Accumulation or Income

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Samson81
Samson81 Posts: 8 Forumite
in Savings & investments
I am 36 and about to deposit £80,000 into two ISAs (my wife and I) over the next six months.

My wife does not currently work therefore has no income.

My plan is invest in funds but am unsure if I should go with accumulation or income. I believe you are allowed to have £10,000 capital gains tax free in a financial year? I also think the income would technically count as taxable but as income tax?

I intend to continue investing in the ISAs over the next few years.

Is there anything wrong with just investing in accumulation and selling or am I missing something?
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  • Glen_Clark
    Glen_Clark Posts: 4,397 Forumite
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    Samson81 wrote: »
    I am 36 and about to deposit £80,000 into two ISAs (my wife and I) over the next six months.

    My wife does not currently work therefore has no income.

    My plan is invest in funds but am unsure if I should go with accumulation or income. I believe you are allowed to have £10,000 capital gains tax free in a financial year? I also think the income would technically count as taxable but as income tax?

    I intend to continue investing in the ISAs over the next few years.

    Is there anything wrong with just investing in accumulation and selling or am I missing something?

    Acumulators are most efficient if you want to reinvest dividends. The main drawback is it makes tax calculations complicated, which is a problem for some people. But that's irrelevant when its in an ISA since there is no tax to pay :)
    “It is difficult to get a man to understand something, when his salary depends on his not understanding it.” --Upton Sinclair
  • Linton
    Linton Posts: 17,243 Forumite
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    If you dont want the income as cash it's least effort and cost to use ACC shares. Funds in ISAs are not liable for tax - that is the whole point of ISAs.
  • Alexland
    Alexland Posts: 9,668 Forumite
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    Sometimes some income units can be useful to pay platform fees, etc. But otherwise accumulation is usually best rather than reinvesting income. No tax to pay in the ISA wrapper.
  • Samson81
    Samson81 Posts: 8 Forumite
    edited 14 December 2017 at 8:21AM
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    Cool. Wasn't sure about how the income worked but that now makes sense. I like the idea of investing some as income to keep the fees covered! I'll go with ACC initially with a little in income. Thanks for your help guys!
  • Voyager2002
    Voyager2002 Posts: 15,336 Forumite
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    Alexland wrote: »
    Sometimes some income units can be useful to pay platform fees, etc. But otherwise accumulation is usually best rather than reinvesting income. No tax to pay in the ISA wrapper.

    A possible drawback of this approach: remember that the dividends (which are tax-free) can be reinvested to produce further tax-free growth and income, and there is no limit to this. So you would maximise the tax benefits of an ISA by paying the platform fees in other ways.

    Of course, this is not an issue for someone who is not using the full ISA allowance each year, but since the allowance is only 20,000 per person I don't see how a couple can invest 80,000 in one go!
  • bowlhead99
    bowlhead99 Posts: 12,295 Forumite
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    Voyager2002 wrote: »
    A possible drawback of this approach: remember that the dividends (which are tax-free) can be reinvested to produce further tax-free growth and income, and there is no limit to this. So you would maximise the tax benefits of an ISA by paying the platform fees in other ways.
    That's all completely true, though not all platforms allow an alternative option to settle their platform fees, and the OP may not necessarily want to commit more than the £80k to the investing endeavour for now.
    Of course, this is not an issue for someone who is not using the full ISA allowance each year, but since the allowance is only 20,000 per person I don't see how a couple can invest 80,000 in one go!
    If the goal per the OP is to invest 80,000 "over the next six months", they just do some now and some on or after 6 April; the practical maximum is 80,000 between two people over those two tax years that they're using.
  • Glen_Clark
    Glen_Clark Posts: 4,397 Forumite
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    Samson81 wrote: »
    I like the idea of investing some as income to keep the fees covered!
    I prefer to invest in ETFs so there are no platform fees to cover :)
    “It is difficult to get a man to understand something, when his salary depends on his not understanding it.” --Upton Sinclair
  • Alexland
    Alexland Posts: 9,668 Forumite
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    Glen_Clark wrote: »
    I prefer to invest in ETFs so there are no platform fees to cover :)

    In which case the income might be useful in covering your trade costs.
  • Glen_Clark
    Glen_Clark Posts: 4,397 Forumite
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    Alexland wrote: »
    In which case the income might be useful in covering your trade costs.
    No trade costs either :)
    (Except £5.95 for buying and/or selling, in which case it comes out of the new money or proceeds of sale.)
    “It is difficult to get a man to understand something, when his salary depends on his not understanding it.” --Upton Sinclair
  • Samson81
    Samson81 Posts: 8 Forumite
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    Glen_Clark wrote: »
    I prefer to invest in ETFs so there are no platform fees to cover :)

    I'll have to look up ETFs by the sound of things... :)

    Too much information to take in!
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