have a cost price of 75p? (sounds like you're saying the cost price would be £1.50, to me).

    When the overall value is, say, £40,000 and the client wants to sell £10,000 worth - knowing the £30,000 figure isn't helpful.

  • Section 104 holdings and pooled costs would be my suggestion. The units are added together and the costs added together, less any equalisation payments/ income taxable elements. Holdings (and costs) then averaged to find the average unit price moving forward.

    For further information I'd suggest reading up on the HS284 guidance which is pretty clear on how it all works.

  • @arongunningham said:
    yeah but we're talking about the units, aren't we?

    If the client spent £10,000 and that gave him units that cost 50p
    then he spent £20,000 on units that cost £1

    The units when merged have a cost price of 75p? (sounds like you're saying the cost price would be £1.50, to me).

    When the overall value is, say, £40,000 and the client wants to sell £10,000 worth - knowing the £30,000 figure isn't helpful.

    This isn't a sound methodology. It works in your example because the number of units purchased in each transaction is the same.

    (I never said the cost per unit was anything as we weren't told in the original sot the number of units being bought.)

    In your example, the first purchase bought 20,000 units as did the second. So you have 40,000 units with a total cost of £30,000 giving a book cost per unit of 75p.

    However, if the first transaction was at 50p (buying 20,000 units) and the second at 80p (buying 25,000 units) then you have a total cost of £30,000 and total units of 45,000. This gives a cost per unit of 66.66p. (If you used an average of the two prices you get 65p.)

    Either way, the book cost of the holding (which is what was asked) is the total amount invested in both holdings i.e. £30,000. This figure is invariably the figure you need to adjust on the new consolidated platform as the holding book cost following re-registration.

    Without this book cost for the total holding you cannot work out the book cost for a partial sale.

    Ignores any subsequent equalisation adjustment, but again, the original post asked about the book cost of each separate holding which would have accounted for any equalisation.

  • I know you know what you're talking about. I do too.

    [rant removed]

    Peace!

  • Ultimately, if you don't have unit costs, then the total investment amount (usually more easily established) and the current value is how you're going to account for the tax and @richardgough is right to suggest adding up the book costs.

    @arongunningham in your example it would be helpful to know £30,000 where you don't have a unit history. The gain on the £30,000 investment is £10,000. From this you can establish that the gain on a £10,000 sale is £2,500. The book value (s104) is reduced to £22,500.

    Agree with @Jamie_Barnes on the pool cost method and that hmrc guidance note being the best resource, if you have the data.

    Referring back to the op question, @richardgough initial answer was correct.

    Benjamin Fabi 
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