Would selling the whole portfolio to realise a potential tax benefit be correct advice? If they are more of a buy and hold investor then this strategy may not sit well with them.
The complex CGT matching rules on sales and repurchases may need a change of fund even though that may be in the same sector.
It’s also important to consider if there is a potential market timing issue with being in cash for even a day or two, as any tax saved needs to cover any costs associated with the sale and repurchase undertaken.
To put this into context, a higher rate tax payer would save tax of £3,052 by fully utilising their annual CGT exemption (£10,900 x 28 per cent).
There may be a switching fee involved and they would also need to factor in the cost of any advice given. £3,052 is 1.59 per cent of the £192,567 the investment realised, so if the fees/charges exceed this level then it may not be the right thing to do.
There is no doubt that the issue of CGT is a complex one. The key is to remember the unique nature of every situation and not to be afraid to question any ‘perceived wisdom’ in that area.
Andy Zanelli is head of retirement planning, AXA Wealth
CGT EXEMPTION
IS IT RIGHT FOR EVERYONE?
Andy Zanelli, head of retirement planning at Axa Wealth, points out there are a number of questions that need to be asked when considering whether to utilise a CGT exemption and any selling and repurchasing that this involves. These can include:
• What is the size of the portfolio and the attitude to risk?
• In reality, does the client tend to invest in a favoured fund(s) for a number of years?
• Will a switch of funds fit with the client’s investment strategy?
• Will the client be happy to invest in a different fund(s)?
• How long will the investment be held in cash before it is reinvested?
• What will the charges be for purchasing any new funds?
