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CGT - Income v Accumulation?
Comments
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Even without any tax efficient wrappers, although you might need to do the calculations, isn't the likelihood that you won't have any tax to pay - income tax or CGT? There are quite generous allowances for both which I would guess would cover most people's gains and income. The CGT allowance must be over £10k per year and similarly there will be a £5k dividend allowance, allowing you to receive that amount of dividend income on top of any other income without having to pay any tax, for each and every tax year.0
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Even without any tax efficient wrappers, although you might need to do the calculations, isn't the likelihood that you won't have any tax to pay - income tax or CGT? There are quite generous allowances for both which I would guess would cover most people's gains and income. The CGT allowance must be over £10k per year and similarly there will be a £5k dividend allowance, allowing you to receive that amount of dividend income on top of any other income without having to pay any tax, for each and every tax year.
However, at a return of 7% a year nominal your money will go up by 96% over a decade, i.e. almost doubling, or almost quadrupling over two decades. So when you look back at your £40k portfolio that only cost you £10k originally, three quarters of that money is gains and you can't take out £20k from it to buy a new car without realising £15k of gains, which may be over the annual exemption at that time.
To mitigate that risk, you can change your portfolio every so often and make little gains as you go along rather than a larger one at the end. That still requires recordkeeping to prove that those disposals aren't creating anything over the exemption each year you do them.
So you are right that the CGT does not have to be a problem for people with modest investment sizes (and even some people with larger investment sizes who are on the ball); but the people who are investing outside an ISA are often doing that because they have used up their ISA allowances and so are not unwealthy people, so there are tax consequences of getting it wrong. If you are of less modest means and just looking to buy a few hundred pounds of facebook shares or whatever is flavour of the month, sure, it doesn't matter if you're going to get out before you make massive profits from them, but you might as well stick them in a tax wrapper if you can, given tax wrappers are often available without significant costs.and similarly there will be a £5k dividend allowance, allowing you to receive that amount of dividend income on top of any other income without having to pay any tax, for each and every tax year.
Plus, although it's described as an 'allowance' those dividends you get will still count for the purposes of seeing what your total income 'pre-allowance' is, to tip you into higher rate tax causing you to lose some of your personal savings interest allowance or pay higher rate CGT on your gains.0 -
Don't know if I'm doing it right but I got the total Income per unit for the current tax year from here
SWDA:
https://www.ishares.com/uk/individual/en/products/251882/
$0.8438 / 1.3514 (conversion rate googled) = £0.624389521977
CSP1
https://www.ishares.com/uk/individual/en/products/253743/
$3.5888 / 1.4177 (conversion rate googled) = £2.53142413768
Is this OK?“It is difficult to get a man to understand something, when his salary depends on his not understanding it.” --Upton Sinclair0 -
bowlhead99 wrote: »...for the tax year starting on Friday, that £5k figure drops to £2k ...0
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Oh, I wasn't aware it was going down. Well that will be useful to know for the outside-of-ISA investors, particularly if they have relatively hefty dividend income.
The next thing you'll know is that the Daily Mail will be publishing articles in their money section about 'secret' tax cuts, 'pensioners being cheated of their income', 'hidden taxes' and so on, when it's not a secret, never been hidden, been piblished in that very paper and others.
Top tip, move as much of your equity portfolio into an ISA wrapper now, and more next week, that will account for £40k (£80k for couples) protected from all taxes and inclusion on tax returns.0 -
Glen_Clark wrote: »Don't know if I'm doing it right but I got the total Income per unit for the current tax year from here
SWDA:
https://www.ishares.com/uk/individual/en/products/251882/
$0.8438 / 1.3514 (conversion rate googled) = £0.624389521977
Seems about right - that's the income they reported effective 31/12/17 for their previous financial year, so you can stick it in your tax return as if it were distrbuted on 31/12/17 even though you benefited from the increase in value to your holding during the course of their 1/7/16 to 30/6/17 financial year - which was mostly in our previous (rather than current) tax year.
As an aside, you said earlier it wasn't easy to find but if you go to the product homepage on the ETF manager's web site (which is what your links are pointing to), there is a link to their reportable income document right there
Likewise if you were invested with Vanguard they generally have one document for Vanguard Investment Series plc and one for Vanguard Funds plc, under which the various subfunds (ETFs and inc/acc OEICs) can be found - by going to the 'investment information' page. example: https://www.vanguardinvestor.co.uk/content/documents/legal/uk-reporting-fund-status.pdf0 -
I was surprised when comparing my recently purchased VLS fund (income) to the babies' investment in the same fund (accumulation) that the unit price is approx £20 cheaper for mine than theirs is. Is there a specific reason for this or is it just one is more popular and therefore dearer? Or am I missing something obvious?0
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The Acc fund will have had dividends retained within the fund therefore the value of each unit will be greater than those in the Inc fund0
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