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Gainful employment

OK, so October is not usually the time you are reminded about capital gains tax planning. However, all plans need to be fully considered before implementation. Now is the time to plan the things you need to mention to clients over the next six months.


Where clients purchase a second property, they must remember to elect which property is to be treated as their main residence. The time limit is two years from the date the second property is purchased. If a further property is bought, another claim should be made within two years.

The property chosen to be the main residence can seriously affect their liability to tax in the future. If a property is at any time elected to be their main residence, several reliefs are potentially available:

•Main residence relief for some or all of the time the property is owned, with extra add-ons such as the last three years of ownership. The total gain is apportioned between an exempt and a non-exempt sum.

•Let property relief. Even though this relief is restricted to the lesser of £40,000 and the gain that would otherwise be exempt (the main residence proportion), it all adds up to a tax saving.

Remember that, for a period of time to be treated as a period of absence, the property must have been the main residence both before and after the time claimed.

It is no good thinking of these rules only when a property is about to be sold. You need to constantly review the position as regards the current tax rules and maximise the benefit to your clients throughout the time they own property.


Remember that gifts are generally treated as disposals for CGT purposes. Although clients do not get anything in return for gifting a son or daughter a portfolio of Oeics, they may have triggered a CGT charge. The only exception to this is gifts between husband and wife.

The recipient spouse is deemed to acquire the asset at the original purchase price plus indexation allowance (where applicable) and allowable expenses. No gain or loss occurs and the gain on subsequent disposal is calculated from that point on.

Why transfer to a spouse? Your client may want to take advantage of both annual CGT exemptions. It may also be a way of utilising losses more tax-efficiently. In addition, the spouse may pay tax at a lower rate – the rates applicable to CGT are 10, 20 or 40 per cent depending on what tax bracket they find themselves in.

Take care, however. Once assets are transferred, they belong to the recipient and the original no longer has control over them.

Taper relief

Maximising taper relief should be a priority of every tax planner. Maximum relief is available after a business asset has been held for two years and a non-business asset for 10 years.

Remember that the Inland Revenue treats every transaction as a separate event for taper relief purposes. The purchase of units in an Oeic on a regular basis means that the appropriate level of relief is calculated for each transaction. If your client only sells some units, they need to know which ones have been sold. The general rule is last in, first out. The consequence of this is that if you sell a proportion of units purchased over, say, a 10-year period, the gain on some of those units will not qualify for relief or at most qualify for only some relief (see example left).

Modified bed and breakfasting

Bed and breakfasting as such is no longer with us unless the sale and repurchase are done with at least a 31-day period between them. However, we also know that it is good practice to use someone&#39s annual exemption on a regular basis to trigger gains and rebase the investment for the future. It is important to remember, however, that triggering gains and rebasing means you stop the clock and restart it for taper relief for those investments.

The good news is that if, as in the above example, you only encash some units in a regular-savings Oeic, the earlier units are left intact, maintaining and increasing the period held for taper relief purposes.


Death is a wonderful tax planning move from a CGT point of view as, in general, assets assessable to CGT are rebased on death and the inheritor&#39s deemed acquisition cost is the probate value.

Be careful when doing inheritance tax planning as some gifts planned to reduce IHT if the donor survives for seven years may trigger an immediate CGT charge. The worst scenario is when a gift is made, triggering a CGT charge, and the client then dies within seven years, also triggering an IHT charge.

All in all, CGT is a complicated issue. If you are advising on investments that are assessable to CGT, it would be wise to become comfortable with at least the basic rules that could affect your clients. Above all, refer to an expert if you are out of your depth.


Anne invests £1,000 in March each year in a single Oeic, buying units as follows:

2001 £1,000 buys 500 units

2002 £1,000 buys 600 units

2003 £1,000 buys 550 units

2004 £1,000 buys 450 units

2005 £1,000 buys 425 units

2006 £1,000 buys 430 units

2007 £1,000 buys 400 units

2008 £1,000 buys 375 units

2009 £1,000 buys 350 units

2010 £1,000 buys 300 units

2011 £1,000 buys 250 units

(As you can see from the above, I am ever hopeful that times will get better.)

In April 2012, Anne sells 1,000 units. She expects to get maximum taper relief as she bought 500 units 11 years ago and a further 600 10 years ago. Unfortunately, the last in, first out rule kicks in, so the 1,000 units encashed are deemed to be:

•250 units bought in 2011 – no taper relief (owned for one year)

•300 units bought in 2010 – no taper relief (owned for two years)

•350 units bought in 2009 – 5 per cent taper relief (owned for three years)

•100 units bought in 2008 – 10 per cent taper relief (owned for four years)

Although Anne will get some taper relief, it will not be as much as she thought.

Helpful hints

Consider buying units in Oeics or unit trusts in multiple short-period chunks where entering into a regular-savings contract. That way, each chunk is looked at separately and the most favourable can be cashed in whenever funds are required.

If a client buys to let, it could be advisable to claim the new property as their main residence. Remember, however, that they cannot revert back to their initial residence as their main residence unless, for example, they buy another property.

Now is quite a good time to make gifts that are potentially chargeable to CGT as their value in some cases may be quite low because of current market conditions. By making the gifts now, the recipient or trust can benefit from the increases in value if and when the market recovers.


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