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Investing strategy inside & outside ISA??
Mark Anderson
Posted: 10 May 2017 19:08:12(UTC)
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I have 30K to invest and will probably split the investment between:

CF Woodford Income Focus - projected dividend yield 5.0%, and

Lindsell Train Global Equity - dividend yield 1.1 % yield.

Does it make sense to invest the higher dividend yielding fund (Woodford) in the ISA wrapper??
Lee Whitehead
Posted: 10 May 2017 19:24:22(UTC)
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Too much money in just two areas (the choices not ISA/non-ISA) so might be worth looking at diversifying a little more.

I would drop the full £20K allocation in the ISA and just do the £10K outside.
Mark Anderson
Posted: 10 May 2017 19:33:39(UTC)
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ok... my original question was probably not worded as well as it could have been....

Fund selection aside, my question is regarding the dividend yields.... once funds are selected for investment is there any case for putting the higher yielding funds into the (20K allowance) ISA wrapper and investing the remaining money and lower yielding funds outside the ISA??

In the long run is such a strategy offering any way of minimising tax?
TJL
Posted: 10 May 2017 19:35:20(UTC)
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I must be missing the point.
If you have any unused Isa allowance, why wouldn't you use it?
If you are close to the limit on your allowance, it would make sense to have the higher yielding investment within the Isa, but only as long as you are also using your CGT allowance.
I agree with Lee, you could certainly increase your diversification.
Alan Selwood
Posted: 10 May 2017 21:10:58(UTC)
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1. Use all your ISA allowances every year if you can. If you can't get all your money in ISAs during the current tax year, go to (2) below.

2. Compare your potential tax liabilities to income tax (dividends and interest) outside an ISA with your potential CGT liabilities on holdings outside an ISA.

If it looks more tax efficient to put a particular type of investment in an ISA, put that in, and other things outside the ISA. Then next year repeat the exercise so that more and more goes in the ISA and less and less is held outside.

Broadly speaking, after taking account of income tax and CGT thresholds and allowances, you want to put high income assets in an ISA if you are a higher rate taxpayer, because the tax rate is higher on income than on gains, and if you have lots of assets that could one day cause you a steep CGT bill, but you are perhaps only a basic rate income tax payer, put those with big capital gains potential in the ISA, gradually reducing your future CGT burden by using each year's CGT allowances and ISA allowances.

That being only a broad-brush assertion, you need to do the maths yourself based on your own figures!
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Mark Anderson on 10/05/2017(UTC), Helen on 11/05/2017(UTC), Mickey on 11/05/2017(UTC)
Colm Maguire
Posted: 11 May 2017 14:06:41(UTC)
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If you have no other assets which could provoke a CGT liability in the future then I think that there is no point in incurring ISA charges. I would put all in a much cheaper normal share account. ISAs are only useful nowadays with much bigger portfolios.
andy
Posted: 11 May 2017 14:27:25(UTC)
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I can only speak for what I do - and what my plans are - they are a variant of Alan's.

1. Max out pension - especially if a higher rate taxpayer - the 40% / 45% tax deference makes this worth considering.
2. Max out ISA

Then I plan to use my pension (SIPP) for income and growth (so income and growth strategy) and use my ISA for income strategy - you might want to put some income and growth here. That way - in retirement I plan to take income from my SIPP and use that to feed my ISA.

My SIPP is expected to be twice the size of my ISA - thats just the way it is working out but it actually seems like a good ratio. You get the first 25% of pension income tax free - and then £11,000 personal allowance - just have to make sure that you do not exceed the £1M (apparently this will be indexed).

Only issue here is you can't trust governments of any colour not to mess around with your personal pension whereas ISAs have largely been left alone.

Hope this helps.

Andrew
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Keith Cobby on 11/05/2017(UTC)
Keith Cobby
Posted: 11 May 2017 17:09:12(UTC)
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My strategy is broadly similar to Andy. I think that it is vital now to shield as much as possible in an ISA rather than leaving it unwrapped. The dividend tax was a nasty surprise, and although it seems to be primarily aimed at directors of private companies, it will also catch those with unearned income. The Government have already moved the goalposts (deferred until after the election) and obviously consider this as low hanging fruit.
Alan Selwood
Posted: 11 May 2017 17:45:48(UTC)
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Colm Maguire;46606 wrote:
If you have no other assets which could provoke a CGT liability in the future then I think that there is no point in incurring ISA charges. I would put all in a much cheaper normal share account. ISAs are only useful nowadays with much bigger portfolios.


