Investing tax free if you run out of ISA allowance
Discussion
I touched on this on another thread and people seemed to think my plan was OK but would like confirmation as we're exchanging this week.
We have sold out BTL and will be using up our combined 21/22 CGT allowance to absorb the gain. But that means we have £300k to invest for our retirement. We can put away £40k combined 21/22 ISA allowance but we're left with £260k. We have separate pension funds where we also max out the relief.
So we will be investing £246,000 in non ISA funds with Vanguard (I am purposely lowering this figure for simplicity). We don't need any income from this capital.
My objective is to pay as little tax as possible on that £246,000 and "converting" into ISA as swiftly as possible.
For simplicity let's assume 10% growth over the 12 months to come (I know...), zero dividends and accumulative funds and a CGT allowance of £24,600 worth of capital growth.
To make the most of the CGT allowance, is the solution to realise the entire £246k+growth in 12 months time and re-invest the lot into non-ISA stuff (minus the £40k ISA) and rinse and repeat every year until depletion of the non-ISA investments ?
Does that sound right ?
I guess this will cost me in transaction fees but will save me CGT up until everything is converted into ISA in a few years.
We have sold out BTL and will be using up our combined 21/22 CGT allowance to absorb the gain. But that means we have £300k to invest for our retirement. We can put away £40k combined 21/22 ISA allowance but we're left with £260k. We have separate pension funds where we also max out the relief.
So we will be investing £246,000 in non ISA funds with Vanguard (I am purposely lowering this figure for simplicity). We don't need any income from this capital.
My objective is to pay as little tax as possible on that £246,000 and "converting" into ISA as swiftly as possible.
For simplicity let's assume 10% growth over the 12 months to come (I know...), zero dividends and accumulative funds and a CGT allowance of £24,600 worth of capital growth.
To make the most of the CGT allowance, is the solution to realise the entire £246k+growth in 12 months time and re-invest the lot into non-ISA stuff (minus the £40k ISA) and rinse and repeat every year until depletion of the non-ISA investments ?
Does that sound right ?
I guess this will cost me in transaction fees but will save me CGT up until everything is converted into ISA in a few years.
CGT can be complicated but as I understand it you are correct. Of course if you don't make £24,600 then you won't use all of the CGT allowance that year & if you make more than £24,600 then you risk paying some CGT unless you only sell a portion of the holding.
Do Vanguard have an intial charge for buying a fund? It might vary depending which one it is.
Do Vanguard have an intial charge for buying a fund? It might vary depending which one it is.
Mr Pointy said:
Roman Rhodes said:
As I understand it, you can Bed & ISA the same security but if you’re reinvesting excess over the ISA limit you’ll need to hop to a different security.
Not all instituions allow Bed & ISA: some you have to sell down to cash.nickfrog said:
I touched on this on another thread and people seemed to think my plan was OK but would like confirmation as we're exchanging this week.
We have sold out BTL and will be using up our combined 21/22 CGT allowance to absorb the gain. But that means we have £300k to invest for our retirement. We can put away £40k combined 21/22 ISA allowance but we're left with £260k. We have separate pension funds where we also max out the relief.
So we will be investing £246,000 in non ISA funds with Vanguard (I am purposely lowering this figure for simplicity). We don't need any income from this capital.
My objective is to pay as little tax as possible on that £246,000 and "converting" into ISA as swiftly as possible.
For simplicity let's assume 10% growth over the 12 months to come (I know...), zero dividends and accumulative funds and a CGT allowance of £24,600 worth of capital growth.
To make the most of the CGT allowance, is the solution to realise the entire £246k+growth in 12 months time and re-invest the lot into non-ISA stuff (minus the £40k ISA) and rinse and repeat every year until depletion of the non-ISA investments ?
Does that sound right ?
I guess this will cost me in transaction fees but will save me CGT up until everything is converted into ISA in a few years.
That strategy sounds fine in itself but what will you do if the return after 12 months is >10%?We have sold out BTL and will be using up our combined 21/22 CGT allowance to absorb the gain. But that means we have £300k to invest for our retirement. We can put away £40k combined 21/22 ISA allowance but we're left with £260k. We have separate pension funds where we also max out the relief.
So we will be investing £246,000 in non ISA funds with Vanguard (I am purposely lowering this figure for simplicity). We don't need any income from this capital.
My objective is to pay as little tax as possible on that £246,000 and "converting" into ISA as swiftly as possible.
For simplicity let's assume 10% growth over the 12 months to come (I know...), zero dividends and accumulative funds and a CGT allowance of £24,600 worth of capital growth.
To make the most of the CGT allowance, is the solution to realise the entire £246k+growth in 12 months time and re-invest the lot into non-ISA stuff (minus the £40k ISA) and rinse and repeat every year until depletion of the non-ISA investments ?
Does that sound right ?
I guess this will cost me in transaction fees but will save me CGT up until everything is converted into ISA in a few years.
Will you sell / reinvest all (leading to a CGT charge) or just sell what you need to fully utilise the allowance?
If you do the latter then be aware that a lot of Vanguard funds (not ETFs) operate on a forward-pricing basis so you don't know what price you get until after you have placed the deal. This makes it difficult to sell the right amount for CGT allowance purposes.
