Investing in funds, some outside ISA

srcandas

Just need some confirmation hopefully as all the reading I do still leaves me with doubts.

I am using a S&S and cash ISA. However I have other dosh in various funds (with fidelity for example).

1. Am I right in thinking there is only tax liability if I sell and take the cash (ie. a transfer leads to no tax)?
2. That if income (from a bond fund for example) is automatically reinvested again there is no tax liability until I sell (and that would be Capital Gain and not income tax)?
3. That there is no tax until I take a profit of £10000 (or whatever the allowance is this year)?
4. That I can sell a loosing fund and cancel out a gain elsewhere?
5. That even if inside the allowance I have to declare the transactions on my tax form?

Sorry all rather basic but not written with clarity anywhere I have been. If anyone knows of a reference that gives good clear examples that would also be great.

:beer:

Lokolo

1. What do you mean by transfer?
2. I think you do pay dividend tax in some circumstances Not totally sure on this one though.
3. £10,600 is the CGT allowance.
4. Yes.
5. They may ask (I wouldn't have thought so) but it won't matter for tax calculation as no tax would be due on anything.

srcandas

Lokolo wrote: »

1. What do you mean by transfer?

For example I put £10000 into Fidelity SE Asia. Three years later it has a value of £25000 (a profit of £15000 ). I get Fidelity to sell and use the proceeds to buy in a cash fund.

2. I think you do pay dividend tax in some circumstances Not totally sure on this one though.

So the dividends as I understand it are used to buy further shares in the fund. At the mo that is about £500 a year (paid monthly). So at the end of the year I declare the £500 just as if it was cash paid as dividends on my BP shares for example?

3. £10,600 is the CGT allowance.

4. Yes.

5. They may ask (I wouldn't have thought so) but it won't matter for tax calculation as no tax would be due on anything.

Many Tx Lokolo for your time :beer:

koru

If you hold the investments within an ISA, there is no tax on any capital gain you might make when you sell the investments (the difference between sale proceeds and the purchase cost) nor on any income that might be paid on the investments. There's no need to disclose anything in your tax return.

If you hold the investments outside of an ISA (or other tax protected wrapper, such as a pension), then the answers are:

1 If you sell an investment at a gain, this is potentially subject to capital gains tax.

2 If the investment pays you income, this is subject to income tax whether or not it is reinvested.

3 Gains of up to £10,600 per year are exempt from capital gains tax.

4 Yes, capital losses can be offset against capital gains made in the same year.

5 If your capital gains are below the £10,600 exemption there is usually no need to disclose them on your tax return. See page 5 of this: http://www.hmrc.gov.uk/worksheets/sa150.pdf

gadgetmind

Inside an ISA, you don't need to worry about transfers, income, or capital gains.

Outside an ISA, it's all more complex.

Income from bonds and funds that pay as income needs declaring as income. (Dunno if they withhold basic rate as I don't hold these kind of investments unwrapped.)

Dividend income is "stacked" on top of your earned/etc. income, and there will be extra tax on any that takes on into higher rate tax.

If you use the accumulation version of a fund, you need to declare the re-invested income AND allow for this when working out your capital gain when you sell.

All transfers are disposals for capital gains purposes, which you offset against losses elsewhere and then check against your £10,600 allowance for this year. (And which has been frozen at that for next year, which is a bit off IMO.)

Personally, I prefer direct equity holdings for unwrapped investments, but corporate actions can give you a headache and CGT issues. Investment Trusts are less hassle.

Ark_Welder

gadgetmind wrote: »

Income from bonds and funds that pay as income needs declaring as [STRIKE]income[/STRIKE]. (Dunno if they withhold basic rate as I don't hold these kind of investments unwrapped.)

'Interest'

20% tax is deducted at source. Funds held within a SIPP or ISA will be reclaimed by the platform provider. Whether this is reinvested or held on deposit is usually down to how the individual sets things up.

srcandas

Thanks so much guys, I'm getting a much clearer picture with your help.

So from the sound of it as I can always avoid being a higher tax rate payer I can just let my funds external to any wrapper motor on and not be concerned.

Within two years they will all pop into ISAs so then I'll be ok and while I'd love to have the problem of more profit than £10600 in a year I think it unlikely as my total outside wrappers is just under £20000.

Any recommendations of a good book that is very recent that might help me would be appreciated?

Again tx :beer: