How all works (ISA and investment account)

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the_learner
the_learner Posts: 183 Forumite
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Hi all,

I have an ISA account with Fidelity at the moment. I have seen that all profits generated by funds in my ISA will be tax free.
But what about the personal allowance for capital gains?

Suppose I have 15k in the ISA. Every profit here will be tax free.
Then there is anothere 20k held in a normal investing account. This money is also invested through funds.
Will any profits outside the ISA be taxfree? I see that we have 11k allowance but does this mean that I won't pay any tax on profits from fund dealing (even if outside ISA) as long as total profits for the year are below 11k?

Or I am wrongly interpreting this?

Thanks for the help.
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  • Linton
    Linton Posts: 17,172 Forumite
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    Your understanding is correct.

    ISAs are completely shielded from income tax and CGT.

    You dont pay CGT on share/fund transactions outside an ISA whilst your total capital gains from share/fund dealing and anything else liable for CGT you sell are less than £11K in any one tax year.
  • the_learner
    the_learner Posts: 183 Forumite
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    Thanks for the reply. That is helpful. But how does ISA allowance cumulate overtime?
    If now I have 15k £ in the ISA, what happens in 2015? Suppose no P&L was generated in 2014. At that point I already have an "old" ISA containing 15k £ (the 2014 ISA). Am I allowed to open a "new" ISA according to the rules as of 2015? If yes, and supposing the allowance for 2015 will be again 15k £, this means that next year I could have a total of 30k £ (the sum of the "old" and the "new" ISA) that I can use?
    And all this can be used to invest in funds and potentially generate tax free profits? Is that how ISA cumulate over time?
  • badger09
    badger09 Posts: 11,211 Forumite
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    Each year 6th April - 5th April, you have a new ISA allowance.

    This year, the maximum you can pay into an ISA is £15k.

    From 6 April 2015 you will be able to pay in a further £xxx (whatever allowance the government decides). What has been built up over previous years does not affect this.

    You can either pay that £xxx into your existing ISA, or open a new one.

    Generally, you would just keep paying into the same S&S ISA year on year, but with cash ISAs you would probably want to open a new one, as most instant access cash ISAs include a bonus which reduces after 12 months.
  • the_learner
    the_learner Posts: 183 Forumite
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    Thank you, it seems too good to be true so I am asking a clarification. And sorry for that but it's my first ISA so I'm not totally familiar with it.
    Here's the point to clarify, if you can.

    If the allowance doesn't change during tge next 5 years, does it mean that in 5 year I will have in the ISA 75k that I can use to invest tax free?
    And if I am married, this amount doubles, thus being 150k that can generate profits tax free?

    And, in top of that, there can be other money ourside the ISA that can generate profits that are not taxed if less that 11k?

    It's all hyphotetical but can help me to finally understand how these benefots can cumulate over time.

    Thanks again.
  • jimjames
    jimjames Posts: 17,624 Forumite
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    Yes after 5 years you could have 5 x £15k in your ISA. Each person has that allowance so your partner would have the same - but that is their ISA not yours and they cannot be joint.

    You still would need to find £15k per year to put in it which is beyond the average person in the UK when the average salary before tax is under £30k.
    Remember the saying: if it looks too good to be true it almost certainly is.
  • Eco_Miser
    Eco_Miser Posts: 4,708 Forumite
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    IF you pay in £15k in each of the 5 years, you will indeed have £75k, plus whatever growth/dividends/interest has accumulated in the ISA, all free of capital gains tax, and income tax, which you will have invested and presumably will continue to have invested. Or possibly, you will have less than £75k, if your investments have made a loss, which is quite possible.

    Being married does NOT double your allowance. However, your spouse will have their own allowance, and assets can be freely transferred between spouses.

    Outside an ISA, CGT potentially becomes due when you sell assets (not when the valuation increases). The first 11k (currently) each year is free of tax.

    Before you get carried away with the thought of all this tax-free money, remember you will typically have held the assets for many years, and much of the gain is due to inflation.
    Eco Miser
    Saving money for well over half a century
  • the_learner
    the_learner Posts: 183 Forumite
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    Thanks for the answer. As said is an hypothetical example just to understand how things work.

    That is all clear now. :j

    Only one point is left to clarify. I start with 15k in 2014.
    Suppose I manage to get 1k in profits.
    These are tax free and in April 2015 the amount in my old ISA is 16k.
    At that point I can pay the new allowance into the ISA. Suppose it's again 15k. Taking into account the profit, the total amount that is investable (and that can potentially generate tax free profits) is 31k?

    In other words, does the realized profits made inside the ISA cumulate together with the allowance?

    I'm sorry for all these doubts. Thanks.
  • Eco_Miser
    Eco_Miser Posts: 4,708 Forumite
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    The allowance is what YOU can pay in. All profits can remain in the ISA and generate further profits.
    Eco Miser
    Saving money for well over half a century
  • DesG
    DesG Posts: 1,288 Forumite
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    lol, it is good isn't it :)

    Yes, all capital and all gains will be tax free forever while they are within your ISA.

    Hence why there is a limit on how much you can add with the annual allowance.
  • the_learner
    the_learner Posts: 183 Forumite
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    Guys things are becoming clear now. Just want to add one thing.
    In my example before there was a 15k ISA generating 1k profit in 2014. In 2015 a new 15k payment is done into the new ISA for a total 31k.
    At this point the cumulated allowance is 30k and 1k is the profit.
    If I withdraw 5k from my total ISA I reduce the amount to 26k.
    I am not allowed to make further payment to restore my original amount until a new year begins with the new allowance, is it correct?
    So everytime you withdraw from an ISA you loose the benefit on that part forever without the opportunity to restore the amount to the original amount.
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