What are you doing about next years change in allowances?

[bitchstewie]

I'm fortunate enough to be able to use up my ISA allowance in full each year and I have a healthy sum in an unwrapped general investment account.

The total gain on those unwrapped investments is already above the current capital gains threshold and I have no need to sell any of them.

I pay an amount I'm happy with into my workplace pension to get the maximum employer match but I don't make additional one-off contributions and I don't have a SIPP as I'm not a fan of locking money away for 10 years or more if the Government raise the pension age limits again.

I also have a reasonable amount of cash sat in unwrapped bank and savings accounts but this was "sleep at night" money until 3-4% interest rates arrived at which point it's enough potential interest to pay attention.

Obviously next year allowances change and capital gains and the reduced dividend and interest allowances are something I'm more likely to need to think about.

Something I've never been clear on is if you have regular monthly income to invest and an existing set of unwrapped investments whether each April it makes sense to feed that tax years ISA from the regular monthly income or by selling some of the unwrapped investments and then feeding the unwrapped pot from monthly income.

My understanding is doing this may mean that you're being more sensible around how capital gains build up against any given purchase and sale but I'm not sure of this.

Appreciate there probably isn't a one size fits all answer to that but interested how people approach it.

[Mr Pointy]

Surely it's definately better to realise enough of your GIA each year to produce a gain just under the CGT allowance of £12,300 - I've done this for the past three years so far. Leaving the gain locked up in the GIA just commits you to paying more CGT down the line, especially now the allowance is being slashed.

Personally this year my CGT gains are very low so I'll sell most of my shares & realise the gains from those, up to the £12,300 limit.

[Mr Whippy]

Hmmm good point on CGT changing next year.

Definitely a time to be getting wrappered up asap!

[VR99]

bhstewie said:

I pay an amount I'm happy with into my workplace pension to get the maximum employer match but I don't make additional one-off contributions and I don't have a SIPP as I'm not a fan of locking money away for 10 years or more if the Government raise the pension age limits again.

Interested in this, if a higher rate tax payer makes sense to shovel into the pension but also agree that you don't know what the govt might do in the future with regards to pension rules...quite simply they can't be trusted to not consider targeting pension pots.
However pension provision is important for retirement so how does one strike a balance?

[supersport]

VR99 said:

bhstewie said:

I pay an amount I'm happy with into my workplace pension to get the maximum employer match but I don't make additional one-off contributions and I don't have a SIPP as I'm not a fan of locking money away for 10 years or more if the Government raise the pension age limits again.

Interested in this, if a higher rate tax payer makes sense to shovel into the pension but also agree that you don't know what the govt might do in the future with regards to pension rules...quite simply they can't be trusted to not consider targeting pension pots.
However pension provision is important for retirement so how does one strike a balance?

Remember that a pension is just a tax wrapper around the same investments you can hold in any other wrapper,

So not really important for retirement as a specific vehicle.

Of course as a higher rate tax payer it does make some sense to use them.

[Mr Pointy]

supersport said:

VR99 said:

bhstewie said:

I pay an amount I'm happy with into my workplace pension to get the maximum employer match but I don't make additional one-off contributions and I don't have a SIPP as I'm not a fan of locking money away for 10 years or more if the Government raise the pension age limits again.

Interested in this, if a higher rate tax payer makes sense to shovel into the pension but also agree that you don't know what the govt might do in the future with regards to pension rules...quite simply they can't be trusted to not consider targeting pension pots.
However pension provision is important for retirement so how does one strike a balance?

Remember that a pension is just a tax wrapper around the same investments you can hold in any other wrapper,

So not really important for retirement as a specific vehicle.

Of course as a higher rate tax payer it does make some sense to use them.

Except that a pension/SIPP has the specific advantage of sitting outside your estate for IHT purposes which may be important.

[Jockman]

VR99 said:

bhstewie said:

I pay an amount I'm happy with into my workplace pension to get the maximum employer match but I don't make additional one-off contributions and I don't have a SIPP as I'm not a fan of locking money away for 10 years or more if the Government raise the pension age limits again.

Interested in this, if a higher rate tax payer makes sense to shovel into the pension but also agree that you don't know what the govt might do in the future with regards to pension rules...quite simply they can't be trusted to not consider targeting pension pots.
However pension provision is important for retirement so how does one strike a balance?

No matter what the government do with the pension age limits, they will not keep up with overall lifetime expectancy, short term blips aside.

The odds are very much in your favour.

