advantages of moving funds into an ISA??

happyhero · 29 April 2014 at 5:45PM

Hi I have some funds with Hargreaves Lansdown in an ISA and some with them that are just in a fund and share account and I am not 100% clear of the benefits of the ISA here. If I were to move the funds that are not in the ISA currently into the ISA would the only benefit be to protect from Capital Gains Tax as I believe the dividends are taxed at 10% either way?

It seems that if you only have £5000 or less in funds that there is no rush to get them in an ISA wrapper as you would be unlikely to breech the CGT limit of £11,000 in profit in a hurry, plus would there not be some costs involved in moving the funds into the ISA, they mention some bed and ISA system to achieve this?

Also am I right in thinking that the the percentage gain/loss would start at zero again and not show any previous gain/loss when it was in the non ISA account? I know this is irrelevant to the balance but I just want to understand how it works.

Can someone clear this up for me

innovate · 29 April 2014 at 6:09PM

Another advantage of keeping your investments in an ISA is that you do not have to keep records for the taxman. You do not even have to declare any ISA for taxation purposes (but I think you would have to declare them for means testing purposes, so no advantage there).

If you were to bed and ISA and there was any CGT due, you'd have to pay the CGT there and then. However, bed and ISA would count as a subscription and would therefore need to be within your annual allowance. Even with the £15K limit after July 1, you'd most likely struggle to have made more than £11K profit in something that is now worth £15K. Unless you invested that £4K a very long time ago.

I would always maximise my ISA allowance for my investments since there is no downside to doing so. In years to come, if you were to turn some of your investments into cash, you could still benefit from the tax wrapper on straight cash, too (assuming legislation won't remove that option).

ColdIron · 29 April 2014 at 6:22PM

If you are a higher rate taxpayer you are liable for tax on the dividends
If you have any funds that pay interest, such as bonds, this is treated as income and you would need to pay tax even as a basic rate taxpayer

advantages of moving funds into an ISA??

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