Investing outside of a wrapper?
Discussion
I'm trying to do a little future planning as I don't intend working forever.
I currently have around £70K across 100% equity funds and contribute around £600/month all within an ISA wrapper with top-ups to use up the allowance.
I'm considering adding £400/month to something like a LifeStrategy fund but unwrapped as my ISA is already used and I'm cautious about using wrappers such as a SIPP where I cannot get at the money in an emergency.
My understanding is that if I stick to accumulation units it's simplest, and I don't need worry too much about capital gains until I sell units.
Is my understanding correct and is there anything glaringly wrong with doing this?
I currently have around £70K across 100% equity funds and contribute around £600/month all within an ISA wrapper with top-ups to use up the allowance.
I'm considering adding £400/month to something like a LifeStrategy fund but unwrapped as my ISA is already used and I'm cautious about using wrappers such as a SIPP where I cannot get at the money in an emergency.
My understanding is that if I stick to accumulation units it's simplest, and I don't need worry too much about capital gains until I sell units.
Is my understanding correct and is there anything glaringly wrong with doing this?
Remember the current annual capital gains allowance c£11k so you could drop out and pay no capital gains.
Also if you needing shifting it quicker you might be near the new tax year so 2x capital gains allowance each year which physically could be just 1 day apart.
Note you “should” sell and then rebuy every year to use up your capital gains allowance - it’s called bed and breakfast.
Another thing to think about is actually keeping track of how much each £400 lot of shares have increased by.... you’d have 12x£400 buys each and every year. If you do that and then need to sell you could select the best option which will enable you to offload the most shares within the capital gains annual allowance.
Also if you needing shifting it quicker you might be near the new tax year so 2x capital gains allowance each year which physically could be just 1 day apart.
Note you “should” sell and then rebuy every year to use up your capital gains allowance - it’s called bed and breakfast.
Another thing to think about is actually keeping track of how much each £400 lot of shares have increased by.... you’d have 12x£400 buys each and every year. If you do that and then need to sell you could select the best option which will enable you to offload the most shares within the capital gains annual allowance.
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hstewie said:
hstewie said: my ISA is already used and I'm cautious about using wrappers such as a SIPP where I cannot get at the money in an emergency.
You've got ISA and can access that for any "emergency" so why not pocket some generous SIPP tax relief? £20k a year in ISA (£40k if you have a partner) soon builds a hefty emergency fund.
bhstewie said:
hstewie said: My understanding is that if I stick to accumulation units it's simplest, and I don't need worry too much about capital gains until I sell units.
My understanding is the opposite: http://monevator.com/income-tax-on-accumulation-un...I find it rather easier doing the paperwork when the income is clearly visible rather than having to work out what it is notionally inside each acc unit.
You could choose to flip between LS and FS inside and outside your ISA once every year to use CGT allowance up as you go...
rockin said:
You've got ISA and can access that for any "emergency" so why not pocket some generous SIPP tax relief?
£20k a year in ISA (£40k if you have a partner) soon builds a hefty emergency fund.
Yes if your able to max out company pension ISA allowance x2 and vastly over pay the mortgage your going to be either 1. Earning a very high wage & /or living like a pauper. £20k a year in ISA (£40k if you have a partner) soon builds a hefty emergency fund.
Paying £20k into an isa per person each year your min 40% tax rate so £33k of your gross salary is going into it.
Welshbeef said:
Remember the current annual capital gains allowance c£11k so you could drop out and pay no capital gains.
Also if you needing shifting it quicker you might be near the new tax year so 2x capital gains allowance each year which physically could be just 1 day apart.
Note you “should” sell and then rebuy every year to use up your capital gains allowance - it’s called bed and breakfast.
Another thing to think about is actually keeping track of how much each £400 lot of shares have increased by.... you’d have 12x£400 buys each and every year. If you do that and then need to sell you could select the best option which will enable you to offload the most shares within the capital gains annual allowance.
That's one way to avoid CGT but there has to be a 30 day gap between selling and the buying same stock/fund again to get CGT benefit. If you buy something else then it works with 1 day gap.. Also if you needing shifting it quicker you might be near the new tax year so 2x capital gains allowance each year which physically could be just 1 day apart.
Note you “should” sell and then rebuy every year to use up your capital gains allowance - it’s called bed and breakfast.
Another thing to think about is actually keeping track of how much each £400 lot of shares have increased by.... you’d have 12x£400 buys each and every year. If you do that and then need to sell you could select the best option which will enable you to offload the most shares within the capital gains annual allowance.
Thanks all, the ISA allowance is only an issue for a couple of years whilst I deal with a backlog of spare cash, after that I'll be doing well to max it out which is why I'm cautious of jumping into a SIPP or anywhere where the money is locked away (and as someone said 55 is the limit now but might change).
bhstewie said:
hstewie said: My understanding is that if I stick to accumulation units it's simplest, and I don't need worry too much about capital gains until I sell units.
I do exactly the opposite!You’re correct that you don’t need to worry about CGT until you sell, and hopefully your investment platform will tell you what your realised gains/losses are. The problem with accumulation funds is keeping track of dividends and declaring them in your income tax.
