Cash "aggregation" saving platforms?

[JulianPH]

Tax on unwrapped investments:

I will use round numbers here, this is for the maths and unlikely to be a real scenario...

(If) you have a £200k in unwrapped investments that return 7% a year (of which 6% is capital gains and 1% is dividend income), then this is £2,000 of dividend (which is tax free) and £12,000 (of tax free) capital gain.

But to make this capital gain fully tax free (by using your annual allowance) your must account for it it in the tax year concerned.

This likely involves you withdrawing the gain and not reinvesting it back for a minimum of 30 days,

If yo do not do this you have not "crystallised the gain" against your annual allowance.

This is based upon the latest version of the old "bed and breakfast" rules.

Whilst it is possible to carry on capital losses it is not possible to carry on your capital gains allowance, so you have to use it each year (or lose it, just like your ISA allowance).

If you make an income over the dividend allowance then you have to declare this and pay income tax on it. It doesn't matter whether you withdrew it or reinvested it, it is still income earned within that tax year.

Capital gains can be better managed when you withdraw money (though the rules above apply when you don't). You can elect to treat any withdrawal as a tax free return of capital (until you have exhausted this).

So investment and tax planning is not what it initially appears, it is more important than that!

I hope that is helpful,!



Edited for stupid mistakes!

Edited by JulianPH on Sunday 25th August 20:46

[bitchstewie]

Thanks all, that's all useful stuff

Presumably you mean sell but just leave the money in the General Account as cash for 30 days?

You don't literally need to withdraw it to the bank or anything?

Next dumb question, do HL or any of the platforms give you anything to help with this?

I'm sure there must be lots of people who've never given CGT a second thought yet have no deliberate intention of avoiding it, it's just not very "in your face".

[JulianPH]

bhstewie said:

Thanks all, that's all useful stuff

Presumably you mean sell but just leave the money in the General Account as cash for 30 days?

You don't literally need to withdraw it to the bank or anything?

Next dumb question, do HL or any of the platforms give you anything to help with this?

I'm sure there must be lots of people who've never given CGT a second thought yet have no deliberate intention of avoiding it, it's just not very "in your face".

That's correct. There is no need to withdraw the money and put it back in again. Just crystallise any capital gain within your allowance each tax year, move this to your cash account within your GIA and reinvest after 30 days.

Remember, you also have to factor in any capital gains made through rebalancing or general trading/fund switches.

I am sure HL and the like will have some sort of guides, but as you can see it is quite personal to each individual in practice.

We spend a lot of time working with clients and their accountants on this for GIA's they hold with other providers and I have not come across anything remotely helpful from these providers (all the usual suspects) to date.

I can only see this work increasing when we launch our own GIA next month and with this in mind I am giving a strong focus on software development to streamline this process.

[springfan62]

Mr Pointy said:

JPH will reply I'm sure but no, you only get £12k personal allowance per year. If you wanted £60k you could take out your original £40k (£10k from each) & then £20k of gains. Of that £12k is tax free so you's pay tax on £8k.

(Fervently hoping I've got that right).

You cannot sell your original investment and leave only the gain in the account for tax purposes.

Say you purchase an investment for £10k and it goes up in value to £20k.
If you sell half then you would realise half of your gain. So if you sold half of the above £5k would relate to your original investment and £5k would be gain.

Therefore £5k would be liable to CGT in the above scenario (subject also to your £12k annual CGT allowance).

[Helicopter123]

JulianPH said:

Tax on unwrapped investments:

I will use round numbers here, this is for the maths and unlikely to be a real scenario...

(If) you have a £200k in unwrapped investments that return 7% a year (of which 6% is capital gains and 1% is dividend income), then this is £2,000 of dividend (which is tax free) and £12,000 (of tax free) capital gain.

But to make this capital gain fully tax free (by using your annual allowance) your must account for it it in the tax year concerned.

This likely involves you withdrawing the gain and not reinvesting it back for a minimum of 30 days,

If yo do not do this you have not "crystallised the gain" against your annual allowance.

This is based upon the latest version of the old "bed and breakfast" rules.

