Capital gains tax is widely regarded as one of the most complicated (and
unfair) taxes levied on UK investors.
The previous system of indexation allowances and pre- and post-March 1982
asset “pools” could confound all but the most gifted mathematicians,
especially if your clients held equities that were subject to rights or
The latest so-called simplification to the CGT system is the introduction
of taper relief. This system reduces the tax paid on capital gains
depending on how long an asset is held. However, for assets held before
April 6, 1998, CGT calculations will have to use bothsystems to establish
the tax liability.
The latest system now includes two forms of taper relief – one for
personal assets and one for business assets. The 2000 Budget has introduced
the following changes for UK investors:
1.4 per cent increase in annual allowance (£7,200for 2000/01), lower
than the rate of inflation.
10 per cent rate of tax introduced for capital gains,consistent with
changes to savings income.
Business asset taper relief reduced from 10 tofour years.
Reclassification of certain shares held in companiesas business assets
(especially for SAYE and executive share-option schemes).
If all this seems rather involved, don't worry, there is more to come.
With self-assessment, it is now incumbent on your clients to ensure they
have calculated their capital gains tax correctly and not fallen foul of
the regulations, making sure they do not miss the deadlines for payment.
In addition, the Inland Revenue has done away with the practice of bed and
If you are still not put off, your clients should ensure they seek
appropriate advice from you, their financial adviser, and possibly from an
accountant while making sure they keep a record of each purchase, sale,
dividend or income payment and, indeed, anything else that happens with
their assets. This will ensure they can account for everything to the
Inland Revenue, especially now self-assessment is fully operational and the
Revenue has more time to look into private investors' tax affairs.
Is there another option?
A simpler, more tax-efficient solution for you and your clients may be an
offshore portfolio bond.
There is no CGT to pay on gains within the bond and when the bond is
encashed any gains are accounted for inyour clients' income tax
Is this too good to be true? No, you can change the split and spread of
your collective investments within a portfolio bond without triggering a
capital gains tax charge.
Additionally, the favourable treatment of the portfolio bond means that
your clients can withdraw up to 5 per cent of their initial investment each
year with no further tax to pay for at least 20 years and, in some cases,
with appropriate tax and trust planning, this could bedeferred
Give your savings a holiday from the taxman.
Given the choice, would your clients rather pay tax now, or have the
benefit of their entire investment growing with the aim of enhancing their
future returns? Many people when faced with this question would rather wait
until they absolutely had to before paying tax.
Tax could be deferred until your client retires, perhaps becoming a
basic-rate taxpayer. They may choose to move abroad (either permanently or
temporarily) when they retire and they may become subject to a different
andpossibly more favourable tax regime.