Back in 2017, we launched our automated Capital Gains Tax (CGT) allowance harvesting process with the aim of reducing the time it typically takes advisers to capture the permitted tax breaks for clients.
In the tax year 2020/21, the total amount of CGT savings was up by 184% compared to the first year the tool was used, reflecting the increasing number of our adviser partners using the process to add value to their clients.
For clients, it was a year of record gains, which reflects the positive market moves over the past twelve months.
The calculation for the total amount saved takes into account two areas: rebalances during the year and harvested before tax year-end. In the most recent year, the harvested amount represented almost half of the total.
Benefits for smaller investors as well as HNW
Because of the time-consuming nature of calculating and utilising CGT allowances, historically advisers have only tended to offer CGT harvesting to their high-net-worth (HNW) clients.
Being fully automated, the PortfolioMetrix CGT allowance harvesting process does all the analysis and trading for advisers, allowing them to focus on other time-consuming tax year-end tasks, safe in the knowledge the portfolios remain in line with the target asset allocation, whilst capturing more of their clients’ tax allowances.
The UK’s annual CGT allowance is generous vs most other countries. In 2021 it was £12,300 per person but it is a “use it or lose it” deal which means you can’t carry over your allowance if you don’t use it. While the complexities of the method are not high for a single investor, the ability to repeat the process for every client can be prohibitively time consuming, especially on an advisory basis. Some advisers attempt to tackle it manually but, because of the time it takes, many tend to put it low down on their list of priorities.
By using our tool, our adviser partners achieved an average of £6,000 gains per harvested client (harvest & rebalance gains) during the last tax year. For non-harvested clients, an average of £3,800 capital gains were realised through our usual rebalancing process during the year.
The gains highlight the significant benefits of using the harvesting process. It is most impactful for smaller investors who, ironically, tend not to be offered CGT harvesting as a service by most advisers. The savings they make in percentage terms can be enough to offset, or even completely cover, the costs of managing the client’s entire portfolio.
To find out more about how to offer CGT harvesting to more of your clients, take a look at our free guide, entitled CGT Allowance Harvesting: There is such a thing as a free lunch. You can download the guide here.