View more on these topics

Paul Kennedy: CGT and the platform sunset clause


In April, platforms were banned from receiving payments from fund managers on new business. From April 2016, they will additionally be banned from receiving payments on all historical business.

With this ongoing move to explicit platform charges across the board, there has been and will continue to be an inevitable movement of the investor from a higher annual management charge or bundled classes into a corresponding lower AMC or clean share classes.

With this so-called platform sunset clause just over a year away, it seems a suitable time to take stock of the capital gains tax rules apposite to this industry transition.

First, the rules on moving to a different share of the same fund. Shifting bundled share classes to clean classes can be achieved by switching (that is, a concurrent instruction to sell then buy) or by share class conversion, which is effectively an internal change on the register. Where exchange is undertaken at the behest of the investor through a switch process, it must involve only a single conjoined instruction from the investor and there must be no interval between the sell and buy events beyond the minimum ordinarily necessary to achieve the transactions.

In June 2013, new section 103F was added to the Taxation of Chargeable Gains Act 1992 to put the matter on a statutory footing. In essence, where the same investor in the same capacity exchanges units or shares of one class of a fund for units or
shares of another class of the same fund, it will generally be treated as a share reorganisation. Accordingly, it is not a disposal for the purposes of CGT and the acquisition cost from the old share class is rolled over to the new holding. 

This will apply to most exchanges between different AMC share classes of the same fund and/or exchanges between accumulation and income classes of the same fund.

It is, however, a requirement that the fund assets and the investor’s rights to share in capital and income of those assets are the same immediately before and after the exchange (ignoring any changes as a result of a variation in management charges). Therefore, exchanges that involve some change in fund assets or investor rights, such as switching from an unhedged class to a hedged class (or vice versa), are treated as disposals.

Should an investor hold both bundled share classes and clean share classes of the same fund at the same time, we need to consider the pooling rules and 30-day buy-back or bed-and-breakfast rules.

Shares are only pooled (in a section 104 pool) where they are shares of the same class. Accordingly, the bundled and clean are not averaged together but are treated as two separate holdings and do not form a single s104 pool. This dovetails into the bed-and-breakfast rules, which means, technically, the disposal sale of a bundled share class with a subsequent repurchase of the clean class – say, 21 days later – does not trigger the rules.

So it is impossible to operate the bed-and-breakfast rules where you have differing share classes with differing prices. In truth, it is a CGT anomaly thrown up by the RDR.

Finally, however, we come to what was always likely to be a negative outcome of the RDR and the transition to explicit charging. 

Previously, commission was paid by the fund manager. In essence, the investor paid a higher charge for the product, with the provider then ceding a part. This had the advantage of keeping things outside the client’s own tax affairs.

Nowadays, where the fees are facilitated from underlying collective investments, the investor is in fact cashing investments to meet a fee, which brings direct tax consequences. 

Unfortunately, CGT is not particularly forgiving when it comes to offsetting adviser fees against taxable gains. Fees paid to an adviser are deductible only to the extent they are directly referable to the cost of acquiring or disposing of an investment. To the extent they relate to financial planning, advice about markets or the prospects of particular forms of investment or the management of a portfolio, they are not allowable. 

Paul Kennedy is head of tax and trust planning at Fidelity FundsNetwork 



Brian Tora: What to expect from post-QE markets

Volatility has slowed in the last couple of weeks and a modest recovery has been achieved. Sentiment remains fragile, however, with little sign of resolution in any of the world’s trouble spots. Those days when it felt as though the FTSE could break above the peak of December 1999 seem a long time ago. Will […]


Labour makes fresh push to force annuitants to use independent broker

Labour has failed in a fresh push to ensure everyone buying an annuity must speak to an independent annuity broker. In an amendment to the Pension Schemes Bill, shadow pensions minister Gregg McClymont said no provider should be able to sell an annuity unless there is the express recommendation of an independent broker. Labour first […]


RDR accelerates drop in self-employed pensions

The banning of adviser commission has accelerated the decline in the number of self-employed workers saving for a pension, say experts. Figures published by the Office for National Statistics last week revealed self-employed workers are rapidly abandoning pensions. Less than a quarter of self-employed men are contributing to a personal pension – down 40 percentage […]

Tiller-David-Standard Life-700

Standard Life warns of post-Budget drawdown capacity crunch

Standard Life is warning of a capacity crunch in income drawdown next year as it estimates a third of consumers will opt to access their pension that way. Following the pension freedoms announced in the Budget, the provider says there will be a five-fold increase in the number of people choosing income drawdown from next […]

Europe: Volatile share prices create opportunities for long-term investors

Mark Page and Laurent Millet, managers of the Artemis European Opportunities Fund, look at why, how and where fluctuations in European markets can generate opportunities for their fund. When asked what the stock market would do next, John Pierpont Morgan is reported to have replied that “it will fluctuate”. His (apocryphal) answer proved accurate. Over […]


News and expert analysis straight to your inbox

Sign up


    Leave a comment


    Why register with Money Marketing ?

    Providing trusted insight for professional advisers.  Since 1985 Money Marketing has helped promote and analyse the financial adviser community in the UK and continues to be the trusted industry brand for independent insight and advice.

    News & analysis delivered directly to your inbox
    Register today to receive our range of news alerts including daily and weekly briefings

    Money Marketing Events
    Be the first to hear about our industry leading conferences, awards, roundtables and more.

    Research and insight
    Take part in and see the results of Money Marketing's flagship investigations into industry trends.

    Have your say
    Only registered users can post comments. As the voice of the adviser community, our content generates robust debate. Sign up today and make your voice heard.

    Register now

    Having problems?

    Contact us on +44 (0)20 7292 3712

    Lines are open Monday to Friday 9:00am -5.00pm