H&R Block director of tax communications, Mark Chapman told Nest Egg that while it is critical that investors never let tax influence their investment strategy or decisions, there are ways to dispose of shares while cutting down on CGT exposure.
He explained: “There's maybe one opportunity to maybe crystallise on some capital losses for some shares which should have fallen as a result of what's happened over the last few days.
“That can be particularly useful if earlier on in the year, while the market was going up you sold some shares and triggered some capital gains which would have to be reported on your tax return in July.”
Investors who have sold shares throughout the year and triggered capital gains due for reporting on tax returns after July could also dispose of shares “which have fallen through the floor”.
He said that by doing so, the loss-making shares would offset the profit-making shares and reduce the taxes payable.
But don’t be silly about it
“The big caveat,” he continued, “Is that you should never really allow tax to be the driving force in your investment strategy and it's definitely not something that you should do without talking to an investment adviser and getting some guidance because generally speaking, the worst possible sign to sell anything is in a panicked market like the one we have at the moment.
“You've got to be very careful of inopportunely shooting yourself in the foot if there's something slowing now which might come back again next week or next month or in six months’ time,” he said, labelling the tax opportunity a “cautious one”.
Mr Chapman’s advice comes in the wake of Monday’s Wall Street correction which saw the Dow Jones Industrial Average fall by 1,175 points. Recognised as the largest drop in six years, it followed a 666 point fall on Friday.