Tax on Investments

[98elise]

I might soon have a large sum of cash from a property sale, and will probably invest in funds for my retirement in 3 or 4 years.

Assuming I've maxed my SIPP and ISA allowances then any growth would be subject to tax. Just using some round numbers let's say it was 100k invested and it grew to 120k, at which point I cashed in 20k, what tax would be due? Would the 20k be considered pro-rata investment and profit values, or is it all the profit being liquidated?

If it's pro-rata then how would I calculate future withdrawals (as there would now be compounding going on)?

[GT03ROB]

Effectively it will be prorate.

You will buy 100 units for #1..... they grow to #1.20

To release #20 you will sell 17units. your gain is 17 x 0.2 = 3.4 This is what your tax liability is on.

[ellroy]

Don't forget that depending on what you buy some of the return will likely be taxed as income each year, either dividends or interest.

It's only after that that you would need to worry about capital gains. That is on the profit on sale and you do get another nil rate allowance each year. So worth considering holding in joint names if married and potentially selling some each year to use the allowance if appropriate.

[98elise]

Thanks both, that's very clear. Given that there is current a capital allowance (for both of us) it might be a better investment than property.

[Eric Mc]

By "Capital Allowance" did you REALLY mean to say "Capital Gains Tax Allowance"?

Capital Allowances are something you claim when buying relevant assets for a trading business.

[98elise]

Eric Mc said:

By "Capital Allowance" did you REALLY mean to say "Capital Gains Tax Allowance"?

Capital Allowances are something you claim when buying relevant assets for a trading business.

Yes, capital gains tax allowance.

[anonymous-user]

And you need to keep an eye on the pooling rules. Simplified example:

• Buy 100 shares in Company X on 1 January 2017 at £1 each. For CGT purposes you now own 100 shares which cost you £1 each. Easy!

• Buy another 100 shares in Company X on 1 January 2018 at £2 each. For CGT purposes you now own 200 shares which cost you £1.50 each....

.... so if, say, you then sell 100 shares you would have a CGT gain even though the share price had FALLEN from £2 to £1.80. Gain = 100 x 30p