Investments query

Frogletina

I need someone with some patience to help me understand what I should be doing regarding my investments.

I am finding 4 separate investments confusing so have avoided actively dealing with them.


What I have is as follows,


1. An Isa which was once a a pep which I've not added to since then - it is with Legal and General. Does not seem to have done well since I opened it, but is starting to gain a little. Less than £2000 in total.

2. A BT mini isa which I haven't added to for many years, was only one years isa allowance. My dividends get reinvested. With Halifax.


3. BT shares outside of an Isa where I get paid the dividends, but I would rather they got reinvested. With Equiniti.


4. 4 individual company shares with TD Waterhouse. Paying charges as less than £10000 in total


I have a feeling that I should transfer the BT shares to the Isa to avoid CGT - but the majority of my holdings are with BT anyway, and although they have done well recently, I got burned with falling prices before and sold way too late. Determined not to do that again. So I would rather be able to sell without paying CGT if necessary.


Possibly get rid of the Legal and General portfolio.


I'd rather just be able to deal with one company, but not sure who really is the best of the ones I have got.

fwor

Frogletina wrote: »

I have a feeling that I should transfer the BT shares to the Isa to avoid CGT

The rules on transferring shares already held into an ISA are quite restrictive, so this probably isn't an option. You can "Bed and ISA" but that means you have to sell (before buying within the ISA), so you would make the capital gain anyway.

Your investments certainly seem to be heavily biased to one company at the moment though. In that position I'd be tempted to sell some BT shares - keeping within this year's CG allowance - and put that money into more general ISA based funds.

bowlhead99

Depending on whether you've already used up part of your 2014/15 ISA allowance (e.g. with cash ISA), by July you will have up to 15k S&S allowance available for the current tax year.

So your 4 unwrapped shares being valued under 10k would fit in. Some of your unwrapped BT shares also. Tell TD you want an ISA account with them and get them to sell the shares and buy back inside the ISA (or just transfer the proceeds in and buy something else, you could use it as an opportunity to review what you have).

You only need about 5k total account balance with TD to avoid admin fees and inactivity fees if it's inside an ISA, so it will cost nothing to run if it's just shares. So that would be a saving over using their unwrapped account. You can transfer your other two ISAs into it too (this won't affect your current year allowance for new subscriptions).

Then at least you'll have everything in one place and only have one website to visit to manage it and won't be paying the annual admin fee to TD. If you think those five shares and a little bit of one fund are what you truly want, then fine. Most people here would prefer to diversify into a few funds or investment trusts to avoid their investments being so concentrated into the fortunes of a small number of companies.

What shares or funds to buy depends entirely on your goals and how much risk you are willing to take and there is no right answer. A lot of people (me included) would look to have their stock market exposure coming from all the major stock markets around the world rather than from just a few UK listed shares.

If you wanted to move away from TD there are a million other threads here about choosing a broker or funds platform so no point repeating all that; TD is not massively expensive, charging zero on holding shares in an ISA and 0.3% p.a. on holding funds, if you had any. Some other places do it for 0.2% or a flat fee which is good if you have a large porfolio, but if you only had 10k or so of funds on TD's platform alongside some shares, it would be costing you £30 a year for the platform fee which is not a large amount of money.

On your unwrapped BT shares, you can't ignore CGT if you are selling them to put the proceeds in an ISA, and you can't move them direct into an ISA without selling them. If the difference between what you sell them for and what you originally paid for them, when combined with the gains on the other shares you sell this tax year, is over £11k, you exceed the annual CGT exemption and need to pay tax on the excess.

So if you have a total £50k of shares that cost you £30k, there would be £20k of gain and tax due on the last £9k of it. The alternative is just to sell enough of the shares to make a £10-11k profit this year (eg £25k shares bought for £15k) and sell the other half next April using next year's CGT allowance. As the other 4 shares are worth less than 10k total they can't possibly be sitting on 10k of gains so it depends how well the BT ones have done and how many you actually have.