My “plain” investment account is with Fidelity. I quickly realised that accumulation funds give you no feedback on the reinvestment of dividends - it happens silently and you never get told the amounts to help you do your tax return.
So I have switched all my investments to income funds, and I’ve configured my Fidelity account to do the reinvestment of dividends instead. The advantage of this is that Fidelity then generates a transaction record every time it performs a reinvestment, so I’ll be able to search for those and add up how much has been reinvested. Fidelity doesn’t charge for reinvesting fund dividends.
So I’m still automatically reinvesting my dividends, but it no longer happens silently and invisibly within the accumulation funds - I can see what’s going on.
Edited by Dr Mike Oxgreen on Sunday 7th October 09:35
bhstewie said:
hstewie said: I'm trying to do a little future planning as I don't intend working forever.
I currently have around £70K across 100% equity funds and contribute around £600/month all within an ISA wrapper with top-ups to use up the allowance.
I'm considering adding £400/month to something like a LifeStrategy fund but unwrapped as my ISA is already used and I'm cautious about using wrappers such as a SIPP where I cannot get at the money in an emergency.
My understanding is that if I stick to accumulation units it's simplest, and I don't need worry too much about capital gains until I sell units.
Is my understanding correct and is there anything glaringly wrong with doing this?
I’m not seeing the whole picture here as £600/month equates to £7200/annum and your ISA allowance is £20,000/annum so you have lots of capacity. I currently have around £70K across 100% equity funds and contribute around £600/month all within an ISA wrapper with top-ups to use up the allowance.
I'm considering adding £400/month to something like a LifeStrategy fund but unwrapped as my ISA is already used and I'm cautious about using wrappers such as a SIPP where I cannot get at the money in an emergency.
My understanding is that if I stick to accumulation units it's simplest, and I don't need worry too much about capital gains until I sell units.
Is my understanding correct and is there anything glaringly wrong with doing this?
The pension wrapper shouldn’t be discounted as it gives such an enormous initial uplift to every £1 invested. You need to weigh up how much money you need to keep outside and available with how far away you are from retirement and how much tax you pay.
Most people never utilise their annual CGT allowance either. That’s £10,700/annum. What that really means is that you can run an investment portfolio of around £100k and not need an ISA wrapper if you crystallise £10,700 worth of gains each year and crystallise losses in poor years to carry forward. The 30 day rule mentioned above isn’t all that relevant as it’s easy in the fund market place to cross a holding from one fund to a near identical one to maintain the same risk and exposure while meeting the criteria.
And of course, there is for most people the huge benefit of paying down the mortgage quicker if only to ensure the LTV and income multiple is low enough to get the best possible lending rates.
DonkeyApple said:
I’m not seeing the whole picture here as £600/month equates to £7200/annum and your ISA allowance is £20,000/annum so you have lots of capacity.
I have a lot of spare cash so I feed the ISA via a mix of monthly contributions and one-off additions, but that situation won't last forever and in some years I'll be within the ISA allowances. DonkeyApple said:
That’s £10,700/annum. What that really means is that you can run an investment portfolio of around £100k and not need an ISA wrapper if you crystallise £10,700 worth of gains each year and crystallise losses in poor years to carry forward.
The £100K comment is very relevant thanks, it's perhaps just me but I think psychologically it's easy to think any gain outside of a wrapper is taxable but as you point out the limits are actually quite high before that kicks in.I suspect that at some point a SIPP will make sense but as of now I'm basically chasing something better than savings rates for a pile of cash and I'm prepared to take some risk as the intention is it's there long term, but right now I want the safety net of being able to get at it in an emergency even if it's down on what went in as markets can and will do.
DonkeyApple said:
Most people never utilise their annual CGT allowance either. That’s £10,700 £11,700 per year. What that really means is that you can run an investment portfolio of around £100k and not need an ISA wrapper if you crystallise £10,700 £11,700 worth of gains each year...
NB: This is one of many reasons for Joe Average to invest in stocks and shares (or funds) instead of his default choice, buy-to-let. You can sell part of a £100k shareholding but you can't sell part of a £100k BTL property!Used alongside ISA and SIPP the annual CGT allowance lets you run a hefty portfolio with very little CGT exposure.
rockin said:
DonkeyApple said:
Most people never utilise their annual CGT allowance either. That’s £10,700 £11,700 per year. What that really means is that you can run an investment portfolio of around £100k and not need an ISA wrapper if you crystallise £10,700 £11,700 worth of gains each year...
NB: This is one of many reasons for Joe Average to invest in stocks and shares (or funds) instead of his default choice, buy-to-let. You can sell part of a £100k shareholding but you can't sell part of a £100k BTL property!Used alongside ISA and SIPP the annual CGT allowance lets you run a hefty portfolio with very little CGT exposure.
Do alot of people sell funds/shares around the start of April on that basis?
Could it be a tactical choice for older investors who need income to simply allow 100k to sit there and hopefully become 110k each year, sell back down to 100k and spend the 10k tax free?
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