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Tax implications for GIA

Investment discussion for beginners. Why you should invest your money, get help getting started
Will2pass
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Re: Tax implications for GIA

#444605

Postby Will2pass » September 23rd, 2021, 6:57 am

Starting to see the wood for the trees now.

The clearest thing is for me to buy 'inc' version of any investment I buy. Makes the tax return far easier all round.

Income tax to be paid on any dividends paid every year. Presumably I could use the £2000 0% tax allowance each year for this.

CGT only pay when I sell investments and realise a gain. £12,300 CGT allowance (if not used elsewhere)

That would then pay me to keep a close eye and sell off assets before growing to over £12,300 even if it means buying back in straight away at the new higher price.

Use the GIA to bed an ISA.

JohnB
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Re: Tax implications for GIA

#444611

Postby JohnB » September 23rd, 2021, 7:37 am

You are right, but you need to be careful about selling assets and buying them back straight away. If its done within a month, and the assets are identical, its treated as if you never sold them at all for CGT porpoises (See bed and breakfasting). But each index tracker fund following the FTSE 100 for example is treated as a different asset and the rule does not apply, so you can swap between Vanguard and Fidelity without being out of the market. When people sell a GIA and buy an ISA you can use your CGT allowance, hence you might see "bed and ISA" on these forums.

1nvest
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Re: Tax implications for GIA

#444640

Postby 1nvest » September 23rd, 2021, 9:41 am

Will2pass wrote:That would then pay me to keep a close eye and sell off assets before growing to over £12,300 even if it means buying back in straight away at the new higher price.

Mindful of the 30 day rule already mentioned (in effect treated by HMRC as not having been sold if you sell and repurchase again within 30 days). And also including perhaps selling and repurchasing other holdings that might have endured losses. Commonly called 'Tax Harvesting'.

£20,000 of stock A that had declined to £10,000
£20,000 of stock B that had risen to £40.000

Selling both, and then repurchasing a month later and there's no CGT liability as the combined gain/loss is less than your yearly CGT allowance (£20,000 gain in B, -£10,000 loss in A, combined +£10,000 gain which is less than the £12,300 yearly capital gain allowance).

More often you might use £20,000 of the £50,000 to add to your ISA account in which case you can repurchase immediately rather than having to wait 30+ days, so maybe £10,000 each of A and B bought in ISA immediately, remainder £30,000 in GIA left for 30 days before repurchasing A and/or B, or immediately purchasing alternative stocks/funds.

In ISA things to be wary of is that you can't hold foreign currencies only £, so if you buy a asset that pays dividends in $ then you'll get hit with $/£ currency conversion costs. In mind of that many opt for accumulation funds that automatically reinvest dividends and being tax exempt you don't have the effort of having to work out/declare such dividends or work out/increase the cost per share figure each year to account for the amount of dividends.

Adding in a SIPP and anyone can add £2880/year that the taxman then adds £720 (25%) to that make £3600. If you're working then anything up to your total pay could be paid in and equally have 25% added by the taxman. With asset selectivity and Tax Harvesting you might see some of the SIPP capital migrated over time from the SIPP (that you can't access/spend until age 55+) into ISA (that you can draw/spend from). Basic (US) example (that in practice you might substitute with appropriate UK versions).

Just why the UK tax-rules and processes make things so awkward ??? Seems like a unfair tax on ignorance.

AWOL
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Re: Tax implications for GIA

#444892

Postby AWOL » September 24th, 2021, 5:39 am

Also remember if planning on using ETFs you have the complications of UK reporting fund status and excess reportable income https://www.vanguardinvestor.co.uk/inve ... nformation

Will2pass
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Re: Tax implications for GIA

#444896

Postby Will2pass » September 24th, 2021, 6:49 am

I think income version of OEIC's look simpler to manage based on what's been said here.

The info provided has also answered a question I was yet to ask. I wasn't sure about investing the lump sum in one go or drop feeding over 6-12 months.

Statistically lump sum appears to be better anyway but that psychological feeling of investing £500k in one guy just as a correction hits is a bit scary. However I should listen to the statistics as it also makes CGT calculations easier as everything was bought at the same time/price.


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