[bitchstewie]

Mr Pointy said:

Surely it's definately better to realise enough of your GIA each year to produce a gain just under the CGT allowance of £12,300 - I've done this for the past three years so far. Leaving the gain locked up in the GIA just commits you to paying more CGT down the line, especially now the allowance is being slashed.

Personally this year my CGT gains are very low so I'll sell most of my shares & realise the gains from those, up to the £12,300 limit.

This is what I don't know.

I don't have a crystal ball but I don't envisage myself selling the whole lot in one go one day so I've never paid too much attention to the difference between selling some now (and then needing to follow rules around the proceeds as I understand it) v selling down say £15K a year in 10 or 15 years time.

If that makes sense.

[Mr Pointy]

bhstewie said:

Mr Pointy said:

Surely it's definately better to realise enough of your GIA each year to produce a gain just under the CGT allowance of £12,300 - I've done this for the past three years so far. Leaving the gain locked up in the GIA just commits you to paying more CGT down the line, especially now the allowance is being slashed.

Personally this year my CGT gains are very low so I'll sell most of my shares & realise the gains from those, up to the £12,300 limit.

This is what I don't know.

I don't have a crystal ball but I don't envisage myself selling the whole lot in one go one day so I've never paid too much attention to the difference between selling some now (and then needing to follow rules around the proceeds as I understand it) v selling down say £15K a year in 10 or 15 years time.

If that makes sense.

Well if you know you are only ever going to sell lumps at some future point of which the gain portion is less than the future annual CGT allowance it probably doesn't make a difference but you're banking on the allowance still existing & you'd be in trouble if you had a need for a larger amount for some reason.

[Kirkmoly]

bhstewie said:

Mr Pointy said:

Surely it's definately better to realise enough of your GIA each year to produce a gain just under the CGT allowance of £12,300 - I've done this for the past three years so far. Leaving the gain locked up in the GIA just commits you to paying more CGT down the line, especially now the allowance is being slashed.

Personally this year my CGT gains are very low so I'll sell most of my shares & realise the gains from those, up to the £12,300 limit.

This is what I don't know.

I don't have a crystal ball but I don't envisage myself selling the whole lot in one go one day so I've never paid too much attention to the difference between selling some now (and then needing to follow rules around the proceeds as I understand it) v selling down say £15K a year in 10 or 15 years time.

If that makes sense.

I have a completely different take on CGT in GIA’s which may be irrelevant to your circumstances, or not, but fwiw: I have never created a CG just to use my allowance. This is partly because I would rather sell a stock because I see it as poor value than being driven by other factors and I don’t want to sell a stock I like and be forced to sit out of it for 30 days to avoid a wash sale.

More importantly, for me, there is no tax advantage to using my CG allowance. If I look how my life will be funded at retirement age, the order of accessing funds will be 1. State and old Db pension. 2. Cash and deposit accounts. 3. Sale of assets in ISAs 4. Sale of assets in SIPPs. 5. and lastly Sales of assets in GIAs. I suspect that is quite a common scenario. Realistically, the assets in GIAs will never be touched in my lifetime and cycling stocks and cash around to generate CG will not effect the IHT that my estate will pay so net there’s no tax effect of using my CG allowance.

You seem to have assets broadly spread also so if you think long game and particularly as it relates to IHT it might direct your strategy differently.

[Jon39]

bhstewie said:

I'm fortunate enough to be able to use up my ISA allowance in full each year and I have a healthy sum in an unwrapped general investment account.

The total gain on those unwrapped investments is already above the current capital gains threshold and I have no need to sell any of them.

Don't think you have much to worry about.
If your investment strategy is very long-term, no sale equals no CGT.
Final departure also means no CGT (under present rules).
Could be a bit awkward though, if a takeover for cash occurred on a big holding.

If overall taxes (including frozen and reduced allowances) continue to increase (now at the highest level for a very long time), business incentives reduce, the economy stumbles and a government might then realise that taxing too much is counter productive.

In the past, a reduction in the severity of CGT, has resulted in the Treasury collecting more revenue. Put it too high, then many people postpone transactions, so pay nothing at all.

[xeny]

bhstewie said:

Something I've never been clear on is if you have regular monthly income to invest and an existing set of unwrapped investments whether each April it makes sense to feed that tax years ISA from the regular monthly income or by selling some of the unwrapped investments and then feeding the unwrapped pot from monthly income.

My understanding is doing this may mean that you're being more sensible around how capital gains build up against any given purchase and sale but I'm not sure of this.
.

