Correction or bear market in stocks this year?

economic

Pincher wrote: »

https://www.gov.uk/government/publications/dividend-allowance-factsheet/dividend-allowance-factsheet

You’ll pay tax on any dividends you receive over £5,000 at the following rates:

7.5% on dividend income within the basic rate band
32.5% on dividend income within the higher rate band
38.1% on dividend income within the additional rate band


Versus 10% and 20% tax on capital gain

I am finely balanced on 10% capital gains and 7.5% dividend tax right now.

Given the choice, I would choose 20% tax on capital gain, rather than 32.5% on dividend.


There is an interesting manoeuvre, if you have excess capital gains, but too little dividend. Buy something with dividend, then sell it ex-dividend. Assuming the dividend is 5p, and the price drops by 5p, selling it creates a loss of 5p, which you use to reduce your taxable gain. If it works the way it should, you pay no tax on the 5p dividend, and you no longer pay the 20% on the capital gains you manage to offset.

or just stick it all in an ISA and pension and no tax at all to worry about. any excess cash just invest upto the tax free allowances. rest put into property or stocks and retire.

Pincher

economic wrote: »

or just stick it all in an ISA and pension and no tax at all to worry about. any excess cash just invest upto the tax free allowances. rest put into property or stocks and retire.

At £20k a year, it will take me 20 years.

Made a start, S&S ISA is showing £90k.

economic

Pincher wrote: »

At £20k a year, it will take me 20 years.

Made a start, S&S ISA is showing £90k.

you have 400k cash?

Thrugelmir

BananaRepublic wrote: »

Those who bailed out early lost out on a lot of growth, even if they sat through the correction of 2008, and the subsequent growth.

Not if one had a large holding in individual financial shares (for the dividends). That money is irrevocably lost.

Pincher

economic wrote: »

you have 400k cash?

This is the problem with selling BTLs, even after ~£120k in capital gains tax, there's still a chunk the Treasury didn't rob from me.

Instead of feeding ISAs for 18 years, it was stuck in a tax efficient BTL money making machine, where the mortgage interest was fully deductible against rental income. Hence the sad state of ISA deficiency.

grey_gym_sock

Pincher wrote: »

This is the problem with selling BTLs, even after ~£120k in capital gains tax, there's still a chunk the Treasury didn't rob from me.

so, to summarize, your problems are:

a) you have too much cash

b) you wish you had more cash

?

you make having a decent amount of money sound a bit of curse

Pincher

grey_gym_sock wrote: »

you make having a decent amount of money sound a bit of curse

The guy who bought the house from me had millions in cash, and was desperate to offload it, because it is a pain. I actually said to him, what am I supposed to do with the cash, but he was so keen on the house, and made an offer I couldn't refuse, that I had to give in.

Once set up, the BTL was a money tree, and took up hardly any time.

Now I keep checking share prices, it's a major waste of time.

Also, hackers can steal your money online, whereas it's kinda hard to steal a house, especially if you have a lien on it through a mortgage.

The worst thing is, if I don't spend it, it's 40% IHT.:eek:

bowlhead99

Pincher wrote: »

Now I keep checking share prices, it's a major waste of time.

Also, hackers can steal your money online, whereas it's kinda hard to steal a house, especially if you have a lien on it through a mortgage.

The worst thing is, if I don't spend it, it's 40% IHT.:eek:

True, but if it was in the form of a rental property it would still get hit with IHT on your demise (or pre-demise gifting).

At least having cashed out you can now use things like investing it in a pension (assuming you're not too old or have hit lifetime allowance) to allow it to be passed on by the pension trustees outside your estate; or you can buy AIM shares which don't attract IHT. Obviously the latter is going to continue to eat up your time in research and monitoring unless you trust the idea of paying someone else to do that for you. Depends how urgent the IHT situation is and what risks you can handle.

There are also other tax efficient schemes beyond just ISA, e.g. VCT and EIS, which both have income tax relief on amounts invested, tax free divs and no CGT. Latter can offer income tax relief on capital losses and also where the shares are unquoted, the same IHT advantages as AIM stocks.

Whereas, the rental property was only typically tax-efficient on the income side rather than CGT or IHT side. With the restrictions on what costs are deductible, BTL is rather losing its charm for high rate taxpaying investors (aside from the advantages of being easily geared) so there are lots of people doing as you did and not turning down the 'offers they can't refuse'

darkidoe

grey_gym_sock wrote: »

so, to summarize, your problems are:

a) you have too much cash

b) you wish you had more cash

?

you make having a decent amount of money sound a bit of curse

Everyone has their set of problems right? The rich vs the poor. All humans are equally troubled i reckon.

You would want cash when the sky fall on our heads!

darkidoe

Pincher wrote: »

The guy who bought the house from me had millions in cash, and was desperate to offload it, because it is a pain. I actually said to him, what am I supposed to do with the cash, but he was so keen on the house, and made an offer I couldn't refuse, that I had to give in.

Also, hackers can steal your money online, whereas it's kinda hard to steal a house, especially if you have a lien on it through a mortgage.

The worst thing is, if I don't spend it, it's 40% IHT.:eek:

WTH.
Wish i was round to see the warped negotiation go on.

Good a valid points. I hope I can remember them as I build up a diversified portfolio. Property is last on my list tho.