I may be wrong but even with ETFs, you may need to pay additional fees to sell if you want to know the exact price before placing a sell order. If not then they just bundle loads of orders together to place at certain time(s) of the day.
What happens if you do the latter and then markets drop in the next tax year? Will you take the opportunity to realise a loss? Will you do this at the year-end or mid-year?
nickfrog said:
To make the most of the CGT allowance, is the solution to realise the entire £246k+growth in 12 months time and re-invest the lot into non-ISA stuff (minus the £40k ISA) and rinse and repeat every year until depletion of the non-ISA investments ?
.
I'd be tempted to realise only enough to "use" all your CGT allowance each year, fill the ISA and then re-invest the remainder into a different asset..
If you sell it all, you're going to be paying CGT each year at first, and obviously over time as more of it is in an ISA wrapper, CGT liability will on average fall each year, until you're within the CGT allowance
My knowledge is hazy on this but don't assume that Acc units don't have dividends.
They do but the value is retained in the price of the fund. I'm sure you get a tax voucher for a notional income amount that will be taxable. However that value can be offset against the profit for CGT purposes.
Happy to be corrected if that's wrong.
They do but the value is retained in the price of the fund. I'm sure you get a tax voucher for a notional income amount that will be taxable. However that value can be offset against the profit for CGT purposes.
Happy to be corrected if that's wrong.
nickfrog said:
LeoSayer said:
That strategy sounds fine in itself but what will you do if the return after 12 months is >10%?
Very good point and I don't know - it would be a very nice problem to have!!Mr Pointy said:
You'd just sell down enough of the fund to include £24,600 of gain. It's not a precise science & you can either make sure you undershoot or just accept you'll pay a bit of CGT if you go slightly over.
Yes it makes sense, thanks - IF I yield more than 10% on any given year then quite frankly, I don't mind paying a bit of CGT. I am hoping for 5% but budgeting 3% for pension provisioning purposes.nickfrog said:
... will be using up our combined 21/22 CGT allowance
Quick question. How are you using a combined 21/22 CGT allowance? I get the £24,600 being 2 allowances - (husband and wife or partner/partner for the PC brigade), but I take it you don't mean two different CGT years where you've not used the allowance in a previous year?The problem with selling big blocks of equity to realise penny packets of gain is the potential scale of "out of market" risk.
You may be better off selling just enough equity to top-up your ISAs ( 2 x £20k = £40k) and feeling pleased with yourself that you haven't needed to pay any CGT to achieve it.
You'll probably avoid the inconvenience of filling in the Self-Assessment CGT pages every year as well.
You may be better off selling just enough equity to top-up your ISAs ( 2 x £20k = £40k) and feeling pleased with yourself that you haven't needed to pay any CGT to achieve it.
You'll probably avoid the inconvenience of filling in the Self-Assessment CGT pages every year as well.
S6PNJ said:
nickfrog said:
... will be using up our combined 21/22 CGT allowance
Quick question. How are you using a combined 21/22 CGT allowance? I get the £24,600 being 2 allowances - (husband and wife or partner/partner for the PC brigade), but I take it you don't mean two different CGT years where you've not used the allowance in a previous year?rockin said:
The problem with selling big blocks of equity to realise penny packets of gain is the potential scale of "out of market" risk.
You may be better off selling just enough equity to top-up your ISAs ( 2 x £20k = £40k) and feeling pleased with yourself that you haven't needed to pay any CGT to achieve it.
You'll probably avoid the inconvenience of filling in the Self-Assessment CGT pages every year as well.
That also makes sense actually, thanks.You may be better off selling just enough equity to top-up your ISAs ( 2 x £20k = £40k) and feeling pleased with yourself that you haven't needed to pay any CGT to achieve it.
You'll probably avoid the inconvenience of filling in the Self-Assessment CGT pages every year as well.
nickfrog said:
S6PNJ said:
nickfrog said:
... will be using up our combined 21/22 CGT allowance
Quick question. How are you using a combined 21/22 CGT allowance? I get the £24,600 being 2 allowances - (husband and wife or partner/partner for the PC brigade), but I take it you don't mean two different CGT years where you've not used the allowance in a previous year?
nickfrog said:
Mr Pointy said:
You'd just sell down enough of the fund to include £24,600 of gain. It's not a precise science & you can either make sure you undershoot or just accept you'll pay a bit of CGT if you go slightly over.
Yes it makes sense, thanks - IF I yield more than 10% on any given year then quite frankly, I don't mind paying a bit of CGT. I am hoping for 5% but budgeting 3% for pension provisioning purposes.nickfrog said:
That also makes sense actually, thanks.
The trade off depends hugely on your experienced return rate. I've got some unsheltered investments which I initially simply sold enough of to fill my ISA allowance.I hesitate to use the word but unfortunately they averaged > 22% per annum return for four years, and I now rather regret the lost CGT allowance.
xeny said:
The trade off depends hugely on your experienced return rate. I've got some unsheltered investments which I initially simply sold enough of to fill my ISA allowance.
I hesitate to use the word but unfortunately they averaged > 22% per annum return for four years, and I now rather regret the lost CGT allowance.
Unfortunately indeed I hesitate to use the word but unfortunately they averaged > 22% per annum return for four years, and I now rather regret the lost CGT allowance.
- I'll ponder this in the days to come, cheers.Gassing Station | Finance | Top of Page | What's New | My Stuff