Returning expat confused by UK CGT

[sloth]

We're considering returning home from Australia, and we're trying to establish whether we can afford to.

On our return, we'd bring our life savings and invest once we're UK domiciled again. We'd have no foreign assets of any kind.

One approach to investing that I'm considering is a 2 or 3 fund portfolio consisting of perhaps a global equities fund, a global bond fund, and a FTSE all share fund, all accumulation funds, and each year sell off units to pay annual living expenses.

These would not be inside either a SIPP or an ISA, as we don't have either of those.

Under this scenario, let's assume I have £100000 in such an accumulation fund, and at the end of year 1, it has generated fund earnings of £5000, reinvested to buy more units. I then sell units to the value of £4000, leaving a fund balance of £101000.

What tax is assessable on the £4000-just income tax, or CGT as well?
Is any tax of any description assessable on the other £1000?

Apologies if this is a stupid question.

[sloth]

Please ignore personal allowance and CGT allowance.

[Chrysalis]

These are the relevant taxes:

https://www.gov.uk/tax-on-dividends
The £5000 of dividends is liable for this
https://www.gov.uk/capital-gains-tax
The £4000 sale is liable for this

If you are investing in a taxable account, buy income generating units (rather than accumulating units which reinvest distributions) - the latter are much more complicated to deal with tax wise. So in the example above, if you wanted £4K of income, you’d just withdraw £4K of the dividend and only purchase new units with the remaining £1k. You are liable for tax on all the income generated by investments in an unsheltered account - subject to the zero rated band. It is at a lower rate than the tax on income from work or pensions. There is another set of rules for tax on savings interest. The interaction between income from work or pensions, income from dividends and income from savings interest is quite complicated if you are on a low total income (£12-17ishk per year) due to an extra zero rated band for savings income. but less so if you are well within in the basic tax band.

You have £20k per year ISA allowance each, it will be a slow process to shelter a life’s worth of savings but still worth doing.
Ditto with pensions, you have up to £40k or 100% of earned income (from work) you can contribute to a pension each year.

HTH.

[sloth]

These are the relevant taxes:

https://www.gov.uk/tax-on-dividends
The £5000 of dividends is liable for this
https://www.gov.uk/capital-gains-tax
The £4000 sale is liable for this

If you are investing in a taxable account, buy income generating units (rather than accumulating units which reinvest distributions) - the latter are much more complicated to deal with tax wise. So in the example above, if you wanted £4K of income, you’d just withdraw £4K of the dividend and only purchase new units with the remaining £1k. You are liable for tax on all the income generated by investments in an unsheltered account - subject to the zero rated band. It is at a lower rate than the tax on income from work or pensions. There is another set of rules for tax on savings interest. The interaction between income from work or pensions, income from dividends and income from savings interest is quite complicated if you are on a low total income (£12-17ishk per year) due to an extra zero rated band for savings income. but less so if you are well within in the basic tax band.

You have £20k per year ISA allowance each, it will be a slow process to shelter a life’s worth of savings but still worth doing.
Ditto with pensions, you have up to £40k or 100% of earned income (from work) you can contribute to a pension each year.

HTH.

Yes thanks, that helps a lot! More complex than I'd like, your point about income rather than accumulation is good.

Unfortunately, as expats, we can't do much about the unsheltered nature of things which is why this move back to the UK is taking me a long time to think through.

The ISA process at £20k each pa will take some time as you say but again we have no options on that.

We will be retired if and when we return, so no earned income to put into a SIPP.