Money: Make the most of shares
Sunday 02 August 1998
Despite the fact that I have shareholdings in 10 different companies, I still feel fairly green when it comes to shares. My portfolio started in the Eighties, when I subscribed for privatisation shares. Also, I seem to have been in the right place at the right time to benefit from various demutualisations, including Abbey National. I'd now like to cash in some of these investments. Does the new 10-year rule on capital gains tax make it easier?
What you refer to as the new 10-year rule does not apply to your shareholdings just yet. A new capital gains "taper relief" was announced in the March Budget. The principle behind the relief is that the longer you hold an asset (such as shares), the lower your tax bill will be when you sell or otherwise dispose of the asset. For your shares (and other non-business assets) you will be charged only 95 per cent of the full rate of capital gains tax if you dispose of them after holding them for three complete years. The rate of tax then decreases in stages until you get full taper relief on assets held for 10 complete years. You will only pay 60 per cent of the full tax bill on shares held for 10 or more years. In practice, the relief is not quite as simple as this. It throws up complications which the small print should sort out.
In any case, it will not apply to sales of shares you make in the near future. The relief is based on the number of complete years you hold an asset after 5 April 1998. An exception applies to assets held before 17 March 1998. An extra year is added to these assets, so you will already have clocked up one year for shares held before 17 March but you will need to keep them for another two years from 5 April this year before you can get taper relief. That makes 6 April 2000 the earliest date on which you can sell your shares and get some taper relief.
Nevertheless, you may already be able to cash in a reasonable chunk of your shares without incurring a tax bill. You do this by making use of the tax exemption on annual capital gains tax. You can make pounds 6,800-worth of chargeable gains in the current tax year (from 6 April 1998 to 5 April 1999) without paying tax. Then you will be able to make more tax-free chargeable gains next year.
The key word is chargeable. Not all the cash you get from selling your shares is chargeable. First, you deduct from the sales proceeds the cost of buying the shares (what you paid for the privatisation shares, and nothing in the case of demutualisation shares). You also take off your indexation allowance, which increases your buying costs in line with inflation until April 1998. (It takes no account of inflation after April 1998 because the taper system is being introduced.) For example, between April 1982 and April 1998 the retail price index doubled. Let us say you bought some shares for pounds 1,000 back in April 1982. When you sell those shares, you will be able to deduct the pounds 1,000 buying cost and an indexation allowance of pounds 1,000 from the sale proceeds. What is left will be your chargeable gain, but the first pounds 6,800 of all chargeable gains will be tax free. Get leaflet CGT14, "Capital Gains Tax: An Introduction" from your tax office for more details.
I am 26 and work for a small business. There is no pension scheme. I won't be working here forever and may one day have a job where I'll be able to join a company pension scheme. Is it worth taking out a personal pension in the meantime?
Some advisers say you are never too young to start your pension. If you can afford to make pension contributions in your 20s you probably should. You can never foresee what may happen that may make paying into a pension difficult for you later on. The earlier you start, the more your money grows.
As a general rule, those who have the chance to join an employer's scheme should do so. Unfortunately, many people join company schemes after they have been paying into a personal plan and then find the personal plan is virtually worthless. (You cannot join a company pension and keep paying into a personal scheme.) So choose a personal pension with care. Go for one with maximum flexibility in terms of contribution levels and retirement date. Single-premium plans carry less risk of penalties or ongoing charges whittling away at your fund than regular premium policies, which demand ongoing commitment.
Compare the (theoretical) transfer values of different personal pensions in future years. You may be able to transfer that money to an employer's scheme at some point in the future. Also, check whether you would be able to convert the personal pension into a free-standing additional voluntary contributions scheme (FSAVC), a pension top-up, in the future. If you can, then you could carry on paying into the plan after you have joined a company scheme.
Has a final decision ever been made on the rights of Halifax account holders with overseas addresses to get free shares?
MANY overseas members did get windfall shares last year when the former building society became a bank. But Halifax said it was unable to distribute free shares to people in certain countries for legal and other reasons. As far as Halifax is concerned, the matter is settled.
However, a group of aggrieved overseas account holders is pursuing a class action. The case is being handled by the solicitor Jeffrey Goldberg, who can be contacted at Cranswick Watson Solicitors, 7 Greek Street, Leeds LS1 5RR.
At present, Mr Goldberg is waiting for a barrister's opinion on the merits of the case and on how to pursue it.
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