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Funds outside ISA & tax.....?
Mark Anderson
Posted: 12 April 2017 20:39:27(UTC)
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ok.... forgive me if I'm asking the obvious, but I am pretty confused regarding tax implications of holding stocks & shares outside an ISA...

My situation is that I was made redundant at the end of last year and ended up with redundancy payment of 140K. I invested £15240 in funds making use of the 2016/17 ISA allowance and invested another £100K in funds outside of ISA (with (H&L).

I am currently not working and have no other income. What is my tax liability on the £100K outside of my ISA....???
1. Am I taxed on just the dividend payments or also any capitol gains of funds?
2. I believe it is now possible to earn 2K tax free on any investments..... as I am (not currently) working, should the dividends/tax liability exceed 2K can I offset any tax liability using my personal tax allowance (11.5K).
3. If I owe tax on my investments outside ISA will the tax be automatically deducted by the company (H&L) holding my funds or am I expected to inform HMRC and if so how??

thanks
markus
Posted: 16 April 2017 16:15:00(UTC)
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Mark Anderson;45772 wrote:
ok.... forgive me if I'm asking the obvious, but I am pretty confused regarding tax implications of holding stocks & shares outside an ISA...

My situation is that I was made redundant at the end of last year and ended up with redundancy payment of 140K. I invested £15240 in funds making use of the 2016/17 ISA allowance and invested another £100K in funds outside of ISA (with (H&L).

I am currently not working and have no other income. What is my tax liability on the £100K outside of my ISA....???
1. Am I taxed on just the dividend payments or also any capitol gains of funds?
2. I believe it is now possible to earn 2K tax free on any investments..... as I am (not currently) working, should the dividends/tax liability exceed 2K can I offset any tax liability using my personal tax allowance (11.5K).
3. If I owe tax on my investments outside ISA will the tax be automatically deducted by the company (H&L) holding my funds or am I expected to inform HMRC and if so how??

thanks



not an expert but..

1) no tax on capital gain until you sell them. £11.3k allowance this yr - so ideally you manage this by "using" some/all of the allowance a yr by moving from one fund to another.
2) fairly certain you should get your personal allowance + dividend allowance (but remember income element rolled up in accumulation units is still liable for tax as income but would be excluded from CGT calculations when you sell)
3) self assessment is the way to inform the HMRC
xcity
Posted: 16 April 2017 16:58:01(UTC)
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You have an interest allowance, a dividend allowance and your personal allowance.
Apparently the HMRC calculator does not necessarily apply these in the best sequence to maximise your allowances.
You also have your capital gains allowance.

You should have been able to put another £20k into the ISA in this tax year.
The most common advice is to put your highest yield equities into the ISA and to take profits up to your CGT allowance in your non-ISA account annually to reduce potential future liabilities.

If you are not working, you could consider putting £2880 into a SIPP (do watch for costs though); the government should raise your money to £3600. You can do this even if you don't have a job. If you get work that pays more, you can put a total up to your earnings into the SIPP (including the original £3600)..

PS I'm not an expert either.
Alan Selwood
Posted: 16 April 2017 17:11:38(UTC)
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xcity;45897 wrote:
You have an interest allowance, a dividend allowance and your personal allowance.
Apparently the HMRC calculator does not necessarily apply these in the best sequence to maximise your allowances.
You also have your capital gains allowance.


According to the weekend press, the HMRC calculator may be less than beneficial in the sequence in which it applies the allowances, but apparently you can then choose a different order if to do so is more beneficial.
Obviously, you would have to tell HMRC to do it your way, not theirs! (Would they notice your message, I wonder?)
2 users thanked Alan Selwood for this post.
Bellabeck on 16/04/2017(UTC), Money Spider on 18/04/2017(UTC)
Bellabeck
Posted: 16 April 2017 17:36:23(UTC)
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Good tips so far, especially xcity.

Think of an ISA as a wrapper that protects investments from tax on both dividends and any capital gains over time. It is the closest the government gives its citizen savers 'a free lunch'.

So, add the new ISA allowance of £20K to the ISA you opened prior to 6 April 2017 (and consolidate any other ISA investments you had previously) onto a DIY platform (I use Interactive Investor as no percentage fees but other posters on this site favour HL, AJ Bell, Charles Stanely Direct to name a few) then decide on your asset allocation (and if you want to keep it super simple chose one of Vanguard Lifestrategy funds to suit your risk appetite and maybe add a property ETF or REIT and then do nothing. And then next April you can 'Bed & ISA' another £20K until you have all your investments fully wrapped in 5 years...

