Bed and Isa in practice

[Bman]

I have a share on which I have a large mark to market loss but don't want to sell. If I do a Bed and Isa I understand that I crystalise the loss for CGT purposes and then buy back into my ISA to keep the potential upside. Q: I am confused by the £40 charge.  My share has a very wide bid/offer spread; do I get to deal on both sides somewhere within the bid/offer spread and pay a £40 facilitation fee, or do I sell at the Bid and buy at the Offer, being hit by the spread, and then pay £40 on top? Since I am providing the market maker with the stocks and removing his market risk by giving a simultaneous buy order I am hoping that it is an all in £40 charge.  Is this correct??

[KoketsoIG]

50 minutes ago, Bman said:

I have a share on which I have a large mark to market loss but don't want to sell. If I do a Bed and Isa I understand that I crystalise the loss for CGT purposes and then buy back into my ISA to keep the potential upside. Q: I am confused by the £40 charge.  My share has a very wide bid/offer spread; do I get to deal on both sides somewhere within the bid/offer spread and pay a £40 facilitation fee, or do I sell at the Bid and buy at the Offer, being hit by the spread, and then pay £40 on top? Since I am providing the market maker with the stocks and removing his market risk by giving a simultaneous buy order I am hoping that it is an all in £40 charge.  Is this correct??

Hi @Bman,

Thank you for your post.

Please note that when doing a Bed & ISA, you are selling the shares on the share dealing and then buying back the shares on the market within the ISA, therefore, you sell at the current bid (whatever it is when doing it) and buying back within the spread. 

This means that you won’t keep the same average opening price, because you would have realised profit/loss on the share dealing account and then they buy at the current market price on the ISA account.

The £40 (dealing fee) is on the sale of shares per line of stock, but you won’t incur any cost from us on the repurchase.

Depending on the share and trade consideration, there may be PTM (Panel of Takeovers and Mergers) Levy of £1 to pay on both sides of the trade and stamp duty on the repurchase within your ISA.

The risk is capped at between either £30 or £50 spread per line of stock and is separate from the dealing fee.

All the best,

KoketsoIG

[Bman]

Many thanks for the reply!!. Still a bit confused tho. What is meant by buying back “within the spread”? Does this mean at a better price than the market offer? And what does the “risk is capped at £30 or £50” mean? Which risk are we referring to and when is it £30 and when £50?

Sorry if it’s being pedantic, it’s just that the terminology is not clear to me!! 

[KoketsoIG]

4 hours ago, Bman said:

Many thanks for the reply!!. Still a bit confused tho. What is meant by buying back “within the spread”? Does this mean at a better price than the market offer? And what does the “risk is capped at £30 or £50” mean? Which risk are we referring to and when is it £30 and when £50?

Sorry if it’s being pedantic, it’s just that the terminology is not clear to me!! 

Hi @Bman,

For buying within the spread: the market spread is capped £40, so if the difference between bid and ask times the number of shares is beyond £40, you will pay only £40 in spread because we do the process through a market maker.

You sell at the current bid and buy back within spread but not paying more that £40.

For Example: If the market was trading at 12/14 and you are selling 100 shares, you will sell at 12 and buy back at 14 paying £200 in spread

With a Bed & ISA, you sell at 12 and the market maker buys back 12.4 for example

That means 0.4 points spread x 100 shares = £40

The risk: When selling and rebuying shares there is a risk of price movement while you’re out of the market, and therefore a difference in sell and buy price between the open and close of the trade. This can result in buying back fewer shares than you originally held. By using the 'bed and ISA' process, this risk is capped at between either £30 or £50 spread per line of stock. 

I hope this helps.

KoketsoIG