It only works if the investor has not yet cashed in gains up to the annual limit, which goes up from pounds 6,000 in the current year to pounds 6,300 in 1996- 97, but the investor has made gains that are likely to exceed the annual allowance when they are eventually taken.
If so, it can pay to sell assets to crystallise gains up to the limit in the current financial year and to buy back the assets as soon as trading resumes in the next financial year.
Investors pay the cost of buying and reselling the shares but that establishes a new base price for the assets and reduces the size of the gain on which you may eventually be taxed.
Two points are worth remembering. CGT is due only on the difference between the purchase cost and the sale proceeds, so a disposal at pounds 20,000 is not liable if you paid more than pounds 14,000, but a sale at pounds 12,000 is liable if the cost was under pounds 6,000. And if you trigger liability to CGT, only the excess over the pounds 6,000 threshold is taxable.
Realised gains can also be scaled down by diluting the nominal profit by the rise in the retail price index since the assets were acquired, or a base date of 1982 if they had been held before then.
Bed and Breakfasting is unlikely to be relevant to small investors who are unlikely to want to cash in their entire holdings in one go. It could, however, be worth considering if there is a possibility you may have to realise an entire small portfolio of privatisation stocks in any one year - to cope with a sudden redundancy, for example - in which case a bill for CGT would add insult to injury.
Small investors could also be interested in a new version of Bed and Breakfast, known as Bed and PEP, which allows anyone holding shares outside a PEP to sell them and immediately buy them back inside a PEP wrapper where they will become tax-free. Some brokers are offering special cheap deals to do the deed.