Read Monevator blog if you want to understand more about low cost, primarily passive, investing.

Start a SIPP and pay in £2,880 and then your investor platform will obtain the government contribution of £720 so then you have £3,600 to invest. On Interactive Investor the SIPP fee is waived if you combine with ISA account. Keep doing this either monthly or yearly depending on your circumstances, if you get another job then you will be able to start contributing more to your pension again.

On your investment account outside of ISA and SIPP you can sell and rebuy sufficient stocks to use up your Capital Allowance of £11,100 and remember to to do this every year so you don't end up with a huge tax liability in the future.

Good luck, by contacting this forum you have made the first important step to financial knowledge and independence. Don't get taken in by any 'financial advisor' sales person, or if you do want to go down this route check they are registered as a Chartered Financial Planner and only pay a fixed hourly rate, no commission.

And share the knowledge you have acquired with any young person in your life (who is prepared to listen!)
6 users thanked Bellabeck for this post.
Lemanie on 17/04/2017(UTC), Bruce J. on 17/04/2017(UTC), john_r on 17/04/2017(UTC), Mark Anderson on 18/04/2017(UTC), Cyrus Zaydan on 24/04/2017(UTC), Guest on 29/04/2017(UTC)
Alan Selwood
Posted: 17 April 2017 09:49:15(UTC)
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Now that we are in tax year 2017-2018 the new CGT allowance is : £11,300
1 user thanked Alan Selwood for this post.
Bellabeck on 17/04/2017(UTC)
Keith Hilton
Posted: 17 April 2017 10:21:43(UTC)
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xcity;45897 wrote:
If you are not working, you could consider putting £2880 into a SIPP (do watch for costs though); the government should raise your money to £3600. You can do this even if you don't have a job. If you get work that pays more, you can put a total up to your earnings into the SIPP (including the original £3600)..


If you have an existing personal pension, it may be cheaper to add to this rather than open up a new SIPP.
1 user thanked Keith Hilton for this post.
john_r on 17/04/2017(UTC)
Mark Anderson
Posted: 18 April 2017 15:29:17(UTC)
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Thanks for replies.

So... if you hold accumulation funds which have been held for several years with dividend component reinvested when you come to sell (and should that sale exceed the CGT limit) how do you estimate CGT liability....?? When you sell are you issued with certificate detailing CGT liability?? If not how do you remove dividend component from total sale price..... ?

My portfolio outside my ISA consists of around 16 different funds..... is there a simple way of estimating GCT liability in several years time without keeping meticulous records??

Also if one of the funds holds makes a loss can I offset my tax liability in anyway??

TX
Alan Selwood
Posted: 18 April 2017 18:52:42(UTC)
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Mark Anderson;45940 wrote:
Thanks for replies.

So... if you hold accumulation funds which have been held for several years with dividend component reinvested when you come to sell (and should that sale exceed the CGT limit) how do you estimate CGT liability....?? When you sell are you issued with certificate detailing CGT liability?? If not how do you remove dividend component from total sale price..... ?

My portfolio outside my ISA consists of around 16 different funds..... is there a simple way of estimating GCT liability in several years time without keeping meticulous records??

Also if one of the funds holds makes a loss can I offset my tax liability in anyway??

TX


The only way I know how to do it is to look up the records of the funds concerned, and see what dividends are shown for the accumulation units for the various dates since your bought the units in each fund.

Add these dividends to your original gross purchase price (cost + commission & stamp duty, if applicable), then deduct the total from your net proceeds of sale. The difference is then your net gain for CGT purposes.

By the time you've done these calculations for 16 funds, you will wish:
a) That the funds were held in an ISA or SIPP,
b) That you had bought Income Units instead.

Then grab a beer!
2 users thanked Alan Selwood for this post.
Jay Mi on 18/04/2017(UTC), Mark Anderson on 18/04/2017(UTC)
Jay Mi
Posted: 18 April 2017 19:08:02(UTC)
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Alan Selwood;45951 wrote:
Mark Anderson;45940 wrote:
Thanks for replies.

So... if you hold accumulation funds which have been held for several years with dividend component reinvested when you come to sell (and should that sale exceed the CGT limit) how do you estimate CGT liability....?? When you sell are you issued with certificate detailing CGT liability?? If not how do you remove dividend component from total sale price..... ?

My portfolio outside my ISA consists of around 16 different funds..... is there a simple way of estimating GCT liability in several years time without keeping meticulous records??

Also if one of the funds holds makes a loss can I offset my tax liability in anyway??

TX


The only way I know how to do it is to look up the records of the funds concerned, and see what dividends are shown for the accumulation units for the various dates since your bought the units in each fund.