Whilst it is possible to carry on capital losses it is not possible to carry on your capital gains allowance, so you have to use it each year (or lose it, just like your ISA allowance).

If you make an income over the dividend allowance then you have to declare this and pay income tax on it. It doesn't matter whether you withdrew it or reinvested it, it is still income earned within that tax year.

Capital gains can be better managed when you withdraw money (though the rules above apply when you don't). You can elect to treat any withdrawal as a tax free return of capital (until you have exhausted this).

So investment and tax planning is not what it initially appears, it is more important than that!

I hope that is helpful,!



Edited for stupid mistakes!

Edited by JulianPH on Sunday 25th August 20:46

Julian, I don't think you can only withdraw the gain?

Surely if your £200k has grown to £212k, you need to "sell" the entire £212k to crystallise the £12k of gain?

[DonkeyApple]

Does FIFO apply for CGT calcs? I’m sure I recall, twenty odd years ago, that particular certs were chosen when B&Bing?

[JulianPH]

springfan62 said:

Mr Pointy said:

JPH will reply I'm sure but no, you only get £12k personal allowance per year. If you wanted £60k you could take out your original £40k (£10k from each) & then £20k of gains. Of that £12k is tax free so you's pay tax on £8k.

(Fervently hoping I've got that right).

You cannot sell your original investment and leave only the gain in the account for tax purposes.

Say you purchase an investment for £10k and it goes up in value to £20k.
If you sell half then you would realise half of your gain. So if you sold half of the above £5k would relate to your original investment and £5k would be gain.

Therefore £5k would be liable to CGT in the above scenario (subject also to your £12k annual CGT allowance).

Edited to say I misread this and you are correct.

Anyone can make a mistake and I will always hold my hand up when I do!

Edited by JulianPH on Tuesday 27th August 12:22

[JulianPH]

Helicopter123 said:

Julian, I don't think you can only withdraw the gain?

Surely if your £200k has grown to £212k, you need to "sell" the entire £212k to crystallise the £12k of gain?

Hi Mark

Edited as per the post above.

Cheers!

Edited by JulianPH on Tuesday 27th August 12:23

[JulianPH]

DonkeyApple said:

Does FIFO apply for CGT calcs? I’m sure I recall, twenty odd years ago, that particular certs were chosen when B&Bing?

Hi mate

FIFO has effectively been reversed now (LIFO) but doesn't really apply to the tax reporting, just the B&Bing angle.

[springfan62]

JulianPH said:

I'm sorry, but this is simply not correct.

In your example above the £10k withdrawal can be treated entirely as a capital gain (which you would want to do if you had £10k of CGT allowance available) or entirely as a return of capital (if you have no CGT allowance remaining this year and want to defer taking the gain until the following tax year).

There is no rule in place that says you have to deal with the withdrawal as you set out.

Mr Pointy was correct.

I think you need to provide a worked example to demonstrate what you mean.

To calculate the CGT you would need to know how many shares are being sold.
Each share is sold at a price in this example say there were 10000 shares purchased at £1, they go up in value to £2.
You sell 5000 shares for £2, the CGT calculation is number of shares x (selling price - purchase cost).

You can't just sell the original cost on a share. So every sale has an element of base cost and capital gain in it.

[springfan62]

JulianPH said:

Hi mate

FIFO has effectively been reversed now (LIFO) but doesn't really apply to the tax reporting, just the B&Bing angle.

If you buy shares at different times there is no lifo or fifo any more, so long as they have been owned or 30 days or more, all costs are averaged.

So basically to find the base cost of a share you add up all the purchase costs and divided by the number of shares.

Here's an example from the gov website:

Example

You buy 100 shares for 80p each. The total cost is £80.
You later buy 300 shares for £1.20 each. The total cost is £360.
In total, you have 400 shares costing £440 - the average cost of each share is £1.10.

If you sell 150 shares, the cost of the shares for your tax calculations is £165 (£1.10 multiplied by 150). Deduct this from what you sold the shares for to work out your gain.

This also might assist in understanding the issue of CGT on disposals.

it's quite clear from the above you can't just sell the original cost, and keep the gain in your fund.

