WessexBoy wrote:Many thanks for the replies (and to Mod/Raptor for starting the new thread).
I agree that I might have posed a naive question, but that is where this newbie is right now.
(Thanks for reminder that the Dividend Allowance falls to £2k next year. I also note that I can make use of the ISA allowance each tax year. I may also be able to prompt 'other half' to use this year's ISA allowance.)
I have never bought shares before, although I have a few as gifts. I have used the 2017/18 ISA allowance with Vanguard products: LS 80%; VUSA/S&P; Global Small Cap. Presently the return over two months is 3.82% which is not so shabby.
However, I do have more cash available for potential investment in HYP than the (£20k) ISA annual allowance provides for, so the Dividend Allowance is relevant as I don't want to have to start filling in tax forms (again) and thus wish to avoid entering the higher tax bracket.
So, is 4.5% is a useful 'whole year' planning figure for the expected dividend return on HYPs? And given the time of year, and the dates that dividends are declared, how might I get on board for a spread of HYPs that will realise a dividend payment? I can plan on the basis of £100,000 available to invest now - currently in various places attracting what I hope is max savings rates, but these are not a lot.
I realise that some of this is short term thinking, and should declare that I'm intending this for more than the short term: 10 years plus. However, I need to make a start, and would like to do this to best advantage this tax year.
I few angles for you to think about, phrased simplistically (there are all sorts of nuances):
1. Whilst it is a no-brainer to use up the £20k ISA allowance each year, it is worth thinking about whether to do this at the start of the tax year or at the end. Moving £20k of high yield in as early as possible will also accelerate getting the (say) £20k x 5% = £1k of dividends inside the ISA in the same year, i.e. you get £21k into the ISA in a given year not just £20k, i.e. you win an extra £1k. The flip side is that you are surrendering the option of moving a corporate action target inside the ISA at any time during the year if it might trigger a CGT event that would otherwise exceed your spare CGT threshold. So moving early indicates you value the £1k reward over the unquantifiable CGT risk.
2. This leads on to a discussion about what is the best size of chunk to buy shares in. If you are (say) buying in £3k chunks, and if you are (say) buying 30 or so shares on your initial HYP tour, then you would end up with a £90k portfolio before you start doubling up. So even in the case where a 2x-yielding corporate action comes about then your maximum CGT gain becomes £3k (i.e. the target gets taken out for £6k, not the £3k you paid), which is probably OK given the £11k CGT allowance. Contrast this with someone who decided to build a 9-share HYP of £10k lumps. They are facing the prospect of a 2x on a £10k holding which is a lot closer to tipping them over the £11k CGT threshold.
3. Is it best to prioritise moving high-yield (dividend paying) shares into an ISA shelter, or is it best to prioritise moving high-growth shares (which may or may not exist in your HYP, or in a non-HYP portfolio you also have) into an ISA shelter, or shares which you think (for whatever reason) might be subject to a takeover bid. Do you wish to hold back loss-making shares in your trading account to sell so as to mop up any unwanted CGT gains ?
At the end of the day we all have to make our own decisions based on our own circumstances, and so we will all come to different but equally valid decisions. The three points above are the ones that exercise my mind when deciding when & what to move stuff from trading into HYP. Other people may have other concerns that are equally valid which never crossed my mind. However I am in no doubt that I always make full use of the HYP allowance each year. I am much more cautious in making use of SIPP as a shelter.
regards, dspp