Bed and ISA process and CGT
Discussion
Hi guys,
Just trying to get my head around bed and ISA and CGT allowances. I think I've got the gist of it but would appreciate your thoughts on my worked example.
So my example assumes the annual ISA allowance for a S&S ISA has been used up for the 21/22 year. Remaining funds can then be invested into a GIA. Let's say £100k is invested into the GIA. The £100k has been invested into fund X and has purchased 1000 units @ £100 per unit.
Coming towards the end of the tax year hopefully the fund has increased in value. Lets say the fund has increased 15% so each unit is now worth £115 and fund is worth £115,000. Happy days.
At this point to take advantage of the CGT allowance of £12,300 do I either:
~ Sell 107 units @ £115 per unit to realise a £12,300 (ish) gain which will be tax free and can be used for next years S&S ISA or
~ Sell 820 units @ £115 per unit to give me £94,300. These 820 units originally cost me £82,000, so the gain is exactly £12,300 which would then be used towards next years S&S ISA allowance
I'm guessing its the later of the two options above to realise a £12,300 gain.
Points of consideration:
~ Value of fund towards year end
~ Selling of fund with enough time so the transaction completes before the end of the tax year
Any further advice on the topic would be very much appreciated.
Thanks in advance guys :-)
Just trying to get my head around bed and ISA and CGT allowances. I think I've got the gist of it but would appreciate your thoughts on my worked example.
So my example assumes the annual ISA allowance for a S&S ISA has been used up for the 21/22 year. Remaining funds can then be invested into a GIA. Let's say £100k is invested into the GIA. The £100k has been invested into fund X and has purchased 1000 units @ £100 per unit.
Coming towards the end of the tax year hopefully the fund has increased in value. Lets say the fund has increased 15% so each unit is now worth £115 and fund is worth £115,000. Happy days.
At this point to take advantage of the CGT allowance of £12,300 do I either:
~ Sell 107 units @ £115 per unit to realise a £12,300 (ish) gain which will be tax free and can be used for next years S&S ISA or
~ Sell 820 units @ £115 per unit to give me £94,300. These 820 units originally cost me £82,000, so the gain is exactly £12,300 which would then be used towards next years S&S ISA allowance
I'm guessing its the later of the two options above to realise a £12,300 gain.
Points of consideration:
~ Value of fund towards year end
~ Selling of fund with enough time so the transaction completes before the end of the tax year
Any further advice on the topic would be very much appreciated.
Thanks in advance guys :-)
It's definitely number 2.
Consider in advance what you intend to reinvest the money still in the GIA into, as you can't go back into the original asset for 30 days, and also it is advantageous to hold an asset that delivers returns as both capital gains and dividends, as that gives you two allowances to use, rather than just one.
Think ahead though about likely asset growth and your cash accumulation plans. It might be practical to simply sell £20,000 worth (to use a year's ISA allowance) and wasting CGT allowance if you're happy with your asset allocation, and consider it very unlikely you'll be making any further investments in a taxable account so your taxable account will gently taper down in value until it is all in the ISA wrapper.
Obviously if you're drowning in cash to be invested each year this approach isn't tenable, and seeking to harvest all your CGT allowance each year is highly desirable.
There are a couple of worked examples here https://monevator.com/an-example-of-defusing-capit...
Consider in advance what you intend to reinvest the money still in the GIA into, as you can't go back into the original asset for 30 days, and also it is advantageous to hold an asset that delivers returns as both capital gains and dividends, as that gives you two allowances to use, rather than just one.
Think ahead though about likely asset growth and your cash accumulation plans. It might be practical to simply sell £20,000 worth (to use a year's ISA allowance) and wasting CGT allowance if you're happy with your asset allocation, and consider it very unlikely you'll be making any further investments in a taxable account so your taxable account will gently taper down in value until it is all in the ISA wrapper.
Obviously if you're drowning in cash to be invested each year this approach isn't tenable, and seeking to harvest all your CGT allowance each year is highly desirable.
There are a couple of worked examples here https://monevator.com/an-example-of-defusing-capit...
Edited by xeny on Tuesday 13th July 19:33
Scenario 2 - it's capital 'gain' not capital 'amount'. Be careful if you realised any gains already elsewhere in the tax year though as the allowance is per person per tax year not per event. E.g. someone sells a Buy to Let in the same year or sells some other shares or realises a profit from an employer SAYE scheme.
xeny said:
It's definitely number 2.
Consider in advance what you intend to reinvest the money still in the GIA into, and also it is advantageous to hold an asset that delivers returns as both capital gains and dividends, as that gives you two allowances to use, rather than just one.
Can you give me an insight on the other allowance you are referring to here? Is it the £2k divi allowance? If so I already utilise this through dividends through my LTD. But a great idea nevertheless for those we a decent chunk to invest.Consider in advance what you intend to reinvest the money still in the GIA into, and also it is advantageous to hold an asset that delivers returns as both capital gains and dividends, as that gives you two allowances to use, rather than just one.
Also bear in mind the '30 day rule' so in your example of selling 94k of units and reinvesting 20k in your ISA you can't buy back into the same holdings with the remaining 74k for 30 days or you won't be deemed to have 'washed out' the gain. You can either sit on cash for 30 days or invest in something else and then switch back 30 days later if you want to end up back in the same original holdings.
Jules Sunley said:
Also bear in mind the '30 day rule' so in your example of selling 94k of units and reinvesting 20k in your ISA you can't buy back into the same holdings with the remaining 74k for 30 days or you won't be deemed to have 'washed out' the gain. You can either sit on cash for 30 days or invest in something else and then switch back 30 days later if you want to end up back in the same original holdings.
I didn't think the 30 day rile applied when you are switching into ISA or SIPP hence why the terms Bed&ISA and BED&SIPP existMr Overheads said:
Jules Sunley said:
Also bear in mind the '30 day rule' so in your example of selling 94k of units and reinvesting 20k in your ISA you can't buy back into the same holdings with the remaining 74k for 30 days or you won't be deemed to have 'washed out' the gain. You can either sit on cash for 30 days or invest in something else and then switch back 30 days later if you want to end up back in the same original holdings.
I didn't think the 30 day rile applied when you are switching into ISA or SIPP hence why the terms Bed&ISA and BED&SIPP existmsport123 said:
Can you give me an insight on the other allowance you are referring to here? Is it the £2k divi allowance? If so I already utilise this through dividends through my LTD. But a great idea nevertheless for those we a decent chunk to invest.
Sorry, it is the £2K dividend allowance. :-(Gassing Station | Finance | Top of Page | What's New | My Stuff