One effect of the proposed CGT changes:

If his proposal to increase the tax rate from 10pc to 18pc is left unchanged, Brewin Dolphin fears a flood of share sales before the start of the new tax year on April 5 that will artificially reduce prices.

A spokesman said: "If he confirms the changes, there will be a massive sell-off. AIM is illiquid and we feel there is a danger that this will concertina up into a very short period. It would be creating a false market as people sell out purely for tax reasons."

Brewin Dolphin, the largest private client adviser in the UK, has reviewed the 63 AIM companies for which it is corporate adviser, and found that "50pc of the shares are held by individuals who could be affected by the loss of taper relief". If the new CGT rules are confirmed, those investors would be "under pressure to crystallise gains this tax year".

Now there used to be a solution to this sort of thing, called "bed and breakfasting". You sold your stock to your broker in hte afternoon and bought it back at a pre-arranged price the next morning. You might pay a penny margin to him for the privilege. You thus crystalised your gains and or losses for CGT reasons.

I\’m a long way away in both time and distance from the details of the markets these days but I\’ve got the impression that you\’re not in fact allowed to do this these days. You can only crystalise such CGT positions by undertaking arms length transactions perhaps?

As I say, I\’m not sure about this, it\’s only an impression at the back of the brain somewhere. Bu if true it would be an interesting example of how one change has consequences further down the line.

5 thoughts on “Hmmm.”

  1. In most sensible economies you keep some shares for a couple of years and there’s no CGT. Same with properties in some places too. Not in the UK. Not only do you not get ANY relief for inflation, it doesn’t matter how long you keep an asset, you’ll still be robbed by the government. Who would invest in the UK?

  2. Bed and Breakfasting was effectively banned a few years ago. There are now arcane and complex rules concerning what does and doesn’t constitute the practice. The time period imposed between the sale and repurchase of the same shares is quite long IIRC.

  3. “Bed and Breakfasting was effectively banned a few years ago.”

    B&B was ineffectively banned a few years ago.

    Bed and Spousing works. You can use CFDs. You can move into a similar security (e.g. sell one FTSE tracker and buy another one).

  4. The CGT changes will also have the unintended consequence of damaging the life insurance investment bond industry (although many would argue that it should have been killed years ago).

    The Life Cos are up in arms about this, particularly as there was absolutely no indication that this was about to happen.

    What is more interesting about this is that HMRC will see a massive (£bns) fall in their tax revenues from Life companies if the investment bond market collapses.

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