Cash "aggregation" saving platforms?

[anonymous-user]

bhstewie said:

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?

It could make a great deal of sense to sell enough each year from the general account to use that year's CGT-free allowance. Depending on the figures, some people might then use use the proceeds of sale to reinvest into that year's ISA. Depends on overall circumstances.

At the end of the day it doesn't matter how the ISA is funded so long as that year's ISA allowance is used.

It DOES matter if you're exposed to significant future CGT and you fail to use a year's annual CGT allowance. Although CGT rates are not particularly aggressive at the moment they could easily have been increased by the time you get to pay the tax.




Some people may be in a situation where it's worth paying a bit of CGT to take advantage of a year's ISA allowance in full.

• Shares bought for £1. Value today £10. No free cash available to invest in ISA.
• Sell 2,000 shares realising cash of £20,000 to invest in ISA. Capital Gain = £19,000
• Of that capital gain £12,000 is tax free, being the annual tax free allowance
• £7,000 of the capital gain would be subject to CGT, giving rise to a tax bill of between £700 and £1,400 depending on the taxpayer's overall position

It all depends on personal circumstances and your view of future investment returns/taxation.

Edited by anonymous-user on Tuesday 27th August 11:53

[springfan62]

JulianPH said:

Mr Pointy said:

bhstewie said:

Hmm so let me use a bit of wishful thinking as an extreme example.

General account and I put in:

Fund A £10K
Fund B £10K
Fund C £10K
Fund D £10K

I don't touch them and when I next look the balances are:

Fund A £20K
Fund B £20K
Fund C £20K
Fund D £20K

I decide I need £60K.

As CGT is on each holding not the sum total, I could sell the entirety of any three funds and even though I've taken out £60K CGT wouldn't apply as the individual gain on any one fund is within the limits?

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).

The force is strong with this one.

The confusion in this thread comes about from this post.

In the above it is stated that 20k will be liable for CGT.
In actual fact to realise £60k the fund will have to sell £60k of investments as each has made a 100% gain.
The gain on these is £30k

Therefore the actual CGT liability is based on £30k before allowances.

As JulianPH states this is independent of what you withdraw from your account, it is based on the CGT crystalised by selling £60k of investments.

[Gallons Per Mile]

JulianPH said:

No problem whatsoever.

Thanks, I'll sort out a PM soon. Unable to cobble together enough thought at the mo as I'm between night shifts!

[Mr Pointy]

springfan62 said:

JulianPH said:

Mr Pointy said:

bhstewie said:

Hmm so let me use a bit of wishful thinking as an extreme example.

General account and I put in:

Fund A £10K
Fund B £10K
Fund C £10K
Fund D £10K

I don't touch them and when I next look the balances are:

Fund A £20K
Fund B £20K
Fund C £20K
Fund D £20K

I decide I need £60K.

As CGT is on each holding not the sum total, I could sell the entirety of any three funds and even though I've taken out £60K CGT wouldn't apply as the individual gain on any one fund is within the limits?

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).

The force is strong with this one.

The confusion in this thread comes about from this post.

In the above it is stated that 20k will be liable for CGT.
In actual fact to realise £60k the fund will have to sell £60k of investments as each has made a 100% gain.
The gain on these is £30k

Therefore the actual CGT liability is based on £30k before allowances.

As JulianPH states this is independent of what you withdraw from your account, it is based on the CGT crystalised by selling £60k of investments.

This is turning into a long post but I'll leave it all quoted to see the numbers.

If I want to release £60k are you saying I cannot take the following:

Fund A £10k (original investment) plus £5k (gain) leaving £5k of gain in fund
Fund B £10k (original investment) plus £5k (gain) leaving £5k of gain in fund
Fund C £10k (original investment) plus £5k (gain) leaving £5k of gain in fund
Fund D £10k (original investment) plus £5k (gain) leaving £5k of gain in fund

This would crystallise £20k of capital gain.

You say I must do it this way:

Fund A £10k (original investment) plus £10k (gain) & close fund (zero value)
Fund B £10k (original investment) plus £10k (gain) & close fund (zero value)
Fund C £10k (original investment) plus £10k (gain) & close fund (zero value)
Fund D £10k (original investment) plus £10k (gain) leaving fund value of £20k

This would crystallise £30k of capital gain. Why would I do it this way though?

[JulianPH]

springfan62 said:

The confusion in this thread comes about from this post.

