Where should I have my cash?

grey_gym_sock

bushido1 wrote: »

Are this estimates equally similar and still close to 29 years? Or did these number change in favor of either stocks or bonds?

the more detailed discussion of taxation of bonds wouldn't lead me to change the estimate of 29 years.

but note the assumptions behind the 29 year figure, which include: that interest will be taxed at 20%, dividends at 7.5%.

now, if your total investments are £50k in VWRL and £50k in VGOV, you'll be getting almost £1,000 of dividends a year from VWRL, and a similar amount of interest from VGOV.

the dividends are a well under the £5,000 annual dividend allowance (which comes in from this april), so you'd actually be pay 0% on dividends.

the interest is quite close to the £1,000 annual savings allowance (which is how much interest you can get tax-free, assuming your earnings are over £16k and your total income is under £43k) - especially if you also have any interest on current/savings accounts. so it's a bit marginal whether you'd be paying 0% or 20% on interest.

the above would tip the balance a bit towards putting VGOV rather than VWRL in the ISA. since the ISA is unlikely to save any tax on VWRL in the short term, but at least near to saving tax on VGOV.

if you get up to about £200k in VWRL, then you're near to using up the dividend tax allowance, so the balance shifts more towards putting VWRL in an ISA.

it's all rather difficult to call ...

bushido1

grey_gym_sock wrote: »

the more detailed discussion of taxation of bonds wouldn't lead me to change the estimate of 29 years.

but note the assumptions behind the 29 year figure, which include: that interest will be taxed at 20%, dividends at 7.5%.

now, if your total investments are £50k in VWRL and £50k in VGOV, you'll be getting almost £1,000 of dividends a year from VWRL, and a similar amount of interest from VGOV.

the dividends are a well under the £5,000 annual dividend allowance (which comes in from this april), so you'd actually be pay 0% on dividends.

the interest is quite close to the £1,000 annual savings allowance (which is how much interest you can get tax-free, assuming your earnings are over £16k and your total income is under £43k) - especially if you also have any interest on current/savings accounts. so it's a bit marginal whether you'd be paying 0% or 20% on interest.

the above would tip the balance a bit towards putting VGOV rather than VWRL in the ISA. since the ISA is unlikely to save any tax on VWRL in the short term, but at least near to saving tax on VGOV.

if you get up to about £200k in VWRL, then you're near to using up the dividend tax allowance, so the balance shifts more towards putting VWRL in an ISA.

it's all rather difficult to call ...

Oh, I understand. I just did some online research on the topic and I got really excited about not having to pay taxes on my dividends and interests. I didn't know about it!

1/ The annual dividend allowance only works with the dividends from stocks and not from bonds (such as VGOV). Dividends from bonds only can be deducted from the personal savings allowance. Am I right?

2/ My real situation looks more like £200k VWRL taxable and £40k VGOV taxable. (Basic rate tax break income).
In this case, would you go for the ISA wrapper on the VWRL? I believe it might be a better option here, also then I won't have to worry about doing bed and breakfast on those £15k neither.

Thanks!!

grey_gym_sock

bushido1 wrote: »

1/ The annual dividend allowance only works with the dividends from stocks and not from bonds (such as VGOV). Dividends from bonds only can be deducted from the personal savings allowance. Am I right?

yes. (except that, if you're using the terminology precisely, you'd say that VGOV doesn't pay dividends, it pays interest.)

2/ My real situation looks more like £200k VWRL taxable and £40k VGOV taxable. (Basic rate tax break income).
In this case, would you go for the ISA wrapper on the VWRL? I believe it might be a better option here, also then I won't have to worry about doing bed and breakfast on those £15k neither.

yes, in that case, i'd probably put VWRL in the ISA. since you're quite close to having enough dividends from VWRL to start paying tax on them. and the dividends from VWRL will probably grow over the years; whilst the interest from VGOV is more likely to stay about the same.

bushido1

grey_gym_sock wrote: »

yes. (except that, if you're using the terminology precisely, you'd say that VGOV doesn't pay dividends, it pays interest.)



yes, in that case, i'd probably put VWRL in the ISA. since you're quite close to having enough dividends from VWRL to start paying tax on them. and the dividends from VWRL will probably grow over the years; whilst the interest from VGOV is more likely to stay about the same.

Cool, all clear, thanks for the answers.

One last question. If you own £200k in VWRL taxable and it grows during the year, how would you do the bed and breakfast?
Would you cash it out at the end of march, hold it as cash for 1month, and then buy VWRL again. Or can you think about any other similar funds that you could use for that while not having to spend 1 month every positive year with the money in cash?

Cheers!

bushido1

CLAPTON wrote: »

why not put cash in the highest interest rate instant access account ?

Could you give any examples of those please?

I live in London and I have my money in barclays but the interest rate is pretty low, below 0.5% I believe.

colsten

They're all here https://forums.moneysavingexpert.com/discussion/5374614

grey_gym_sock

bushido1 wrote: »

If you own £200k in VWRL taxable and it grows during the year, how would you do the bed and breakfast?
Would you cash it out at the end of march, hold it as cash for 1month, and then buy VWRL again. Or can you think about any other similar funds that you could use for that while not having to spend 1 month every positive year with the money in cash?

i would switch to a similar ETF; i wouldn't want to be in cash for a month.

i don't know of another ETF that covers both developed & emerging markets globally. a developed-markets tracker, such as VEVE, would be about 90% the same as VWRL.

or you could switch to a combination of VEVE (with about 90% of the cash - i haven't checked the exact percentage) and an emerging markets tracker, such as VFEM (for the other 10%). and then you wouldn't even need to switch back after a month, because the VEVE+VFEM combo is just as good as VWRL, so you could keep it till next year (when you might want to sell both and switch back to VWRL). however, this is starting to interfere with the simplicity of just using VWRL for equities, so it's your call whether you want to go there ...