Why wouldn't you? You've presumably read https://monevator.com/defuse-capital-gains-on-shar... ?

[bitchstewie]

Thanks all.

These are investment trusts not individual company shares (I know investment trusts are companies but YKWIM) and are intended as long term holds rather than short (or medium ) term trades.

One of them is below the capital gains threshold and one above due to decent performance in the 18 months I've held it.

[xeny]

bhstewie said:

One of them is below the capital gains threshold and one above due to decent performance in the 18 months I've held it.

I try to minimize any ongoing CGT liability. If circumstances change and I need to sell in a hurry (change of living location for example) why incur more tax than I need to. The allowance is there, and I try and use as much of it as possible each year.

All the money that goes into my ISA each year has gone through an asset in the GIA rather than from earned income as part of this process.

There's a cost in stamp duty, transaction fees and buy sell spread (which is why I tend to hold funds in the GIA), but CGT liabilities hopefully only increase over time.

Edited by xeny on Sunday 26th February 08:25

[bitchstewie]

xeny said:

Why wouldn't you? You've presumably read https://monevator.com/defuse-capital-gains-on-shar... ?

Seems there's two questions.

What to do from April onwards with next years allowances and whether to do anything about what's already in there.

Interesting that Jon and yourself take a different approach about and again this isn't some sort of high turnover trading pot it's simply money that was sitting in the bank earning nothing that is now in some common investment trusts hopefully appreciating in value over the long term.

If my understanding is correct and ISA allowances stay as they are simply selling down £20K each year to feed the ISA and then adding new money to the general account will reduce the capital gains over time as the gains and any losses will eventually be building up against regular monthly contributions rather than a static lump sum?

[xeny]

bhstewie said:

If my understanding is correct and ISA allowances stay as they are simply selling down £20K each year to feed the ISA and then adding new money to the general account will reduce the capital gains over time as the gains and any losses will eventually be building up against regular monthly contributions rather than a static lump sum?

Yes, but keep in mind that the more fragmented a particular instrument's purchase history gets the more fiddly the CGT record keeping and calculation gets.

I suppose I see not using CGT allowance as not that different from not using ISA allowance, in both cases one is building up a future tax liability if one wants to use the money.

[okgo]

xeny said:

I try to minimize any ongoing CGT liability. If circumstances change and I need to sell in a hurry (change of living location for example) why incur more tax than I need to. The allowance is there, and I try and use as much of it as possible each year.

All the money that goes into my ISA each year has gone through an asset in the GIA rather than from earned income as part of this process.

There's a cost in stamp duty, transaction fees and buy sell spread (which is why I tend to hold funds in the GIA), but CGT liabilities hopefully only increase over time.

Edited by xeny on Sunday 26th February 08:25

Presumably this can only really start to happen when the pot in the GIA produces a meaningful amount?

I’ve got same sort of setup as OP though wife’s ISA allowance too, having only started fairly recently the GIA pot thus far isn’t anywhere close to producing £40k so we use cash to fill that.

Am I thinking about this wrong or does it still make sense to use the GIA even on the smallest amount (assuming it’s made a gain that year?)

[Mr Pointy]

I'm struggling to understand the issue here so maybe turn the the question round: why would you NOT take profit to lock in your annual CGT allowance? There are almost no downsides to doing it.

[bitchstewie]

Mr Pointy said:

I'm struggling to understand the issue here so maybe turn the the question round: why would you NOT take profit to lock in your annual CGT allowance? There are almost no downsides to doing it.

That's a very good question

As I understand it if I do that even if I've never had to do one before I'd need to complete a full self assessment (which I don't right now) as I'd fall foul of the 4x rule because of the amount I'd have to sell.

Appreciate that may not be enough of a downside to some people but having unwrapped investments of any decent size looks like it introduces that kind of management headache as soon as you start doing too much with them.

Of course doing it in 10-20 years time is just kicking the can but still it's a consideration.

I expect a lot more people are going to get dragged into this sort of thing under the new limits around dividends and interest and gains.

[xeny]

If you're keen to avoid SA (that ship has sailed for me :-( ) then sell below the reporting limit.

Keep in mind that if you kick the can 10 or 20 years into the future then you're looking at a very much larger can, and depending on your life stage, it could be either when you'd really want the money for retirement, or when your earnings have increased so you'd rather not have "old" investments consuming whatever tax allowances you have at that time.

It isn't as if the tax burden looks likely to fall for the foreseeable future given demographics.