Written on 17/11/2022

You’ve read the bad news – because you’ve read the tax news.  And the news is that your investment clients will now have to navigate a newly restrictive £3k CGT allowance.  

But that’s where the good news comes in.  This will trigger a boom in creative avoidance, and that’s where you the IFA come in.  Clients will need your advice more than ever before.  I speak as one who cut his IFA teeth buying a practice where the client bank was small business owners who had started saving in the 1970’s.  “With tax rates of 83% on income, it wasn’t exactly hard to persuade them to take out a pension” said my predecessor, who then explained how to extract 100% tax free lump sums at retirement by manipulating the last three years salary income prior to retirement.  

There is still a whole lot of tools available for you to present to customers. For instance even in the same budget announcement there was a statement that swapping non UK company shares for UK shares will no longer work as an avoidance tool.  (I never thought of that one!)  VCT’s, ISAs, pensions still are available, and just as the punitive rates on discretionary trusts led to a boom in family investment companies, (see so too the new CGT restrictions will lead to a higher advice requirement.  Quite possibly the tax take for HMRC will not actually increase at all for your clients.

And for mortgage brokers with B2L portfolio landlords, there will be a pivot away from selling property, towards income – and that preferably deferred by repairs until the tax climate improves.

First of all, you need to know the figures in order to advise.  While most platforms have CGT calculators, not all do, and there are always inaccuracies, particularly where in specie transfers set the start date, or other assets are held outside the platform.  The reality is that most clients enter March with no real idea of their potential liability that crystallizes on 5th April each year.  

An old director expert told me that before entering a board meeting, you should write the minutes of the meeting, as you would like them to be, and watch how little they then need changing thereafter.  Likewise, you should enter April with your tax return already completed in draft format, ready to actually submit nine months later in January.  So what tools are available for CGT checking?

IFACs research led me to Meridian Software. Not an online tool, but a desktop solution where you manually enter each trade in, and a subscription price feed provides the tax situation, either in arrears or for planning.  Easy enough to make a ticker mistake, and not all prices arrive on the price feed  (you may have to manually amend for the less common trades.)  But the final results are neatly presented for HMRC purposes and allow you to book meetings next March with the numbers in your hand from all assets.  You can even put your property portfolio into the application.  Everyone now needs to pay more attention to the Isa allowance, Pension allowance and start looking at VCTs and other exemption vehicles, and book meetings to help clients avoid tax.  Maybe your first call should be to a local accountants, to build a relationship. 

Secondly investors should pivot to income producing shares.  Or, even better, to non distributing “accumulation” ETFs.  The tax treatment of the income that remains reinvested within the ETF is obscure to say the least, and HRMC guidance is that savers should account for a notional income from the ETF, as income received, even though they never received that income directly – only as a share price gain as the ETF grows.  Since no ETF actually publishes the notional income per share, you must deduce this number, and you can easily see the opportunity there when completing the client tax return.  The reality is that the over-whelming majority who buy and sell these distribution class shares never enter this data onto their tax returns.  Well now is your chance.    

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