why put funds in ISA ?

masonic

TheTracker wrote: »

Yes indeed but the tax relief is on the full contribution and the tax deducted only on a portion of contribution x growth.

Yes, I haven't changed my position on that since #27

jimjames

Useful reminder from HL about the benefits of ISAs today in their Investment Times.

Just because the current CGT limit is £11000 doesn't mean it will always stay at that level. Same with income tax, if more people continue paying 40% then the benefits become even greater for using an ISA for more people.

If all your money is outside an ISA then you are very limited if tax rates suddenly change.

bowlhead99

True, and I'd echo Coldiron's comment above that the CGT benefit is not just designed for someone investing £100k and cashing in £110k a year later for a 10k gain.

If you invest £10k in a fund delivering a compound return of 7% a year, after a decade it will be worth £20k. So, that's a 10k gain if you take it all at once and it absolutely didn't need a £100k investment to achieve it.

Of course, in 10 years time the annual CGT limit will hopefully have increased from its current level and you probably don't need to exit any of your investments all in one go... but the principle of putting as much of your assets as possible inside tax wrappers is pretty sound if those tax wrappers are not much more expensive than holding the same assets unwrapped.

gadgetmind

bowlhead99 wrote: »

Of course, in 10 years time the annual CGT limit will hopefully have increased from its current level

Some parties want to drastically cut the allowance to below £3k and also increase CGT to 35%.

This allowance, along with the pension annual allowance and top rate tax, has been a political football for years. Quite how we're expected to make long term plans when they keep changing the rules is beyond me.

bowlhead99

gadgetmind wrote: »

Some parties want to drastically cut the allowance to below £3k and also increase CGT to 35%.

This allowance, along with the pension annual allowance and top rate tax, has been a political football for years. Quite how we're expected to make long term plans when they keep changing the rules is beyond me.

I see what you're saying. The problem we face is that to many in society, things like running up against lifetime pension limits, running out of ISA allowance, paying a marginal 60% rate on some earnings, having to pay tax on capital gains etc etc... counts as "a nice problem to have"!

Most people aren't "lucky enough" to face those problems. So it's quite fortunate for us that MPs and wealthy political lobbyists are often in the brackets where such things do make a difference to them, and as such I don't see the CGT rates going up massively (at least without bringing back taper relief or something that changes the headline but gives it you back in another way).

In terms of the old chestnut "international competitiveness" places like Hong Kong, Singapore, Malaysia don't have CGT at all, together with the UK's crown dependencies and overseas territories; some countries like Canada, South Africa have it but only subject a fixed portion of the gain to tax; others like Australia and USA differentiate between short term and long term gains. As preferential rates on gains over ordinary income help to incentivise long term investment and entrepreneurship, I don't see the rate shooting up or allowances being quashed.

So, it may be a political football but I don't think it's heading into touch as a general concept - even though there may be recurring calls for initiatives to recharacterise some element of "bonus" gains as income for some people in the investment management community.