Published Wed, 06 Jun 2018 10:00:40 on Interactive Investor
Our regular income portfolio of investment trusts has posted total returns of 9% since inception last April, despite a 'hairy start to the year' which has seen nine holdings in negative territory since our last update. James Brumwell, who is managing the portfolio, has been tinkering to take advantage of capital gains allowances before the end of the tax year.
A common tactic used by professional investors is to 'bed and breakfast' investments. This refers to the sale of a particular holding that is then bought back almost immediately; it can work well for investments which have performed strongly. This strategy means it's possible to crystallise gains without paying tax on them.Bed and breakfasting
For example, if you had an investment which grew 10% from £10,000 to £11,000 in a year, you would have made a £1,000 gain, which is well within your annual capital gains allowance of £11,700.
But if you held that investment for 10 years and it grew by 10% each year, you would have seen your £10,000 grow to £27,070. While that's a fantastic gain of £17,070, if you sold that holding in one trade you would have to pay CGT on the £5,370 over your annual allowance.
Bed and breakfasting allows you to sidestep this by crystallising smaller gains each year. A 30-day rule makes it slightly trickier, as investors adopting this strategy have to wait for a month before they can repurchase their... Read more