In the above it is stated that 20k will be liable for CGT.
In actual fact to realise £60k the fund will have to sell £60k of investments as each has made a 100% gain.
The gain on these is £30k

Therefore the actual CGT liability is based on £30k before allowances.

As JulianPH states this is independent of what you withdraw from your account, it is based on the CGT crystalised by selling £60k of investments.

I think you are right and I am guilty of misreading this. To the extent I have taken down a previous post as reading it back it was far to simplistic and could easily be misread.

Tax is a very complex area and really should be dealt with at an individual level. Allocating withdrawals as a capital return or a capital gain also depends very much on the individual circumstance and the way the investment is held.

Investment returns also include income (such as dividends) and so if the investment had been held for 10 years with an average annual dividend of £2k then there would be £20k available free of any CGT (as obviously income is not a capital gain).

This can form part of the £60k withdrawal thereby reducing the taxable capital gain to just £1.3k (after the CGT allowance).

Cheers!

[JulianPH]

Gallons Per Mile said:

JulianPH said:

No problem whatsoever.

Thanks, I'll sort out a PM soon. Unable to cobble together enough thought at the mo as I'm between night shifts!

No problem, I'm here for a chat whenever suits you.

[springfan62]

Mr Pointy said:

This is turning into a long post but I'll leave it all quoted to see the numbers.

If I want to release £60k are you saying I cannot take the following:

Fund A £10k (original investment) plus £5k (gain) leaving £5k of gain in fund
Fund B £10k (original investment) plus £5k (gain) leaving £5k of gain in fund
Fund C £10k (original investment) plus £5k (gain) leaving £5k of gain in fund
Fund D £10k (original investment) plus £5k (gain) leaving £5k of gain in fund

This would crystallise £20k of capital gain.

You say I must do it this way:

Fund A £10k (original investment) plus £10k (gain) & close fund (zero value)
Fund B £10k (original investment) plus £10k (gain) & close fund (zero value)
Fund C £10k (original investment) plus £10k (gain) & close fund (zero value)
Fund D £10k (original investment) plus £10k (gain) leaving fund value of £20k

This would crystallise £30k of capital gain. Why would I do it this way though?

It doesn't matter how you decide which to sell in this instance as all the funds have performed the same.

When you calculate the CGT liability you look at selling value, less purchase cost.
So to achieve the desired £60k release you could sell £15k of each fund.

The CGT calculation or each fund would be (selling value £15k less purchase cost £7.5k) Gain £7.5k

For 4 funds that would be £30k in total.

You are basically selling 3/4 of your holding and crystallising the same proportion of your gain.

[JulianPH]

springfan62 said:

Mr Pointy said:

This is turning into a long post but I'll leave it all quoted to see the numbers.

If I want to release £60k are you saying I cannot take the following:

Fund A £10k (original investment) plus £5k (gain) leaving £5k of gain in fund
Fund B £10k (original investment) plus £5k (gain) leaving £5k of gain in fund
Fund C £10k (original investment) plus £5k (gain) leaving £5k of gain in fund
Fund D £10k (original investment) plus £5k (gain) leaving £5k of gain in fund

This would crystallise £20k of capital gain.

You say I must do it this way:

Fund A £10k (original investment) plus £10k (gain) & close fund (zero value)
Fund B £10k (original investment) plus £10k (gain) & close fund (zero value)
Fund C £10k (original investment) plus £10k (gain) & close fund (zero value)
Fund D £10k (original investment) plus £10k (gain) leaving fund value of £20k

This would crystallise £30k of capital gain. Why would I do it this way though?

It doesn't matter how you decide which to sell in this instance as all the funds have performed the same.

When you calculate the CGT liability you look at selling value, less purchase cost.
So to achieve the desired £60k release you could sell £15k of each fund.

The CGT calculation or each fund would be (selling value £15k less purchase cost £7.5k) Gain £7.5k

For 4 funds that would be £30k in total.

You are basically selling 3/4 of your holding and crystallising the same proportion of your gain.

All conversation around this is, by definition, too simplistic.

It is simply not possible to work the tax out without looking into the individual circumstances.





Edited to get straight to the point

Edited by JulianPH on Tuesday 27th August 20:35

[springfan62]

I agree calculating an individual's tax liability can be a complex process and probably best left to professionals.

However, understanding what transactions trigger a potential CGT charge and how to estimate the scale of the liability is something every investor should have an understanding of in order to assist in their decision making.