Praemium may introduce Australian technology to target CGT

Portfolio administration specialist Praemium says it is considering bringing new technology to the UK to help achieve tax efficiency under new capital gains tax (CGT) rules.

The Australian firm is looking to bring separately managed account (SMA) technology over to the UK, and claims it will allow investors to avoid the impact of the scrapping of taper and indexation relief.

‘Under the current rules you just hold onto it, and taper relief will help. But under the new regime, you need to rebase,’ said John Martin, Praemium’s sales director.

The Treasury’s plans will see a new 18% flat rate of CGT in April, and the ditching of taper relief, which reduced CGT according to how long an asset has been held.

Martin claimed that the SMA would allow investors to use up their annual CGT allowance by creating ‘tax events’ each time changes are made to stocks and shares holdings.

Investors with money in traditional funds would not be liable to CGT when stocks and shares change, but would pay CGT on gains made above their annual allowance when they take their money out of the fund, unlike investors with money in an SMA.

SMA investors have direct beneficial ownership of actual shares held by a fund rather than simply its units, and the SMA gets daily portfolio updates from fund managers.

Martin argued that by managing the money they put into an SMA so that they soak up their CGT allowance each year, investors can steal a march on those with money in traditional funds.

Investors in traditional funds who take their money out in one go would only be given CGT allowance for one year no matter the period over which they had made those gains, and so would be subject to a heftier tax bill, he argued.

‘If you don’t use your CGT allowance in one year, you’ve lost it,’ Martin added.