4. Bed and Isa/pension
Readers will no doubt be familiar with this expression, whereby funds are sold to crystallise a gain (or loss) and then are repurchased in an Isa or pension.
Doing this ensures the funds that are suitable for clients remain in their portfolios and will be exempt from CGT on future growth, while also adjusting the cost base and reducing the rate at which potential CGT liabilities build up outside of the Isa/pension wrappers.
5. Using discretionary trusts
If an individual is averse to being personally liable to CGT they can always pass the tax burden to trustees. Trustees can claim holdover relief on the assets placed into trust and will suffer no immediate CGT liability.
They will, of course, eventually have to settle any CGT due on disposal. Due consideration should also be given to the fact that trustees have half the individual’s annual exemption and pay a flat rate of 20 per cent CGT.
6. Enterprise Investment Schemes
Another option for those wanting to defer CGT would be an EIS investment, which allows the investor to defer tax on the gain within the tax year it would normally be due.
The liability for capital gains from investments in an EIS can be deferred until ultimate disposal.
Investing in this way offers the valuable opportunity to pay a gain at a later date, at a time perhaps more acceptable to the client, reducing the impact on their current financial situation.
7. Multi-asset funds or model portfolio?
Rebalances in model portfolios will crystallise gains/losses, which one could argue works either for or against you.
Multi-asset funds avoid this scenario, however there will be a potential CGT liability on the eventual disposal of the multi-asset fund, which may compound any CGT liability.
The considerations above demonstrate that there is not a one-size-fits-all solution and it is dependent on client circumstances as to whether one option is more beneficial than another.
Neale Smith is technical specialist at Embark Group