I disagree.

The government always wants tax, and the more you shield, the more you reduce the risk of the goalposts being moved in terms of thresholds and tax rates.

In any case, you can still get ISA accounts that cost no more than non-ISA ones (Fundsmith ISA & X-O platform, for example)
Hilary hames
Posted: 11 May 2017 20:59:54(UTC)
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Alan Selwood;46619 wrote:
Colm Maguire;46606 wrote:
If you have no other assets which could provoke a CGT liability in the future then I think that there is no point in incurring ISA charges. I would put all in a much cheaper normal share account. ISAs are only useful nowadays with much bigger portfolios.


I disagree.

The government always wants tax, and the more you shield, the more you reduce the risk of the goalposts being moved in terms of thresholds and tax rates.

In any case, you can still get ISA accounts that cost no more than non-ISA ones (Fundsmith ISA & X-O platform, for example)


I like the X-o platform for shares and investment trusts held in an ISA but it doesn't deal in funds or regular savings plans.
colin overton
Posted: 12 May 2017 10:49:34(UTC)
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I agree, put everything in an ISA first then into a non-ISA account. That assumes you pay income tax. Remember any extra income you make will be taxed at some point outside an ISA. Admittedly you have a dividend allowance of £5,000 this year but only £2000 next. Also Capital Gains Tax never goes away above the allowance i.e. whether you keep your investment for 1 or 20 years CGT is payable above the allowance, unless in an ISA.
I don't know all the differential costs of ISA to Non-ISA accounts but don't recall there being large or indeed any difference? At Hargreaves there is a differential charge for ISA accounts of 0.45% or £45 whichever is the larger for non-UT investments (shares/ITs/ETFs/etc.). UTs are treated the same, 0.45% below £250,000.
Outside ISA accounts there is a temptation to sell just before the end of a FY to use your allowance. This may have associated costs, sell/buy spread etc. Outside an ISA you are not allowed to rebuy within 30days (?) or CGT becomes payable without any allowance. Being out of the market can also have consequences.
With cash ISA interest rates so poor buying investments within an ISA seems hard to fault.
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Mark Anderson on 17/05/2017(UTC)
RWM
Posted: 17 May 2017 20:33:17(UTC)
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Just a thought but given the lifetime allowance of £1m these days, does it not make sense in the early years to pay as much possible into a pension (i.e. SIPP) rather than ISA to allow for the extra tax relief / gross contributions to roll up and compound faster, then at a later stage switch to contributing to ISAs. Overall, I think it works out a slightly better result.
andy
Posted: 17 May 2017 21:13:15(UTC)
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RWM

Agree.

I have maxed my pension out - including using carry forward and as much of the 2017/18 allowance before the general election as I can.

I am expecting further reduction in pension contributions - off course not for MPs (boy am I cynical).

Order for me at the moment.

Pension - especially for higher rate tax payers
ISA
Mortgage - might be under 2% but that may rise
Use up the £2,000 dividend allowance
Premium Bonds

The last two maybe the other way around - will worry about those if I get that far!

Have I missed anything obvious?

Andrew
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MAK on 17/05/2017(UTC)
Andrew Hirst
Posted: 19 May 2017 10:17:18(UTC)
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Mark Anderson;46574 wrote:
I have 30K to invest and will probably split the investment between:

CF Woodford Income Focus - projected dividend yield 5.0%, and

Lindsell Train Global Equity - dividend yield 1.1 % yield.

Does it make sense to invest the higher dividend yielding fund (Woodford) in the ISA wrapper??



As others have said it seems sensible to max out your ISA allowance, but I'm not sure about your assessment of the two funds. CFWIF is newly established so no track record, LT (class D) on the other hand is fully documented and has performed very well for me for nearly 2 years now.
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