For the past two decades, my wife and I have been investors in the Stewart Investors Worldwide Leaders Fund, managed by First Sentier. This fund has consistently performed well, with our shares recently valued at approximately £60,000.
However, like many investment vehicles, the fund suffered a setback following the onset of conflict in Iran. Our strategy has been to gradually withdraw from our investment, aiming to sell £6,000 worth of shares annually. This approach helps us remain within the capital gains tax allowance, which is £3,000 per person each year. We typically wait for favorable market conditions before making any sales.
For the financial year 2026/27, our plan was to hold off until the market rebounded before selling another £6,000 worth of shares. However, we were recently informed by First Sentier that they intend to close the fund.
The plan was for my wife and I to gradually cash in our investment by £6,000 each year in order to avoid capital gains tax – a £3,000 allowance each every year. We usually wait until the valuation is high before selling.
For the 2026/27 financial year, our plan was to hold fire until the market improved and sell £6,000 worth of shares.
However, we recently received a letter from First Sentier advising of its intention to close the fund.
We are now left in a position of having to withdraw our shares when the value is reduced, and will be liable for a fairly substantial CGT bill, through no fault of our own.
Is there anyway to avoid this CGT liability by reinvesting funds, or do we have no choice but to pay. We do not have any capital losses which could offset this bill.
Rob Morgan: It is irksome that CGT takes no account of how long an asset’s been held
Tanya Jefferies, of This is Money, replies: This is a significant tax blow when you are sitting on sizeable gains after a successful long-term investment in the Stewart Investors Worldwide Leaders Fund.
There are ways to mitigate the amount you owe the taxman to at least some extent, according to the investing experts we consulted.
But the viability of the various options depends on your wider financial situation, and whether you are prepared to use risky Enterprise Investment Schemes to defer the bill.
If you have not already got a financial adviser or a wealth manager, it is worth looking for one who could give you more personal insights on the most suitable approach.
You don’t say what other investments you hold, but even though you have unarguably done well with this fund, it is always worth diversifying your portfolio to avoid coming unstuck in ways you might not expect.
Rob Morgan, chief analyst at Charles Stanley Direct, replies: It’s such a shame your longstanding loyalty has led to a tax liability, which sadly looks inevitable.
Sometimes in cases like this an investment company can offer a rollover into an alternative fund that’s not deemed a disposal for capital gains tax purposes.
For them, they retain assets while shutting down an unviable product. For the investor, the base cost carries across and CGT can continue to be managed by selling the new fund gradually.
Yet, from the shareholder letter for this investment, dated 26 March, there doesn’t appear to be any rollover option.
So, it would seem a disposal for CGT purposes would occur on closure for holdings held outside tax-efficient wrappers such as Isas or a Self-Invested Personal Pension (Sipp).
One option offered, switching into another fund from the firm, as opposed to a different share class in the same sub-fund, would also be considered a disposal.
It is irksome that, since taper relief was abolished in 2008, CGT takes no account of how long an asset’s been held.
Even gains that simply peg inflation can be taxed.
While the rules are simpler, rates of CGT have increased and the annual allowance – the gains you can realise tax-free – has been whittled away, from £12,300 in 2020/21 to just £3,000 from 2024/25.
Rates of CGT are 18 per cent for basic-rate taxpayers on gains above the £3,000 tax-free allowance, and 24 per cent higher-rate on gains over the basic rate band.
Your level of income for the tax year will be a determining factor. If there’s any flexibility to reduce taxable income this tax year, for example by drawing less from a pension, this could reduce your liability.
It may also be helpful to clarify that the £3,000 allowance applies to the amount of profit realised each year, not the amount encashed.
So, you could each encash significantly more than £3,000 tax-free each year, unless your base cost was very low.
Pension contributions could help a little if you can engineer more of the gain to fall into the basic rate. It would require you to be under 75 with relevant earnings, though.
Transferring ownership of the fund to whoever has a lower income is another possibility, as transfers between spouses are not treated as disposals.
CGT deferral through Enterprise Investment Schemes could be considered too.
Locking money away in a more complex, risky, product like this would require specialist advice to ensure it is appropriate for you, though.
Sadly, I fear there is no neat way out of this enforced tax conundrum. You can’t avoid this liability outright; but there are limited mitigation options with the right advice.
Dan Boardman-Weston: It is important not to let the tax tail wag the investment dog — avoiding tax should not come at the expense of taking inappropriate investment risk
Dan Boardman-Weston, chief executive at BRI Wealth Management, replies: The Stewart Investors Worldwide Leaders Fund has performed exceptionally well over the last 20 years, increasing in value by roughly five times.
Based on the figures you’ve provided, it appears you are sitting on a gain of approximately £48,000.
With combined annual CGT allowances of £6,000 between you, this would likely leave a taxable gain of around £42,000, resulting in a capital gains tax liability in the region of £7,500–£10,000, depending on your respective income tax brackets.
Unfortunately, there does not appear to be any sensible or straightforward way to avoid or materially reduce the tax liability.
It is understandably frustrating that the fund is being closed on the basis that it is ‘no longer commercially viable‘, effectively forcing investors into crystallising gains and creating a substantial tax bill through no fault of their own.
There are specialist investment schemes, such as Enterprise Investment Schemes (EIS), which can provide CGT deferral relief.
However, these investments are highly specialised, illiquid, and considerably higher risk, making them unsuitable for most investors. It is also important not to let the tax tail wag the investment dog – avoiding tax should not come at the expense of taking inappropriate investment risk.
Although you mentioned that you do not currently have any capital losses available to offset the gain, there is at least some flexibility in timing.
As the gain is likely to be crystallised near the beginning of the tax year, if you hold other investments outside Isas or pensions which subsequently fall in value during the year, you could choose to realise those losses and use them to offset part of the CGT arising from the Stewart fund disposal.
You have still achieved a substantial profit, and you now have the opportunity to identify another successful investment for the next 20 years
The good news is that the Stewart fund has already recovered from most of the market weakness seen over the past couple of months and is now trading within roughly 2 per cent of its all-time high.
In other words, you are not being forced to sell at a particularly depressed valuation.
It is also worth remembering that the CGT itself would not normally be payable until January 2028, giving you roughly 18 months during which the money that will eventually be used to pay the tax can remain invested or earn interest in a bank account.
Overall, you have done extremely well from this investment. However, it is a useful reminder of the importance of diversification.
Going forward, it may be sensible to spread investments across multiple funds with different investment styles, managers, and mandates, particularly when reinvesting the roughly £50,000 of net proceeds from the Stewart fund.
It is undoubtedly a frustrating position to find yourselves in, but the reality is that you have still achieved a substantial profit, and you now have the opportunity to identify another successful investment for the next 20 years.
