The Account Liquidation Annually preference sets the default for the Annual Percent Gains Realised field, an option available for unwrapped investments.
Annual Percent Gains Realised is an optional setting designed to help model the regular annual sale of holdings within an unwrapped investment (e.g. OEICs, unit trusts, equity holdings, stocks and shares, non-registered accounts) without the withdrawal of any funds from the investment. Of the gains accrued annually within the account, what percentage of these are to be deemed as realised and therefore potentially taxable? Gains realised for the year are then added to the investment's cost basis and taxation is assessed on them.
Note - This setting is applied only to capital gains accrued within the year. It should not be thought of as a measure of turnover in the account as a whole - i.e. a percentage that is inclusive of unrealised capital gains from previous years of the plan or prior to the start of the plan.
Realising gains, depending on whether they exceed the owner's (or owners') gains allowance and carried forward capital losses to date, could result in the assessment of Capital Gains Tax (CGT). These taxes would then be payable in the following year of the plan.
Gains would be offset at least in part by the owner’s (or owners’) annual gains allowance as well as any carried over capital losses the owner may have dating from prior to the start of the plan (as recorded on the Carryover Assumptions screen) or in much rarer cases, the investment has been set to depreciate, using a negative growth rate.
This setting could be used to help model the realisation of your client’s annual gains allowance, although it is not designed expressly for that purpose.
Gains are tracked and capital gains tax (CGT) assessed based on the investment’s Purchase Value (cost basis) and capital growth rate. Capital growth is a setting found under Advanced Settings > Growth & Yield and when applied, on the Asset Allocation panel.
Gains are only assessed in Voyant when an asset holding capital gains is liquidated, in whole or in part. Liquidations occur and gains are realised when:
- The software automatically draws top-up income from a taxable investment,
- Scheduled withdrawals take place annually,
- One-off or recurring transfers occur between accounts that are not transfers in kind.
If this optional setting is left with default value of 0%, gains will only be realised in the three previously mentioned instances.
An entry of 100%, by contrast, would indicate that all of the gains for the year are realised annually. These gains are sold but left within the investment and added to its cost basis. Capital Gains Tax is then assessed and taxes charged, if applicable, respective of the annual gains allowance.
Ultimately, capital gains taxes, if any are due, are paid from these gains as they are realised annually rather than later when withdrawals are taken from the investment or when the investment is liquidated.
If the realised gains exceed the owner’s annual gains allowance, when taken into consideration with any other gains realised in that year of the plan, a CGT charge will be assessed and capital gains taxes will be paid in the following year of the plan. Gains will also be assessed against the owner’s capital losses from the current year or those carried forward from previous years of the plan.
Plan Preferences vs. System Preferences
Changes to this setting on the mirror Taxation panel in System Preferences, on the left side of the screen, will be used only going forward, as you create new client cases. System Preferences are used as a template only for new client cases. Changes to System Preferences will not retroactively affect your existing client cases.
If you want to change this preference in any existing client cases, you will need to open and edit them individually, in each case's Plan Preferences.