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The tax year end is traditionally a time for clients to extract profits from their investment portfolio within their unused annual capital gains tax allowance, currently £12,300. The clamour to do this may be even greater this year before the allowance is slashed to £6,000 and £3,000 over the next two tax years respectively.

Taking gains tax free before 5 April could mean savings of up to £2,460 for a higher rate taxpayer, and double this for couples. By 2024/25 this figure will reduce to just £600 a year.

When making last minute disposals to use up the allowance, here's a quick checklist of things clients should be aware of.

1. Creating the gain and share matching rules
   When disposing of shares or units, the gain will only stand provided the same shares are not repurchased on the same day or in the next 30 days. If repurchased within this time, the gain must be recalculated using the repurchase price as the ‘cost’ instead of the original cost (tax pool cost). Where there has been little movement in price between date of sale and date of repurchase, the result may be that the gain is negligible, and so the allowance wasted.
2. Remaining in the market
   The share matching rules can mean being out of the market for a particular share for 30 days. To avoid this, clients may consider the repurchase of the shares through their ISA or SIPP. In theory, shares can be sold and repurchased on the same day and the realised gain would be the proceeds less the original cost. Alternatively, the shares could be repurchased by the client’s spouse or civil partner, or even through a junior ISA for children or grandchildren to keep shares in the family.
3. How much allowance is available
   Some or all of the annual CGT allowance may already have been used on disposals earlier in the year. These could include the sale or gift of any asset owned by the client. The rebalancing of GIA portfolios may also have generated gains.
4. Transferring assets to spouse/civil partner
   If a client’s partner has not used their allowance, then investments with a gain can be transferred to them and then disposed of before 5 April. While the transfer between partners is technically a disposal, there is no gain on this transaction (commonly referred to as a no gain/no loss basis). This effectively means that the receiving partner receives the investments at the original cost.
5. The ‘pooled’ cost
   When making a disposal, the cost of the investments disposed of must be identified. Where there have been multiple purchases on separate dates, it's the average or ‘pooled cost’ of all the acquisitions which is used to determine the gain. If only disposing of part of a holding, then the same proportion of the pooled cost must be calculated to work out the gain - i.e. if the disposal amounts to 25% of the total value of the holding, then 25% of the cost pool must also be identified in order to work out the gain.
6. Additions to the cost pool
   The pooled cost is normally the sum of all amounts invested in a particular share or unit. This will include ad-hoc additions to purchase more shares as well as income distributions reinvested which will also purchase more shares. However, if accumulation shares are held, income is automatically reinvested but increases the value of each share – it's not used to purchase new shares or units. The amounts reinvested must therefore be identified and included in the cost pool which, ultimately, will reduce the gain made on their disposal.
7. Inherited shares
   Where a client inherits shares on the death of another individual, it's normally the value of those shares at the date of death that are included in the cost pool. If shares were jointly owned, then after one owner dies the cost pool will reflect the fact there has been a CGT free uplift on the first death. The acquisition cost will be 50% of the value at the date of death and 50% of the original cost.
8. Adviser fees
   It should also be noted that professional fees for advice relating to portfolio management or advice on markets are not allowable and should not be deducted from gains.
9. Equalisation payments
   New investments in shares or units made between distribution dates (but before the ‘ex-dividend’ date) entitles the investor to the full distribution at the next distribution date. However, because they have not been invested for the whole period over which the distribution has been earned, the cost of the purchase is reduced by an ‘equalisation payment’. This will be shown on the distribution certificate and is essentially a return of capital. To reflect this, the amount included in the tax pool is the amount invested less the equalisation payment.
10. Losses
    Capital gains and losses arising in the same tax year must be set-off against each other before the CGT allowance can be used. If losses wipe out gains, this means the allowance will be wasted. Therefore, to maximise the use of the allowance, gains must exceed losses by £12,300.
    
    Losses made in earlier tax years don't have to be used in the current tax year. Clients may elect to use some or all of these losses in the current tax year or continue to carry the loss forward to future years. This may be useful bearing in mind the cuts to the CGT allowance to come.

Further information

More detail with examples can be found in our guides on Techzone:

Tax year end guide to utilising the CGT annual exemption
CGT and share matching
Capital gains tax guide