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    • fred246
    • By fred246 7th Oct 17, 5:15 PM
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    fred246
    Investing in funds outside ISA
    • #1
    • 7th Oct 17, 5:15 PM
    Investing in funds outside ISA 7th Oct 17 at 5:15 PM
    I am trying to work out how to invest an inheritance. I have used my pension and ISA allowance. I would like to invest a bit in funds outside an ISA. If my dividend is less than £2000 I should avoid dividend tax. Also avoiding Capital Gains Tax. Do I have to sell each year and buy a new fund? Bit confused by all the changes in "bed & breakfasting".
Page 1
    • AnotherJoe
    • By AnotherJoe 7th Oct 17, 5:24 PM
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    AnotherJoe
    • #2
    • 7th Oct 17, 5:24 PM
    • #2
    • 7th Oct 17, 5:24 PM
    AIUI you can't sell and buy back the same fund or share within 30 days. However that's easily bypassed with funds or ITs or ETFs by buying a very similar one, not possible with individual company shares.
    • bostonerimus
    • By bostonerimus 7th Oct 17, 5:32 PM
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    bostonerimus
    • #3
    • 7th Oct 17, 5:32 PM
    • #3
    • 7th Oct 17, 5:32 PM
    Selling is what triggers capital gains tax. You can do this tactically to make use of capital gains tax allowances.
    Misanthrope in search of similar for mutual loathing
    • ColdIron
    • By ColdIron 7th Oct 17, 5:48 PM
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    ColdIron
    • #4
    • 7th Oct 17, 5:48 PM
    • #4
    • 7th Oct 17, 5:48 PM
    You are only liable for CGT when you make a disposal. If you hold your investment for 10 years there is nothing payable for 10 years. If you then sell some or all of your investment you are liable on your gain, broadly the difference between what you paid and the value you realised. You have an annual allowance of £11,300 in this tax year so only pay tax on gains above this threshold. There are several ways to manage your affairs to mitigate this, transfer to spouse, periodic sale and repurchase (bearing in mind the 30 day rule) but it really depends on the amounts involved, you might find you don't need to do anything, preparation is the key. The dividend tax allowance is £5,000 in this tax year, £2,000 from next tax year
    • fred246
    • By fred246 7th Oct 17, 5:48 PM
    • 921 Posts
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    fred246
    • #5
    • 7th Oct 17, 5:48 PM
    • #5
    • 7th Oct 17, 5:48 PM
    I always invest in ACC funds in an ISA. Are INC funds better so you can split dividend from capital gain? Do you buy and sell in March or April? When are dividends generally paid?
    • badger09
    • By badger09 7th Oct 17, 6:37 PM
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    badger09
    • #6
    • 7th Oct 17, 6:37 PM
    • #6
    • 7th Oct 17, 6:37 PM
    I always invest in ACC funds in an ISA. Are INC funds better so you can split dividend from capital gain? Do you buy and sell in March or April? When are dividends generally paid?
    Originally posted by fred246
    Inc funds outside an ISA make it easier to keep track of dividends for tax purposes

    Capital Gains Tax only comes into play when you sell

    You can buy & sell whenever you like, but if you haven't used your annual CGT allowance before then, it makes sense to sell in March

    Dividends are payable whenever the company says it will pay them
    • Keep pedalling
    • By Keep pedalling 7th Oct 17, 7:36 PM
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    Keep pedalling
    • #7
    • 7th Oct 17, 7:36 PM
    • #7
    • 7th Oct 17, 7:36 PM
    If you just sell enough each year to top up your ISA you are very unlikely to exceed your annual CGT allowance, so over time you should be able to get the lot into Your ISA without paying a penny of CGT.
    • fred246
    • By fred246 8th Oct 17, 5:57 AM
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    fred246
    • #8
    • 8th Oct 17, 5:57 AM
    • #8
    • 8th Oct 17, 5:57 AM
    The yield quoted on the VLS80 inc fund is 1.65%. If I invested £100K that would mean that as long as it didn't get better than 2% I would have no dividend tax to pay? You would then have to withdraw 'chunks' and make sure that the capital gain on the 'chunk' was not greater than £11300 each year?
    • ColdIron
    • By ColdIron 8th Oct 17, 10:26 AM
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    ColdIron
    • #9
    • 8th Oct 17, 10:26 AM
    • #9
    • 8th Oct 17, 10:26 AM
    The yield quoted on the VLS80 inc fund is 1.65%. If I invested £100K that would mean that as long as it didn't get better than 2% I would have no dividend tax to pay?
    Originally posted by fred246
    Basically yes, but I wouldn't die in a ditch if I exceeded the allowance. If you have to pay tax then 7.5% is a rate I can live with

    You would then have to withdraw 'chunks' and make sure that the capital gain on the 'chunk' was not greater than £11300 each year?
    In terms of understanding the issues then yes again, but you should be careful of letting the tax tail wag the investment dog. Prioritise your objectives and total return over tax reduction even if you have to pay a little
    • lpgm
    • By lpgm 8th Oct 17, 11:16 AM
    • 200 Posts
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    lpgm
    Yesterday I finally got round to putting a spreadsheet together to help me work out the gains when I eventually decide to sell parts of my Fundsmith holding, which I bought at different prices over a period of time, outside an ISA. I've got the accumulation shares, which does make it a bit trickier. But the fund manager will tell you what the income is, even if they reinvest it for you.

    The gov.uk page on working all this out isn't too bad to get your head around: https://www.gov.uk/government/publications/shares-and-capital-gains-tax-hs284-self-assessment-helpsheet/hs284-shares-and-capital-gains-tax-2016
    • lpgm
    • By lpgm 8th Oct 17, 11:25 AM
    • 200 Posts
    • 99 Thanks
    lpgm
    By the way, if anyone else is trying to deal with ACC shares, here are the two paragraphs from the link above that helped...

    "If you hold accumulation units you will not receive distributions of income from the trust. Instead, the income is retained and reinvested automatically for you (a ‘notional distribution’). You do not receive any new units, but the value of your existing units is increased. If you receive notional distributions which are subject to Income Tax, you are allowed the amount of these distributions as additional expenditure on your accumulation units."

    AND

    "If all the shares in the holding are disposed of, the allowable expenditure is all of the pool of cost. If only some of the shares are disposed of, the allowable expenditure is a fraction of the pool of actual cost. The fraction is ‘Number of shares sold’ divided by ‘Total number of shares in the holding’.

    The remaining cost in the holding, to be identified against future disposals, is reduced accordingly."
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