Funds of funds may gain from CGT rise

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Multi-manager vehicles and funds of funds could be the winners from a sharp rise in capital gains tax due to be imposed by the UK’s new Conservative-Liberal Democrat coalition government.

CGT, currently levied at a flat rate of 18 per cent, is scheduled to be raised to levels “similar or close to those applied to income” for non-business assets, suggesting rates as high as 40, or even 50, per cent.

Industry figures believe this could aid multi-manager and fund of fund products, which allow money to be switched between different underlying funds without triggering a tax charge, although gains are subject to CGT when an investor sells out of the product entirely.

The impending CGT rise is also likely to render obsolete the attempts by the wealth management industry to structure portfolios so they are subject to CGT, rather than income tax.

Patrick Connolly, head of communications at AWD Chase de Vere, said the reversal of this trend could benefit life insurance products such as investment bonds. Mick Gilligan, senior partner at broker Killik & Co, feared the move could undermine the case for zero dividend preference shares, which a number of investment trusts have recently created.

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