Best way to look at it is:

- All of these assets are liquid and can be sold immediately. So imagine you had done that, and now didn't have any of those assets, you just had cash in different pots, some ISA some not.

- Step One - move all the ISAs into one place to give you one big wrapper with a load of uninvested cash in it.

- Step Two - move as much unwrapped cash as you can into the wrapper in the current tax year (presuming you don't need to use it in the non-investments part of your life)

- Step Three - then consider what shares or funds you actually want to buy with all that wrapped and unwrapped cash, from a clean slate.

Some people would suggest you do step 3 on paper first before step 2, as the absolute cheapest self-select ISA wrapper will depend on what you want to hold in it. But TD are not a bad choice.

The only wrinkle is that if you are sitting on a real heavy amount of unrealised BT gains you might not want to take them all now if it generates a tax charge. So you might need to restrict how much cash you take from that bit, to cap the amount of gains made in this tax year. However if you feel you are overexposed to BT, you should still consider selling it and sucking up a tax bill rather than trying to be clever and then having the shares crash.

Are you overexposed to BT? Well that depends how confident you are in their prospects compared to every other opportunity on the planet. The total value of all the BT shares in issue is about $50 billion. The total value of all the companies on the world's stockmarkets is about $50 trillion. So, if you were investing for a nice balance across all investible stocks, you would have 1/1000th of your money in BT. However, you may know something the market doesn't, or you might really really like UK based telecoms firms out of all the choices of what you could invest in.

Frogletina

Thank you, bowlhead99

I have some work to do now and some decisions to make. I couldn't put all my BT shares in at the moment - I will have to check what price I paid for them. I have BT shares because I worked for them and bought both in share schemes and also some monthly, which means it will be difficult for me to work out the costs. Because they are all together at the moment, how is a decision made by the tax office on which ones are sold - is the ones I bought first? Sorry, my knowledge is not that good.


The 4 individual company shares are not worth much more than I paid for them.


I've not put any money into a stocks and shares Isa this year, nor a cash Isa. Money maturing from cash Isas from two years ago I've put into current accounts to maximise returns that way.

bowlhead99

With CGT you need to calculate an average cost for all the shares in the 'pool' of shares that you're selling.

There are some rules which match together buys and sells if you're selling and then quickly re-buying to try and cash in a quick gain at the end of the tax year while keeping them unwrapped (bed-and-breakfast-ing) but you can bed-and-ISA or bed-and-SIPP without issue, and generally speaking you just need to know the total cost of what you bought to get an average cost per share.

These days (unlike in the old days when you got tax relief for holding them a long time) you are generally looking at just one big pot of shares. If the whole pot cost you on average £1 and you are selling today at £2, you assume that every share cost £1, even if the first one you bought cost £0.50 and the last one £1.50.

If you bought them through one or other approved share scheme there are some slightly different rules to check what you really paid. HMRC website explains but a good place to start is BT's own investor pages: http://www.btplc.com/Sharesandperformance/Shareholders/Capitalgainstax/index.htm

kidmugsy

Frogletina wrote: »

1. An Isa which was once a a pep which I've not added to since then - it is with Legal and General. Does not seem to have done well since I opened it, but is starting to gain a little. Less than £2000 in total.

2. A BT mini isa which I haven't added to for many years, was only one years isa allowance. My dividends get reinvested. With Halifax.
...

4. 4 individual company shares with TD Waterhouse. Paying charges as less than £10000 in total

Re 4: as was suggested above you could get TD to open an S&S ISA for you, and bed-and-share the approx £10k in: or just sell and subscribe the cash with the intention of buying something more diversified. Be sure to calculate the Capital Gain made on these four shares.

You could also transfer in 1 and 2. You should probably take the chance then to sell the BT shares within the ISA to start the process of diversifying your BT investments, and perhaps replace the L&G too.

