Is this the financial sector’s version of “rock, paper, scissors ” ..or “ik, ak, ok” as I used to say as a child when playing this game with friends many years ago.

Well, no..it was just the use of three words that brought the thought to mind. How juvenile!

But the three words that open this blog and their impact in relation to capital gains tax have been causing a bit of consternation to those engaged in the move to “clean” share classes.

The latest confusion may not have been helped by some HMRC guidance. They say :

“Will there be additional tax liability as a result of switching to “Clean” Share Classes

Under new regulations (SI 2013/1400) it is expected that it will be clear that switches to ‘clean’ share classes will not create a liability to capital gains tax.

Prior to 8 June 2013 most switches took place as part of a reorganisation or reconstruction and would also not create a liability to capital gains tax. The new regulations provide further clarification on the matter and widen the treatment to cover cases of switching that might not have fallen within the previous rules including switches undertaken on behalf of and at the instance of an individual investor.”

So what does this mean ? Well, its not so much the word that you use to describe the way in which you move to a clean share class but more what you actually do.

The draft regulations talk in terms of ‘exchange’, not switch and I ( having taken guidance from better people than me in the TC team) continue to think that anything involving a ‘sale’ is clearly not an exchange, reorganisation, reconstruction or conversion.

As we said in our Techlink bulletin on the subject:

“The key part of these regulations is that CGT will not arise where:

• An investor in a collective investment scheme exchanges his shares/units in a scheme for other shares/units in the scheme “of substantially the same value” and the scheme property and rights of investors (ignoring any changes as a result of a variation in management charges) are unaltered;
  or
  
• Where a scheme reorganises in a way that all investors in one or more unit/share class (or all classes) exchange their holdings for other shares/units in the scheme.

 The exchange is treated for CGT purposes as a share reorganisation under sections 127-131 of Taxation of Chargeable Gains Act 1992 – in effect the original base cost is carried across to the new holding and no disposal occurs.

 Note that the word used throughout the regulations is ‘exchange’, not ‘switch’. A switch – generally considered in terms of a sale and purchase – would not be covered by these regulations because the sale would be a disposal, even if the repurchase was of a different class of units/shares in the same fund.”

Of course if what is described as a “switch” is , in fact an exchange, with no sale and disposal , then it seems to me that there would be no CGT event.

You can source all your tax and financial planning answers , carry out accredited, automatically logged CPD and, if you are a financial adviser, access client and professional adviser communication content through Techlink.

Click here to access your free trial of Techlink Professional and/or Techlink Communicator if you are not already a subscriber.

You just can’t escape from tax as Parliament said to the Americans just around tea time.

I am writing this from Boston on the glorious 4th of July.

Over the past few days of walking around the City’s historic sites I have been reminded of the importance that tax plays in determining public sentiment. Now given what I do for a living it doesn’t take much to set the old tax antenna vibrating and I have been saturated in “tax alerts” in my time here. Tax certainly played a pretty big part in driving the events that led to American independence with the signing of the Treaty of Paris in 1783. Although not the only factor leading to revolution the series of taxing acts, including the Stamp Act, the Tea Act and the Townshend Acts, were significant in building anti-English sentiment to a fever pitch. The media, it seems, also did its fair share to fan the flames of indignation and revolution.

England needed the money to repair public finances seriously damaged by the 7 years war and America resented having to pay tax to and buy tea from a country where they had no direct representation in parliament.

And the rest is history… So to speak.

And although history isn’t exactly repeating itself in the same way or to the same extent, some of the key components in the time leading up to revolution are at play now in many countries and especially in the UK.

There’s certainly tax inspired resentment. The key difference in relation to taxation and public sentiment in the UK right now is that, back in 18th century America, the resentment was directed at the British Government seeking to raise the tax whereas in 21st Century Britain the (Government, Public Accounts Committee and media inspired and supported) resentment is aimed at those who are perceived not to be paying their fair share in these straightened times.

So the same public indignation, just directed at a different target.

And there’s also a strong Government motivation to tax to repair public finances (due to the effects of the financial meltdown, as opposed to the 7 years war)… and to be seen to be doing something to assuage public indignation. The take away points for financial advisers is that people care about tax and that the Zeitgeist in relation to tax avoidance and even tax planning has changed – possibly for ever, at least for “the foreseeable”.

This means that it’s pretty much compulsory to know about tax, what can and can’t be done to legitimately pay as little of it as possible.

Being “knowledgeably tax proactive” with your clients should be an investment that yields a pretty decent return – for you and your client.

Enough of the history already!

Right, time for tea.

Happy Fourth!

Tony Wickenden

You can source all your tax and financial planning answers , carry out accredited, automatically logged CPD and, if you are a financial adviser, access client and professional adviser communication content through Techlink.

Click here to access your free trial of Techlink Professional and/or Techlink Communicator if you are not already a subscriber.