Add these dividends to your original gross purchase price (cost + commission & stamp duty, if applicable), then deduct the total from your net proceeds of sale. The difference is then your net gain for CGT purposes.

By the time you've done these calculations for 16 funds, you will wish:
a) That the funds were held in an ISA or SIPP,
b) That you had bought Income Units instead.

Then grab a beer!


I have a headache just thinking of that :/

Do you still have to pay tax on the Dividands, even if it's in Acc units? Like work out how much the dividands were for each fund and declare it? If above the threshold?
Mark Anderson
Posted: 18 April 2017 19:10:54(UTC)
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Joined: 12/04/2017(UTC)
Posts: 11

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Alan Selwood;45951 wrote:
Mark Anderson;45940 wrote:
Thanks for replies.

So... if you hold accumulation funds which have been held for several years with dividend component reinvested when you come to sell (and should that sale exceed the CGT limit) how do you estimate CGT liability....?? When you sell are you issued with certificate detailing CGT liability?? If not how do you remove dividend component from total sale price..... ?

My portfolio outside my ISA consists of around 16 different funds..... is there a simple way of estimating GCT liability in several years time without keeping meticulous records??

Also if one of the funds holds makes a loss can I offset my tax liability in anyway??

TX


The only way I know how to do it is to look up the records of the funds concerned, and see what dividends are shown for the accumulation units for the various dates since your bought the units in each fund.

Add these dividends to your original gross purchase price (cost + commission & stamp duty, if applicable), then deduct the total from your net proceeds of sale. The difference is then your net gain for CGT purposes.

By the time you've done these calculations for 16 funds, you will wish:
a) That the funds were held in an ISA or SIPP,
b) That you had bought Income Units instead.

Then grab a beer!


Hmmmmm..... sounds tedious. I don't doubt what you say (and that's what I was thinking myself), however, I have to ask.... surely there's a simpler way??? Does the platform provider not issue you with a tax certificate at end of tax year detailing any CGT liabilities???
Mark Anderson
Posted: 18 April 2017 19:13:07(UTC)
#10

Joined: 12/04/2017(UTC)
Posts: 11

Thanks: 38 times
Alan Selwood;45951 wrote:
Mark Anderson;45940 wrote:
Thanks for replies.

So... if you hold accumulation funds which have been held for several years with dividend component reinvested when you come to sell (and should that sale exceed the CGT limit) how do you estimate CGT liability....?? When you sell are you issued with certificate detailing CGT liability?? If not how do you remove dividend component from total sale price..... ?

My portfolio outside my ISA consists of around 16 different funds..... is there a simple way of estimating GCT liability in several years time without keeping meticulous records??

Also if one of the funds holds makes a loss can I offset my tax liability in anyway??

TX


The only way I know how to do it is to look up the records of the funds concerned, and see what dividends are shown for the accumulation units for the various dates since your bought the units in each fund.

Add these dividends to your original gross purchase price (cost + commission & stamp duty, if applicable), then deduct the total from your net proceeds of sale. The difference is then your net gain for CGT purposes.

By the time you've done these calculations for 16 funds, you will wish:
a) That the funds were held in an ISA or SIPP,
b) That you had bought Income Units instead.

Then grab a beer!


Hmmmmm..... sounds tedious. I don't doubt what you say (and that's what I was thinking myself), however, I have to ask.... surely there's a simpler way??? Does the platform provider not issue you with a tax certificate at end of tax year detailing any CGT liabilities???
Money Spider
Posted: 18 April 2017 20:00:22(UTC)
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@Mark Anderson

You mentioned that you held funds in an HL 'Fund & Share' account. HL will issue you with a comprehensive report around the end of May which will detail all your transactions over the past year. It will also contain an Income Tax Statement detailing your income from the various types of funds/trusts/shares i.e. Interest-bearing investments, Dividend-bearing investments, Property distributions etc. It will also separate out income from UK-based investments and International-based investments. This makes submitting your Self-Assessment Income Tax Return fairly straightforward.

However, it only partially helps with your CGT calculation, but you can look through the report to identify each income payment that has been 'rolled up' in each of your Accumulation Funds. The problem with this is that you won't know your exact amounts until after the end of the relevant tax year. I find a good way is to keep a running 'capital disposal' spreadsheet during the year (if you're trying to max your CGT allowance) and you can estimate the likely income from fund publications (easier once you have some history) and then adjust it when you know the actual income payments prior to submitting Tax Return.

As was mentioned previously, its a lot simpler if you choose Income Funds or Investment Trusts.
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