Where to put matured cash isa for £36k

enthusiasticsaver

I have a fixed term cash isa maturing in the next six weeks which has £36k in it. I am fairly sure that Santander, where it is invested at present will not be offering great rates so I have decided to transfer it into stocks and shares.


I like the Vanguard LS funds and will be investing my 2015-2016 allowance into the VG LS60 so there should be £15k by the end of the tax year. I know the fund is well diversified but it is slightly biased towards the USA so I was thinking of putting £15k of the matured cash isa into the Vanguard LS60, £15k into Legal and General multi index which is still low cost but has some property interests and is more UK biased and £6k into the Woodford Equity Income which seems to have a good reputation but is obviously a managed fund rather than passive and I like the idea of investing a small amount in a managed fund for the experience of becoming slightly more adventurous. This means I should have my core holding in the Vanguard (60%), 30% approx. in the Legal and General and 10% in Woodford Equity Income.


Is this a good strategy or is there a glaring flaw in this plan?

traineepensioner

Hi enthusiasticsaver,

I'm in a similar position to yourself, with a similar amount in a maturing Santander ISA (3% until 01/05/2015). It doesn't look like they're offering anything competitive this year so I also intend to transfer my cash into a stocks & shares ISA....one that I've recently opened with Interactive Investor.

I've already got a portfolio of index tracking funds in an ordinary trading account and I'll be looking to buy a couple of interest paying bond funds for the ISA account, to take advantage of the tax status of the ISA.(Basic rate taxpayer)... Hope I've got this right - Interest from a fund is tax free in an ISA but dividends are subject to 10% tax?

As an aside....as anybody any suggestions for interest paying bonds? I've already got Jupiter strategic bonds and was looking for some sort of index fund of short dated bonds or another actively managed strategic bond.

ColdIron

Inside an ISA there is no tax liability at all. Outside of one there is a notional 10% dividend tax to pay as a basic rate taxpayer, but everyone is allowed a 10% tax credit so effectively there is no further tax due

traineepensioner

"Inside an ISA there is no tax liability at all. Outside of one there is a notional 10% dividend tax to pay as a basic rate taxpayer, but everyone is allowed a 10% tax credit so effectively there is no further tax due"
Hi ColdIron, Are you sure?

I've been looking at http://www.moneysavingexpert.com/savings/ISA-guide-savings-without-tax
"No tax on interest earned on bonds. So you get to keep it all.

10% tax cap on income. This means income earned from any shares investments is taxed at 10%. So while basic-rate taxpayers would pay the same outside an ISA, this is a significant saving for higher and additional-rate taxpayers who would otherwise pay higher rates of 32.5% and 37.5% respectively."

I may have got this wrong but I've taken the above to mean that I pay the 10% tax, whether my dividends are paid inside or outside an ISA

ColdIron

Pretty sure

The situation is different if you are a higher rate or additional rate taxpayer. You might want to refer to the horse's mouth
https://www.gov.uk/tax-on-dividends/how-dividends-are-taxed

The key passage is :
Basic rate taxpayers

You don’t need to pay any more tax. The tax credit is automatically offset against the dividend tax you owe (10%). Just declare any dividends in your tax return, if you complete one.

jimjames

traineepensioner wrote: »

I may have got this wrong but I've taken the above to mean that I pay the 10% tax, whether my dividends are paid inside or outside an ISA

Yes that's right for dividends. Except for bonds when the interest inside a S&S ISA is paid gross with no tax liability.

traineepensioner

"The key passage is :
Basic rate taxpayers

You don’t need to pay any more tax. The tax credit is automatically offset against the dividend tax you owe (10%). Just declare any dividends in your tax return, if you complete one."

Thanks ColdIron, I was under the impression that the tax credit I receive meant that my dividends had been taxed at 10%. If this is not the case then I'm receiving the dividends tax free?

Sorry if I seem a little confused but I thought that dividends were taxed at 10% for everybody and higher rate taxpayers had to pay more (if not held within an ISA)

Eco_Miser

Dividends are not taxed at source.
They are paid out of taxed company profits, and so a notional 10% tax credit is given - on 10/9ths of the actual dividend, so for basic rate taxpayers this cancels out, and you keep 100% of the declared dividend.

Higher and additional rate payers pay more, and offset the tax credit against their liability.

Zero-rate payers and tax-exempt (ISA) accounts can't claim the tax credit back, because no tax was actually deducted in the first place.

It's done this confusing way because there used to be a tax deducted on dividend payments, and matching tax credit, and the system was changed as little as possible when that was abolished.