For proportionate relief, the fund is considered to have sold the asset immediately before 1 July 2017 and repurchased it just after the sale.

“It’s this resale and repurchase that has the effect of resetting the cost base because when the fund sells the asset, it has the CGT consequence that reflects its existing tax treatment, [so] a capital gain on a segregated asset is disregarded and the capital gain on an unsegregated asset has an exempt proportion applied to it,” Ms Morgan said.

Therefore, when the fund repurchases the asset, it is a new CGT asset for the fund with a new cost base that will equal the asset’s market value.

“These mechanics mean there are some other factors that trustees should take into account when considering applying CGT relief,” Ms Morgan said.

“Firstly, if CGT relief is applied to an asset that a fund has held for more than 12 months, a resulting capital gain will qualify for the 33 and a third per cent discount.”

Conversely, because the asset becomes a new CGT asset, it must be held for at least 12 months after the date of the reset in order to qualify for the 33 and a third discount when the asset is disposed of.

Ms Morgan noted that because these assets are considered new assets, the indexation method is no longer available, even if the asset was originally acquired before 11.45am on 21 September 1999.

She said there are also some important practical details to take into account for proportionate funds applying the CGT relief where the fund is considering deferring the capital gain.

“Where a fund calculates the amount of the capital gain they are going to defer and the asset has been held for more than 12 months, they can apply the 33 and a third per cent discount. The fund also applies the exempt proportion to determine the proportion of the capital gain that does not qualify for ECPI,” Ms Morgan said.

“However, the fund cannot reduce the capital gain by any capital loses, either those from other CGT events throughout the 2016-17 year or capital loses carried forward from a previous income year. The effect of these points is that the amount that is deferred reflects the capital gain that would have actually been accessible in 2016-17 for that particular asset.”