Stocks and Shares ISA benifits???

TravelTiger

Hi
I have taken out the full £7000 Maxi ISA allowance in the form of a Fidelity Moneybuilder Fund. I am a standard rate tax payer.

My question is what benefit do I gain by opening this fund under an ISA wrapper.

My understanding is that tax will still be deducted from dividends at a rate of 10% regardless of it being an ISA.

Is this correct? Any help would be appreciated

Would I be better opening this fund without the ISA wrapper and using my ISA allowance for a cash Mini ISA? As I have other cash savings in a bank.

debbie42

My understanding is that dividends are effectively already taxed when you get them, whether that's within or outside of an ISA. Unless you are a higher rate tax payer then there are no advantages (as far as dividends go) to having the shares within an ISA.

However, CGT is exempt, and also you don't need to account for ISAs on a tax return.

For what it's worth, I am happy to pay the extra £25 p.a. to keep my S&S in an ISA wrapper, and I'm not a higher rate tax payer. The CGT liabilities may mount up, I don't have any paperwork, and who knows how the situation may change in future?

It depends how much your manager is charging, of course. I'd maybe not be so keen if it cost me a few hundred each year.

Oh, and the cash/share split is entirely an individual choice. I split mine between two minis as I like to be around half cash + half shares atm.

dunstonh

No capital gains tax to be concerned with. No impact on personal taxation (wont take you into higher rate for example or what impact on age allowance).

If you use fixed interest funds, then the tax deducted at source is reclaimed.

You should note that single fund investing usually results in lower returns over the long run and you should consider switching the funds to give you a better spread.

Would I be better opening this fund without the ISA wrapper and using my ISA allowance for a cash Mini ISA? As I have other cash savings in a bank.

The cumulative benefit of ISAs over the period (on top of the things already mentioned) make it worthwhile to have S&S ISAs.

carnet

dunstonh wrote: »

If you use fixed interest funds, then the tax deducted at source is reclaimed.

There are also at least six Equity & Bond funds residing within the Cautious Managed Sector, where the managers have stated their intention to maintain at least a 51% bond weighting, and whose payments are therefore classified as interest rather than dividends and, as such, are eligible for the tax reclaim within an ISA.

Interestingly (no pun intended!), the recently launched New Star International Property Fund will also be eligible.

TravelTiger

Thanks for replying everyone.

I was aware of the exemption to Capital Gains Tax but it I thought it wasn’t something which would affect me at the moment. However as Debbie42 points out, with a bit of luck, it may be an issue in the future so it would be a good idea to take advantage of the ISA wrapper for S&S.

I gather from what you are saying that you need to file a Tax Return if you hold a fund outside the ISA wrapper. I wasn’t aware of that.

Thanks again.

debbie42

andrewrwebsteruk wrote: »

I gather from what you are saying that you need to file a Tax Return if you hold a fund outside the ISA wrapper. I wasn’t aware of that.

I don't think you have to fill in a tax return. I don't!

However, if you do submit a tax return, for whatever reason, then you'd need to fill in the relevant part for your shares. Holding them within an ISA means they can be ignored on the tax return.

jamesd

debbie42, you might be wrong not to be declaring the interest and dividends each year if your investments are held outside an ISA. Even if the units are accumulationunits that reinvest them automatically. Hopefully someone more familiar than I am with the tax return requirements will comment.

There's a tax amnesty running until 22 June so if it turns out that you are missing something a call to your local tax office saying that you got it wrong may save you some penalties.

debbie42

Thanks for the concern James.

I'm below the tax threshold, even allowing for the dividend + interest income, so don't need to fill one in, unless asked. I'm certainly not volunteering! :rolleyes:

StevieJ

debbie42 wrote: »

Thanks for the concern James.

I'm below the tax threshold, even allowing for the dividend + interest income, so don't need to fill one in, unless asked. I'm certainly not volunteering! :rolleyes:

Debbie I am sure you are correct, no point contributing to all that bureaucracy.

King_Weasel

This topic has already been discussed under the thread "Self-Select ISAs - What's the Point?", so, along with the repetition, there may be some additional points there. However, the latter was confined to SELF-SELECT ISAs, not funds. Personally, I think this distinction may be important: I can't see what you lose by using the wrapper for funds, if it's available, but, as a small investor on standard rate tax, I'm still not convinced that the £25 or more a year I would be charged for a Self-Select ISA is worth it when Hoodless Brennan charge me nothing unless I trade. But that's just my conclusion for my circumstances - I don't claim the expertise to advise others.

Grey_Squirrel

debbie42 wrote:

I'm below the tax threshold, even allowing for the dividend + interest income, so don't need to fill one in, unless asked. I'm certainly not volunteering

If you have less income than your personal allowance, you could be due for a refund of tax paid on interest on savings or share dividends.