Advice on shares held in HL Fund and Share account

Rob749

My friend has approx £80K worth of shares in a fund and share account. He is retired, and on a state pension and a small private pension, he plans to draw some lump sums some time in the future, by selling off some shares every year. He is just under his tax allowance. He draws a dividend of approx 3.5% pa on the shares (approx £2-3000), and was wondering how the new dividend tax will affect him and can he avoid it ?

I suggested opening an ISA with HL and doing a Bed/ISA transaction, but he can only transfer his ISA allowance every year, plus this account also has charges (0.45%), so he may be better off just paying the tax anyway. Is all this correct, or is there any other suggestions from this knowledgeable community ?

bowlhead99

Rob749 wrote: »

My friend has approx £80K worth of shares in a fund and share account. He is retired, and on a state pension and a small private pension, he plans to draw some lump sums some time in the future, by selling off some shares every year. He is just under his tax allowance. He draws a dividend of approx 3.5% pa on the shares (approx £2-3000), and was wondering how the new dividend tax will affect him and can he avoid it ?

For 2016/17 and 2017/18 the dividend allowance is £5000 which is significantly higher than the £2-3k he is making on his £80k of shares.

But for 2018/19 the dividend allowance will fall to £2k so the dividends that don't fit into that allowance and don't fit into his normal annual personal allowance for general income, will be taxable at 7.5%.

Sticking the shares into an ISA would seem to be a no-brainer, because all dividends and all capital gains on disposals would be tax free forever.

I suggested opening an ISA with HL and doing a Bed/ISA transaction, but he can only transfer his ISA allowance every year,

With a £15k subscription allowance for 2016/17 (to use in the next two or three weeks) and a £20k allowance for 2017/18 (to use from 6 April 2017), he could move almost half his holdings into an ISA within the next month. Don't discourage him from doing that.

Then in April 2018 he can do another £20k and same the year after and so on.

plus this account also has charges (0.45%), so he may be better off just paying the tax anyway.

The charge of 0.45% is only chargeable on the first £10k of shares in a HL ISA i.e. effectively a £45 admin fee a year whether he has £15k or £35k or £55k etc over the coming tax years.

He could move to a different broker next year such as TD Direct which charge a smaller fee (i.e. less than £45 a year) on an ISA. TD waive the fee entirely if you have an account value more than £5k ish; so with his £35k by next month, effectively that charge just goes away.

There are other even cheaper execution-only brokers such as X-O.co.uk which have a fee free ISA and low charges for any sales he eventually wants to do. They are less of a full-service provider because they don't do international stocks or funds, but they are cheap as chips. They may be a less suitable option for a fully diversified portfolio, but if he is only holding mainstream UK listed shares they are probably fine.

GazHol

Rob749 wrote: »

My friend has approx £80K worth of shares in a fund and share account. He is retired, and on a state pension and a small private pension, he plans to draw some lump sums some time in the future, by selling off some shares every year. He is just under his tax allowance.

Be careful of Capital Gains Tax, I have a friend in a similar situation (although larger by a factor of 6) who acquired most of their shares in the early 1980's. And didn't think that PEPs or ISAs were necessary for them.
Filling a £15K or £20K is not easy when shares owned have increased in value x10+

Rob749

Thanks for the replies, I've spoken to my friend, and he doesn't seem to think its worth doing, as he only had £2400 interest in this year, which would have been £31.50 tax,which is less than the fee. Also he doesn't plan to dispose of his shares in any big lump sums, it will be less than £11000 each tax year, so Capital Gains won't be an issue. I'm trying to convince him that he should really do it now, as the share dividend he has, could go up in future years, but he is quite stubborn, and doesn't like changes very much ! I'm running out of argument why he would be better off, but as long as the tax will be less than the fee, I can't see me getting anywhere. I've tried to tell him that it will take 3+ years to transfer, but he still won't budge on it. Any other arguments I could use to convince him?

mgdavid

I wouldn't give yourself the hassle, leave him to it. You can lead a horse to water.....

Rob749

Good advice I think mgdavid.... although he did give way a little, saying he'll consider it next March after checking the dividend payout for this year. I think I've done my bit anyway !

I've only got about £10000 in funds, but its still in an ISA, but I feel safer with it there, in case things change, I think I can live with the monthly outlay :-)