What will I have to pay in cgt ?

wooder

I am currently in the process of selling a rental property and intend to invest the proceeds in a s&s isa.

If I come out of the deal all taxes and fees paid with say, £60K, I obviously can't put it all into my s&s isa in the first year so after putting up to the limit in the isa, the rest will then be invested in the same fund, but not in the isa wrapper.

After the next tax year I will then be able to move £15k of the non-isa investment over to the isa (this would have to be done on a sell then buy basis).... and so on, each year, until eventually it is all in the isa wrapper.

What will the capital gains position be and how is it calculated, being that eventually it will all be invested tax free ? I can't get my head round the way it would work !

The fund I would be investing in has grown about 63% in the last three years (which assures nothing, I know) and the tax on dividends is taken at source.

Reaper

I assume you are just talking about the fund investment rather than your house.

You have an annual capital gains allowance of £11,000 and unless your gains exceed this (or you have used up your allowance elsewhere) you won't have to pay any tax.

If the fund you are buying is a standard OEIC then you are buying a number of units in it. When you come to sell part of it some of those units will be sold. Therefore it is relatively easy to see how the sell price of each unit differs from your buy price (keep a note of that). Once you know the size of the gain and the number of units sold you will know what the capital gain has been.

P.S. You only have to pay CGT when you sell. Only at that point is the gain calculated.

jimjames

Once all your money is in your S&S ISA, after 4 years at £15k pa assuming no increases in the allowance, then you won't have to pay any CGT or income tax on any return or growth within that ISA.

Obviously you have to pay whatever CGT is due on the house and the S&S ISA has no bearing on that.

bowlhead99

If an example helps, here's a cut and paste from something I sent someone a while ago (numbers tweaked for the situation)...

So say you sell your property and get your 60k net after paying any CGT on the house and fees etc. You stick 15k in an ISA and buy a similar fund outside the ISA with the other 45k.

Let's say the 45k investment in that fund gets you 45,000 shares that cost £1 each today.

Then on 6 April 2015 you have another ISA allowance available to you at that point. If the fund shares are worth £1.20 each by that week, the whole lot are worth £54k.

In order to get £15k out to max your new ISA allowance, you can simply sell 12,500 shares at £1.20 each. Dump the proceeds into the ISA, buy the same fund (or a different fund if you prefer) inside the ISA, and you'll never need to worry about the tax on income or gains on that £15k again.

But by selling shares that only cost you £12500 for £15000 proceeds, you do have a small gain in that first week of the 2015/16 tax year. It's not much compared to the £11k annual CGT allowance you'll have, so if you aren't making other unwrapped fund gains or selling more investment properties that year, you may not have any tax to pay. In fact you may have loads of spare CGT capacity for 2015/16.

So then in March 2016, you are looking ahead to the 2016/17 ISA allowance. Say the share price is £1.30 by that point. You can sell 11,500 shares in the last week of March to get your hands on another £15k cash ready for investing. Those 11500 shares only cost you £11500 so you have another 3.5k capital gain. Still, the 3.5k gain plus the 2.5k gain you had earlier is only a 6k total gain altogether in that 2015/16 tax year and you're well under the annua gains allowance with no tax to pay if you aren't selling lots of other shares or properties.

So then in mid April 2016 you dump another 15k into the ISA, maxing it with the proceeds you got a few weeks earlier. Sit back and relax for another 11 months.

Then in March 2017 you can look ahead to the 2017/18 ISA allowance that becomes available on 6 April 2017 and try to realise another 15k of proceeds to give you the money.

Say the shares are only worth £1.10 again by now. You have about 21,000 of them. To get your 15k you only need to sell about 13,600 shares. In doing so you'll realise £1,400 of gains; which is completely fine because you haven't used any of your 2016/17 CGT allowance.

A few weeks later you spend the 15k on buying into your 2017/18 ISA.

By this point you have only 7400 shares left worth about 8k in your unwrapped account. Of course they might be worth something more than that or less than that. But you can see how it plays out based on the examples above.

Long story short, unless your unwrapped shares are making continual spectacular gains or you keep selling rental properties, if you have a long term view you'll find it quite easy to drip it into the ISA without ever paying CGT.

I mean, if you're only looking to get your hands on 15k proceeds in a year without getting gains over the CGT limit in that year, you can afford the shares to quadruple or so: then £15000 shares with a base cost of £3750 would give you 11250 profit which might be close to the allowance. In reality the CGT limit will have been going up over time (although probably the ISA allowance will also grow too). HTH

wooder

OK, got that, many thanks.

Any chance you could have a glance to see if my logic is correct...

I bought the house back in 1999 for £10,600 (no, I haven't missed a zero off!) and spent about £6k in renovations to get it ready to rent so it's stood me about £17k to buy. It's up for sale at £67.5k.

I've had it rented ever since at £395/mth with only a couple of short voids totaling about 12 months. I rent it through an agent who charges 10% and looks after everything (worth every penny to me).

I just did a calculation and if I have it rented for the next five years, that's sixty months @ £395 = £23,700/ less agents fee (!0% plus vat) £2844/ less insurance @ £195/yr x 5 = 975/ less maintenance - estimated £3k/ that leaves £16881 less income tax (at basic rate 20%) that leaves £13504.80 (or £225/ mth for 60 mths)

If I sold and, looking on the dark side, came out of it with £50k and put this into a fund, I reckon I will be better off financially providing the fund exceeds 5.5% per annum.

I put the figures into a compound interest calculator and over five years @ 5.5% if I put in the rent monthly after expenses and tax, at the end I would have £15,543 plus the house.

If I invested the £50k in the fund over the same period, same interest with no further monthly additions I would have £65,582. Both calcs are done with the interest compounded half yearly.

If the interest was the same in the particular fund that I have in mind that it has been for the last three years (15.9% per annum) then the figures would be £20,405 with the rent invested or with the house sold and £50k invested the total would have grown to £107,447.