CGT Disposal or Deduction for Fund Fees

CGT Disposal or Deduction for Fund Fees

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A client has come to me asking about the CGT treatment of a fund they are interested in investing in.

The fund charges its management fee not by deducting from the NAV, but by redeeming a number of investor shares of value equal to the fee. The redemption proceeds are paid (directly) to the manager, not the investor.

The client is asking how best to treat this for CGT:

1) As a disposal for nil consideration - a loss and carried forward etc

2) As an allowable cost to be accounted for on an actual part or full disposal

3) As a disposal at market value and pay CGT on the gain (despite not receiving an amount to help fund the tax bill!)

My initial reaction is to treat the transaction in terms of its substance, as a normal fee, and thus as an allowable cost. In terms of the cash flow, it is the same as had the fund had been charged the fee under the usual deduction from NAV approach.

Anyone have experience here? Seems like an odd one

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