There will be several things to be mindful of when making disposals:
1. Previous disposals
Gains (or losses) may have already been made when rebalancing portfolios or making disposals for other reasons, and these must be considered before making further disposals.
Where losses have been made in the current tax year, these must be set against any gains before applying the CGT allowance.
For example, if a client has gains of £20,000 and losses of £15,000 in the same tax year, £7,300 of CGT allowance will be wasted (£12,000–£5,000).
Further gains of £7,300 would therefore have to be crystallised to benefit from the full allowance.
If, however, the losses are brought forward from previous years, not all of those losses have to be used in the current year. In the example, had the £15,000 losses been made in earlier years, only £7,700 would need to be used in conjunction with the £12,300 allowance, enabling the remaining £7,300 of losses to be used to offset gains in future years together with the lower allowance.
2. Share matching rules
An individual may be forced to dispose of a favoured fund to create the gain needed to use up the CGT allowance.
Should they wish to repurchase the same fund, they will need to wait 30 days. If they buy back within this period, the gain will be recalculated by substituting the original cost with the repurchase cost, probably resulting in a smaller gain that does not fully utilise the CGT allowance.
It may not be acceptable for a client to be out of the market for 30 days, so there are some options to counter this.
They could buy back a similar fund, even switching back to their favoured fund after 30 days have passed.
Alternatively, the same fund could be repurchased via the client’s Isa or Sipp if this is possible with the provider, commonly referred to as a ‘bed and ISA’ or ‘bed and Sipp’ exercise.
Both of these are disposals for CGT, but repurchasing in this way does not trigger the share matching rules.
3. Using a partner’s allowance
Where a client’s spouse or civil partner has an unused CGT allowance, assets can be transferred between partners to potentially double the tax-free gains realised, up to £24,600 this year.
Transfers between partners are technically regarded as disposals, but without a gain occurring at the time of transfer (referred to as a ‘no gain, no loss’ basis). This means that the transferee receives the funds at the acquisition cost of the transferor, and a gain can be realised on subsequent sale.
