Sharesave Scheme and Tax

gadgetmind

OK, here is my wording. It's a bit OTT as HL know the details of all of this, but I wanted it to be so clear that any cockups would obviously be their fault.

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Investment instructions for [Mr A], client number [123456]

Please find enclosed a share certificate in my name for [xxxx] shares in [yyyy Plc], which are to be placed in my Vantage ISA/Share accounts as follows.


1) 2012/2013 ISA subscription


On or immediately after April 6th 2012, sufficient shares to make a full [£10680] ISA subscription should be transferred directly into my Vantage ISA account without there being a disposal. I enclose a covering letter from the company secretary confirming that these are approved share options allowing them to be placed directly into an S&S ISA without a disposal occurring as allowed under ISA regulations.


I can confirm that I will not be making an ISA subscription for 2012/2013 with any other ISA provider.


2) Any excess shares over and above the ISA limit should be transferred into Mr A’s Vantage Share account.

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As it happens, HL slap them all into my share account and then beam some across into my ISA on the right day as a "Product Transfer"

Note that this wording is when doing everything in the next tax year, because I have ongoing SAYE's/options. If you want to do some this year, and some next, you'll need everything to go straight into your Vantage Share account (which they seem to do anyway) and then HL will need to do the ISA subscriptions in two batches. You will also need to do a "CGT worth" twice, but this is something you can do. You'll need to look at dates very carefully. You need to exercise the SAYE/options some time after Jan 6th to ensure that your 90 day limit reaches the next tax year. Mid Jan should be fine. You then need to count back to see if you can manage it as most (all?) SAYE schemes allow you to defer exercise for only six months.

To transfer shares to a spouse, send HL a letter stating that you "irrevocably gift" a certain number of shares to your spouse, and ask them to move them between your share accounts. A spouse CANNOT do a transfer of shares in your name to an ISA without their being a disposal (I tried and failed!) but HL do have a "Bed and ISA" system that avoids dealing fees.

I'm sure all of the above can be done with any ISA/share company.

BTW, all of the above has gone smoothly for me on several occasions, but you really do need to do your own research here as we're talking about big money.

chris_m

Thanks mate, very helpful.

The_Realist

gadgetmind wrote: »

Oops, I should have corrected this because you're mixing value and gain.

The £10680 (or whatever the ISA allowance is at the time as both this and the CGT allowance are going up by roughly CPI every year) is the *value* of shares that can move to an ISA, not the gain.

I've tried doing spreadsheets that work with value and gain, but have always ended up working in numbers of shares. Each share has an option price (O), a current value (V), which is the company share price on the day of movement/disposal and a gain (G), which is V minus O.

You then have rows in the spreadsheet for each thing you're doing with the shares that works out how many can move into an ISA (£10680/V) or how many can be sold without CGT (£10600/G). The number of shares remaining diminishes as you go down.

As the exact number of shares that will move into an ISA is impossible to predict in advance, you need to wait for these events happen, and then replace your formula for the number of shares with the actual number and everything below adjusts so you can see where you stand.

Working out tax if you have a mix of earned income, interest income and dividend income is complex. You stack these three (in that order) remove any personal allowances, and this shows whether you're in the basic rate band or not. Ignoring the fancy new top rates, income is 20%/40% depending on whether you're basic or higher, and dividend tax is 10% or 32.5% (but the 10% has already been deducted).

You then sit your capital gains (after allowance) on top and see whether you need to pay at 18% or 28%. It's *much* easier to not make any gains above your allowance, but if you do, you can now report this online, and pay the tax the same way.

Note that you don't need to notify HMG if your gains are with allowances UNLESS the disposal proceeds (value) are more than £42400 in any tax year. (Again, this number goes up every year.)

BTW, I am not an accountant, or a tax adviser, or an IFA, so the above might be wrong. However, my accountant regularly sanity checks my plans (and charges me for doing so!) and 95% of the time just nods.

Hi, thanks very much for your help.

I still don't understand where I have gone wrong in what you mention above. Is it possible to illustrate with a numerical example?

Thanks
John

gadgetmind

The_Realist wrote: »

I still don't understand where I have gone wrong in what you mention above. Is it possible to illustrate with a numerical example?

Sure.

You'll be using £9250 to buy shares worth £37k.

You can move £10680 into an ISA this tax year, so you have £37000-£10680=£26320 worth of shares left. Note that the £10680 into the ISA is based on the value of shares on the day they move: what you paid for the shares is irrelevant.

You now have shares worth £26320 but the gain is less than this as what you paid for the shares *is* important. So (1-(10680/37000))*9250 gives the answer £6580 for what you've paid for the shares you'll have left (I just worked out what ratio of shares you sold, took this away from one, and multiplied by what you paid). This gives a gain of £26320-£6580=£19740.

Your CGT allowance is £10600, so £19740-£10600=£9140, which is your taxable gain.

At 18% this is a tax bill of £1645.20. However, if you double dip on either the ISA (which requires the careful timing I explained above) or on capital gains (which requires you dispose of some in one tax year and some the next) or transfer some shares to a spouse, then you will have a tax bill of zero.

[disclaimer]

The above looks right, but I have had a couple of glasses of wine so far tonight!

The_Realist

Thanks, that makes sense now!

Must update my spreadsheet some time to take this into account!

Here is hoping the SP does not crash again!

gadgetmind

It's always one of those "counting chickens" things, and you always have the hold versus sell wrangle, particularly with those shares transferred into an ISA. I've made the decision to always diversify (aka sell) ASAP. So far, it's been a bad decision, but it's still logically the right decision,

The_Realist

I assume once the £10.6k worth of shares is put into the cash isa, you can iimediately withdraw them as cash into your bank account?

Thanks

MoneySaverLog

The_Realist wrote: »

Hi All,

I will have paid £9k into a sharesave and including the bonus it equals £9250.

The shares have done well and in 15 months I might be able to take out circa £37k. Can someone please advise on CGT?

My understanding is:

£9250 back from the investment
£10600 CGT free gain
£10680 transfer directly into a share ISA?? (how exactly does this work?)
Remainder: £37000 - £9250 - £10600 - £10680 will be liable for tax at 18%?

Any advice/correction would be much appreciated.

Thanks
John

Yes I agree with the above. However, CGT only becomes payable when you sell the shares, and so it may be wise to keep hold of £6,740 worth of shares and sell them in the new tax year when you get a new CGT allowance to avoid paying CGT

gadgetmind

The_Realist wrote: »

I assume once the £10.6k worth of shares is put into the cash isa, you can iimediately withdraw them as cash into your bank account?
Thanks

You can't do this with a cash ISA, it has to be a stocks and shares ISA. Once the shares (£10680 worth) are in the S&S ISA, you can hold them or sell them. If you sell, you can either invest in other assets or withdraw the cash. No matter which option you use, you will have used your entire ISA subscription for the tax year and can't do another or either type.

hamski

I am planning on following this guide this coming summer when I have a maturing sharesave, I am thinking of setting up a stocks and shares isa to use the remainder of my allowance for this tax year so I will have an account in place in august when the sharesave matures.It will be the first time I have used s&s isa so will be picking a tracker to keep it simple. Are there any other Brokers and trackers the community could recommend, I have been trying to learn from all the information on the forum but to be honest I just end up confused by all the information available.
Cheers