MSE News: Budget 2016: Cash ISA allowance up to £20,000 in 2017

buglover99

Hi,
New to the forums, hope I'm in the right place for my question.....
I'm looking at getting a help to buy ISA before 6th April 16, so, under the new budget forecast & on martins main site, it says I can then transfer this with the years bonus to the lifetime ISA in 2017, but, will I then, when I'm ready to use it for a deposit be able to use it all (including bonuses plus interest) or will this still be classed as 'you can only use one government bonus' for the deposit?
i.e - say, £1000 Bonus from the help to buy ISA thats been there for a year plus anything I've put in to the help to buy & the lifetime ISA plus interest OR only the bonus on the lifetime ISA plus interest at the point in time I use it for a deposit?
Confused. As it says you will have a year to transfer the help to buy 1 to the lifetime one without it affecting the £4000 max pay in for that year (17/18) but I will have already qualified for 1 years bonus on the help to buy ISA when I can transfer. But you can only use 1 bonus? So am I better not transferring if I'm not looking to buy for 3 years?
Wow..... I've confused myself there!
😁

Ed-1

buglover99 wrote: »

Hi,
New to the forums, hope I'm in the right place for my question.....
I'm looking at getting a help to buy ISA before 6th April 16, so, under the new budget forecast & on martins main site, it says I can then transfer this with the years bonus to the lifetime ISA in 2017, but, will I then, when I'm ready to use it for a deposit be able to use it all (including bonuses plus interest) or will this still be classed as 'you can only use one government bonus' for the deposit?
i.e - say, £1000 Bonus from the help to buy ISA thats been there for a year plus anything I've put in to the help to buy & the lifetime ISA plus interest OR only the bonus on the lifetime ISA plus interest at the point in time I use it for a deposit?
Confused. As it says you will have a year to transfer the help to buy 1 to the lifetime one without it affecting the £4000 max pay in for that year (17/18) but I will have already qualified for 1 years bonus on the help to buy ISA when I can transfer. But you can only use 1 bonus? So am I better not transferring if I'm not looking to buy for 3 years?
Wow..... I've confused myself there!
😁

You won't have qualified for any bonus on the Help to Buy ISA as the bonus is only paid on that when you buy a house. However if you transfer it to a Lifetime ISA, a bonus will be paid on that money at the end of 2017/18 with any other money in the Lifetime ISA.

gadgetmind

Pincher wrote: »

If I was a member of the proletariat, with say a £50k portfolio, the ISA is an irrelevance. It's only when you metamorphose into a degenerate capitalist pig by passing a wealth threshold, that the ISA suddenly becomes vital to the preservation and furthering of your horde.

As long as they enjoy tracking the base price of every share through every corporate action, working out Section 104 holdings, and tracking their dividend income, yes it's great fun!

My wife's non-ISA share holdings don't exceed the £5k dividend allowance, but I still need to do a lot of capital tracking, etc.

The new ISA limits mean that I'm slowly chipping away at it and moving everything to ISAs, where zero tracking is required. Bliss!

schiff

Naive question:

Am I right in thinking that there is no point having Accumulation Units/Bonds in an ISA except on a sale?

gadgetmind

It depends on whether you want income to accumulate as cash for you to reinvest (and perhaps use this and new cash to rebalance) or whether you want it to go back into the same assets.

masonic

schiff wrote: »

Naive question:

Am I right in thinking that there is no point having Accumulation Units/Bonds in an ISA except on a sale?

There is no difference in terms of taxation between accumulation and income units - except that it is much harder to work out how much capital gains and income tax arises from holding accumulation units outside of an ISA.

Dividends and interest on accumulation units is still taxable, so if you use up your personal savings allowance and/or dividend allowance, then you'd need to pay tax at your marginal rate on the underlying income, even though the income is not distributed.

schiff

I should have made this clearer at the outset!

I have Accumulation Units at the moment outside ISA protection. The 'dividends' are half yearly and will buy me additional units.

If the next dividend is, say, £100 - will it result in £100 of additional units or £100 less tax (irrecoverable) of additional units?

jimjames

schiff wrote: »

If the next dividend is, say, £100 - will it result in £100 of additional units or £100 less tax (irrecoverable) of additional units?

It will buy £100 of units. You'd then need to pay tax on that £100 in your tax return if it's outside an ISA and above £5000.

schiff

TY - that's what I needed to know!

bowlhead99

jimjames wrote: »

schiff wrote: »

I should have made this clearer at the outset!

I have Accumulation Units at the moment outside ISA protection. The 'dividends' are half yearly and will buy me additional units.

If the next dividend is, say, £100 - will it result in £100 of additional units or £100 less tax (irrecoverable) of additional units?

It will buy £100 of units. You'd then need to pay tax on that £100 in your tax return if it's outside an ISA and above £5000.

There is some scope for confusion here.

In post #26 you were asking about "accumulation units/bonds".

If you mean that what you actually have outside your ISA is a "bond fund" - i.e. over 60% of the assets of the fund are loan and bond and gilt investments that pay interest to the fund instead of company dividends - then the payments that are paid to the fund's investors every six months "income version" or accumulated and reinvested for investors every six months "accumulation version" are NOT classified as dividends but are instead classified as interest distributions.

In that case, then outside an ISA they will surely be taxed at source at 20% whether or not you have the income version that physically pays the money to your platform or the accumulation version that simply reinvests your share of the proceeds internally to create more valuable units. In this case you do not need to go to HMRC to pay the tax unless you are a high rate taxpayer who needs to pay more than 20%.

By contrast if your fund isn't a bond fund paying interest distributions every six months but is instead a dividend fund paying real dividends every six months, then just like jimjames said, no there is nothing deducted at source, the full 100 is paid to you gross (income version) or reinvested gross (accumulation version).

Someone can correct me if I'm wrong there as I don't have any bond funds outside ISAs or SIPPs. But there is a clear difference in tax treatment for equities funds versus bond funds so I thought it worth mentioning as "accumulation units/bonds outside an ISA" were being questioned in post #26 as opposed to "accumulation units/ equities".

As an aside, you say that every half year your accumulation units buy you additional units?? That is not usually how accumulation units work.

Assuming equities not bonds to keep the maths simple:
With an accumulation unit, the value of the annual income is accumulated in the fund each year and never paid out. Each of the units is therefore getting more and more valuable, relatively, in comparison to an income unit which *does* have its income physically paid out, putting cash directly into the hands of investors and reducing the remaining assets of the funds.

If for example you had 100 units worth £105 each at the end of the year in an accumulation fund, you would stick with your 100 units and they would all be worth £10500. By contrast in the income fund you get £5 per share paid to you as income, leaving you with 100 units now only worth £100 each (£10000) and a separate cheque for £500, to do with as you please.

With the income fund you can choose to reinvest the £500 at £100 per unit to get 5 new units, leaving you with a 105-unit investment worth £10500. You would therefore have increased your number of units, though of course the £10500 value is the same.

So, if you are literally in a situation where the "dividends are buying me more units" every six months, i.e. the number of units you hold is increasing... that really does not sound like an accumulation fund at all; that sounds like an income fund with dividends auto-reinvested by your broker or fund platform. If your number of units is staying constant but getting more valuable over time than the comparable income units, then it does sound like you have an accumulation version.