[DonkeyApple]

More ‘bed and betting’ is a good solution. It’s always been a shame that your industry and mine don’t talk the same language and think each other are dodgy douche bags.

[bitchstewie]

Ever think when you have a bunch of financial professionals who are (nicely) disagreeing on how it works, what chance the mug punter like me?

[Mr Pointy]

bhstewie said:

Ever think when you have a bunch of financial professionals who are (nicely) disagreeing on how it works, what chance the mug punter like me?

Well that depends on springfan62s credentials. I was going to point out no-one was talking about shares anyway.

[Mezger]

How many tax years can you carry losses forward for?

[JulianPH]

Mezger said:

How many tax years can you carry losses forward for?

Capital losses can be carried forward indefinitely (but not back).

[bitchstewie]

A question:

Assume I have £50K in an unwrapped account and I have around £2k/month of income to invest and this years ISA allowance has been used.

Next year in April does it make sense to put the "new" money coming in into the ISA or can it make sense to "buffer" and sell/transfer from the general account to the ISA?

The savings are slowly being moved into investments but in the meantime there's a steady salary/income that can also be invested.

Edited by bhstewie on Monday 26th August 16:31

[JulianPH]

bhstewie said:

A question:

Assume I have £50K in an unwrapped account and I have around £2k/month of income to invest.

Does it always make sense to put the "new" money coming in into the ISA or can it make sense to "buffer" and then sell/transfer from the general account to the ISA?

The savings are slowly being moved into investments but in the meantime there's a steady salary/income that can also be invested.

As the above shows, ALWAYS put it in and ISA if you can. It doesn't even cost you anything extra.

No income tax, no calculating dividend allowance, no CGT and no requirement to even report it to HMRC on your tax return.

If you already have an unwrapped account then I would assume you have already maxed out your ISA. If so then you can do many things.

Increased pension/SIPP contributions are obvious, but you can also transfer unwrapped money (in a GIA of just in your bank account) to your trusted spouse (no tax there) to use her allowances or mitigate any tax by doing what I spoke about above.

Let's also be frank, you certainly don't want to pay tax where you don't have to, but making a taxable profit is hardly a bad position to be in.

I have always found that number 1 should be the quality and appropriateness of the investment(s) and number 2 should be mitigation tax down to the absolute minimum.

Whenever anyone puts number 2 before number 1 it usually ends in disaster.

I've been involved in trying to sort this out with enough people to learn never make this mistake myself.

Just going back to your original question, give me (or even better, Nik) a shout. We can go over everything without it being made public, there is no fee/charges and we aren't going to try and sell you something! .

Cheers

[Gallons Per Mile]

bhstewie said:

Ever think when you have a bunch of financial professionals who are (nicely) disagreeing on how it works, what chance the mug punter like me?

Tell me about it!! I follow the financial forum with interest and absolutely love learning about what I should do with my money but it's clear I'm going to need a lot of advice and pointing in the right direction...

To that end:

JulianPH said:

...give me (or even better, Nik) a shout. We can go over everything without it being made public, there is no fee/charges and we aren't going to try and sell you something! .

Julian, would you mind if I PM'd you too?! I'd love to ask questions about what I should do, if you're willing to listen to complete confusion on my part about 'doing investing'.

[JulianPH]

Gallons Per Mile said:

bhstewie said:

Ever think when you have a bunch of financial professionals who are (nicely) disagreeing on how it works, what chance the mug punter like me?

Tell me about it!! I follow the financial forum with interest and absolutely love learning about what I should do with my money but it's clear I'm going to need a lot of advice and pointing in the right direction...

To that end:

JulianPH said:

...give me (or even better, Nik) a shout. We can go over everything without it being made public, there is no fee/charges and we aren't going to try and sell you something! .

Julian, would you mind if I PM'd you too?! I'd love to ask questions about what I should do, if you're willing to listen to complete confusion on my part about 'doing investing'.

No problem whatsoever.

Unfortunately (as is always the case) you sometimes get people with very good intentions who don't understand the subject fully giving opinion that confuses.

In this case the individual was simply confusing how you calculate a capital gain, with how you can account for paying it.

It is a very easy mistake to make (and one which leaves many people paying more tax than they need to) however.

Speak soon.