Tax question

jimjames

TCA wrote: »

So for a basic rate tax payer who doesn't need his full capital gains tax allowance each year, there's no advantage of a S&S ISA over a normal trading/investment account?

Yes - if you are looking at the immediate benefit.

However in many cases there may be a situation later on where the person becomes a higher rate taxpayer and if investments are not inside an ISA will suddenly become liable for additional tax. If the portfolio is substantial then it wouldn't be possible to shelter it from tax for some time drip feeding into ISAs at that point. The same applies if the portfolio grows well and the holder needs to sell at a time when they can't utilise their CGT allowance fully.

If held inside an ISA then these issues would not occur but it does really depend on your situation. If someone was a pensioner with no likelihood of a hike in income to put them in higher rate bracket then an ISA may not be beneficial; someone age 25 is more likely to need that shelter later on.

Having said that for many investments it is no more expensive to use an ISA so worthwhile doing.

jimjames

Thrugelmir wrote: »

Some trusts have income shares, growth shares and a combination of the 2 (units).

Off the top of my head both of these F&C stable trusts have this structure. Investors Capital Trust and FC Managed Portfolio Trust.

Good point. Although they are slightly different if they are split capital trusts in that income shares get the income, growth shares get capital gains whereas ACC units get income bundled up into the unit price and INC units get it paid out and both get the same capital gain.

Thrugelmir

jimjames wrote: »

Good point. Although they are slightly different if they are split capital trusts in that income shares get the income, growth shares get capital gains whereas ACC units get income bundled up into the unit price and INC units get it paid out and both get the same capital gain.

The Managed Portfolio holds different investments in the different classes. With each having a focus on either growth or income.

Thrugelmir

TCA wrote: »

So for a basic rate tax payer who doesn't need his full capital gains tax allowance each year, there's no advantage of a S&S ISA over a normal trading/investment account?

You can hold Corporate bonds inside an ISA and receive the interest gross. More beneficial than a share that pays minimal dividend. As as you say. You can utilise the annual CGT allowance.