Frogletina wrote: »

3. BT shares outside of an Isa where I get paid the dividends, but I would rather they got reinvested. With Equiniti.

Calculate how many you can sell in this tax year without having to pay CGT (remember to allow for any CG on #4). After July 1 this years ISA allowance rises to £15k so you could then consider subscribing some more cash to the TD ISA if you felt like it.

In all this I'm assuming that you've already got adequate cash emergency funds put aside, and any expensive debts cleared.

Frogletina

Thank you Kidmugsy.

Yes, I have no debts and I own my property. Still have two cash Isas, one maturing in July and have enough cash in the best earning current accounts.


Just a thought, would it be a good idea to transfer the maturing cash Isa into S & S, and use that to diversify my investments, as well as bed and isa part of the bt shares and the other company shares?


I think I would like to replace the L&G funds as they account for just a small part of my investments. At the moment my split is 2/3 cash and 1/3 investments.

bowlhead99

Frogletina wrote: »

Still have two cash Isas, one maturing in July and have enough cash in the best earning current accounts.

Just a thought, would it be a good idea to transfer the maturing cash Isa into S & S, and use that to diversify my investments, as well as bed and isa part of the bt shares and the other company shares?

At the moment my split is 2/3 cash and 1/3 investments.

Well if 2/3 cash is too much for you then yes, spend it on investments. I have a lot less than 2/3 cash.

But cash is zero risk and investments are higher risk. So it's horses for courses. If like me you think 2/3rds cash is too high because all your interest income is cancelled out by inflation and you can afford to keep any new investments for a long enough term to not lose money on them, then yes, go and buy more investments.

At the moment your investments are very high risk because they are only in five companies (apart from some small amount in the L&G fund which you're going to get rid of). So diversifying more, makes sense. If you want to keep your cash, you don't need to transfer it in to diversify the investments because you could just sell the existing investments and buy a diversified portfolio.

However, if you are going to put more cash into investments, then it makes sense to transfer the maturing cash ISA into the S&S one. Don't withdraw it as cash and then send it to the S&S ISA provider yourself, or it will count as a current year contribution and limit how much of the BT proceeds you can put in.

Frogletina

bowlhead99 wrote: »

With CGT you need to calculate an average cost for all the shares in the 'pool' of shares that you're selling.

If you bought them through one or other approved share scheme there are some slightly different rules to check what you really paid. HMRC website explains but a good place to start is BT's own investor pages: http://www.btplc.com/Sharesandperformance/Shareholders/Capitalgainstax/index.htm

Thank you for these details, I will have a read and see if I can work out what I paid for the total of the shares I now hold. Not sure what details I have for the ones I bought monthly, obviously every month they would have cost slightly different amounts.


Also, there were changes to the number of shares I held due to the restructuring that was done in 2001, though by that time I had mostly sold most of the shares that I had due to the drop in shareprice. I held on to them too long to pay CGT at that time. I've been quite cautious since then.

Frogletina

bowlhead99 wrote: »

Well if 2/3 cash is too much for you then yes, spend it on investments. I have a lot less than 2/3 cash.

But cash is zero risk and investments are higher risk. So it's horses for courses. If like me you think 2/3rds cash is too high because all your interest income is cancelled out by inflation and you can afford to keep any new investments for a long enough term to not lose money on them, then yes, go and buy more investments.

At the moment your investments are very high risk because they are only in five companies (apart from some small amount in the L&G fund which you're going to get rid of). So diversifying more, makes sense. If you want to keep your cash, you don't need to transfer it in to diversify the investments because you could just sell the existing investments and buy a diversified portfolio.

However, if you are going to put more cash into investments, then it makes sense to transfer the maturing cash ISA into the S&S one. Don't withdraw it as cash and then send it to the S&S ISA provider yourself, or it will count as a current year contribution and limit how much of the BT proceeds you can put in.

Thanks


I think 5 years is suggested as a minimum time for investments which would be ok for me. I once invested in a tracker at completely the wrong time. Luckily it had a minimum return built in so I didn't lose out. I am not looking for anything high risk.