If you own shares that are simply not performing, selling them and re-investing the proceeds in a professionally managed fund could be the answer.

Whether you choose to exchange all your shares for funds or just hold a few funds alongside your existing share portfolio, investing with a leading fund manager could give you significant advantages.

Funds offer a diversified range of shares with exposure to worldwide markets and you can leave all the day to day investment decisions to your fund manager.

If you use the proceeds to invest more than £3,000 in funds in a Vantage Fund Account, ISA or SIPP before 10th June 2008 you can sell your shares for free through Hargreaves Lansdown’s Share Exchange Service, saving you up to £100 on a £10,000 share exchange.

There is no dealing commission on fund investments and you can choose from more than 2,000 funds with market leading initial savings of up to 5.5% and annual loyalty bonuses of up to 0.5% - including funds featured in their Wealth 150. Last year clients saved, on average, £500 each through loyalty bonuses and initial savings.

How to Sell Shares and Buy Funds: New Tax Opportunity

If you have avoided selling your shares in the past because of locked-in capital gains, remember that you don’t have to pay anything for the first £9,600 and capital gains tax has now been reduced to just 18% from 40% for many from April, so now could be an opportune time to act.

Capital gains tax on shares can often lead to investors making tax decisions rather than investment decisions. However a fund manager does not have that problem. Within a fund capital gains are tax free. You only create capital gains when you sell units and if you only sell enough units to create gains within your annual capital gains tax allowance, you can escape capital gains tax altogether.

Save Tax with an ISA or SIPP

If you have not already taken up your ISA allowance for the new tax year then you can “share exchange” into an ISA which means you can sell your shares and re-invest up to £7,200 in funds in an ISA for this tax year (2008/09) and ensure any future gains are free of any capital gains tax.

You can also “share exchange” into a SIPP in exactly the same way and again your future gains are protected from tax. You will also receive tax relief on your investment which means you could turn £8,000 worth of shares into £10,000 in your SIPP. The loyalty bonus is not available in a SIPP.

If you are a higher rate taxpayer you could claim up to a further £2,000 via your tax return making the cost of a £10,000 SIPP investment just £6,000.

Unsure Where to Invest? Hold Your Cash

Finally, if you are unsure which funds to choose why not hold cash while you decide? You could earn up to 5% (gross) interest and, providing you sell more than £3,000 worth of shares and keep the cash proceeds within a Vantage account, Hargreaves Lansdown will still sell your shares for free.

In order to use our Share Exchange Service please download an application form here or call 0117 900 9000 for more information and an application form.

Comment provided by Richard J Hunter, Head of UK Equities at Hargreaves Lansdown, an independent broker aiming to provide the best information, best service and best discounts on ISAs, SIPPs, funds and share dealing.