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Newsletter  16/02/2016

Cornelian launch new Capital Gains Tax Allowance Management Service

Cornelian Asset Managers announce the launch of their Capital Gains Tax Allowance Management Service available for private clients and trusts (where applicable) who hold shares in their Open-Ended Investment Company (OEIC) fund range invested under a discretionary investment mandate.

At Cornelian, we recognise that prudent portfolio management is not solely about picking the correct investments to generate attractive returns for our clients. We understand that actions taken within portfolios may well have a bearing on the amount of tax that a private client and also certain types of trust are liable for at points in the future. 

Prior to exploring what the new service offers, it is worthwhile reiterating some of the other tax advantages an investment into one of our OEIC funds has over a traditional portfolio containing direct holdings. Firstly, management fees can be deducted within the fund, meaning there is no VAT applicable on this element of the charging structure. Perhaps the biggest advantage, though, is that any trading we undertake within the fund does not constitute a capital event for fund shareholders. It means investment decisions are unconstrained by tax considerations and consequently this offers us maximum ability to enhance investment performance. 

...any trading we undertake within the fund does not constitute a capital event for fund shareholders. It means investment decisions are unconstrained by tax considerations and consequently this offers us maximum ability to enhance investment performance. 

The other side of the coin is that simply allowing the investment value to grow within the fund can result in a significant unrealised capital gains position building. Upon eventual encashment of shares in the fund, a capital gains tax liability will likely arise. This liability will be a function of the growth in value of the holding since it was purchased, the amount invested and the client’s tax banding.

Enter the Capital Gains Tax Allowance Management offering. Where applicable, clients investing through our OEIC funds under a discretionary mandate now have the opportunity to ‘opt in’ to allow us to utilise as much as possible of their annual capital gains tax allowance. The allowance – currently £11,100 for an individual in the 2015/16 tax year – cannot be carried forward into future tax years and thus it is tax efficient to realise gains where possible each year.

Clearly we wish to avoid any out of the market risk for our clients, thus we will not simply be selling down OEIC fund shares for cash to utilise the allowance. Instead, the proceeds of the sale to realise capital gains will generally be deployed into other Cornelian funds such that the client remains invested throughout. After a period of at least 30 days, in compliance with HMRC rules, we can then switch back into the original fund. Clients should note that the service has been designed to ensure their exposure to investment risk does not increase beyond their mandated level during the exercise.

Should you be a client investing with us through one of our OEIC funds and you wish to know more about the Capital Gains Tax Allowance Management Service, please do get in touch with your Investment Manager.

Clients with discretionary portfolios of direct holdings should not feel left out! We do try to use capital gains tax allowances as a matter of course for such clients where allowed and likely do so anyway as a consequence of portfolio management throughout the tax year. Where possible, we can also perform trades to realise any loss-making positions at the end of the tax year to mitigate any capital gains tax liability. Please do get in touch with your investment manager should you wish to explore the options available to you in this respect.

Should clients have any doubt about their tax position, they should consult their tax adviser. We at Cornelian are purely discretionary investment managers and as such, cannot provide tax advice.

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Stephen Ritchie
Senior Investment Manager

David Appleton

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Happy Birthday ISA!

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