Slash CGT with these clever B&B alternatives!

Tax-saving strategies have long been a topic of interest among investors. A recurring question from a reader about ‘bed and breakfasting’ reignites a discussion around this once-popular technique aimed at reducing capital gains tax (CGT). In the past, bed and breakfasting involved selling shares to realize a capital gain and then repurchasing them to reset the cost base and offset future tax liabilities. However, changes in tax regulations have made this strategy obsolete.

The Evolution of Bed and Breakfasting

1. History of Bed and Breakfasting:
   • Bed and breakfasting was a clever strategy to defuse CGT liabilities by selling and repurchasing shares.
   • Investors often engaged in bed and breakfasting at the end of the tax year to utilize their CGT allowance effectively.
2. Demise of Bed and Breakfasting:
   • Tighter regulations now necessitate a 30-day gap between selling and repurchasing shares to crystalize CGT gains.
   • The reduced CGT allowance and advent of tax-efficient vehicles like ISAs have diminished the appeal of bed and breakfasting.

Alternatives to Bed and Breakfasting

• Bed and ISA: A strategy to sell shares outside an ISA and repurchase them within the tax-free wrapper.
• Bed and SIPP, Bed and SpreadBet: Exploring other tax-efficient investment vehicles to manage CGT liabilities effectively.
• Bed and Spousing, Give and Take, Bed Hopping: Leveraging marital arrangements, gifts, and diversified investments to mitigate CGT exposure.
• Bed Down for a Month: Cycling profits from winning assets into index trackers to manage tax liabilities.

Conclusion

While bed and breakfasting may be a thing of the past, investors can explore alternative strategies to minimize CGT liabilities effectively. By utilizing tax-efficient vehicles like ISAs and pensions, investors can shield their investments from CGT and build substantial tax-sheltered portfolios. While navigating the nuances of tax-saving strategies can be complex, staying informed and proactive can help investors preserve their returns and wealth over time. Remember, prudent tax planning is essential for long-term financial success.