Are withdrawals from S&S isas completely tax free?

Luke_M

Albermarle wrote: »

Of course an ISA with a 10% return must be invested in relatively risky investments . Therefore with a market crash might lose 100K of value in a few days . It's not just a matter of tax.

would you class the ftse trackers as risky? I know they can occasionally have bad years but it seems like they tend to average out about 10% per year (with dividends reinvested). Obviously a huge market crash will drop them but they might recover quickly.

bowlhead99

Luke_M wrote: »

would you class the ftse trackers as risky? I know they can occasionally have bad years but it seems like they tend to average out about 10% per year (with dividends reinvested). Obviously a huge market crash will drop them but they might recover quickly.

FTSE produce a lot of different indexes, and some will be considerably 'riskier' (more volatile) than others. But yes generally if you're talking about a fund that's tracking an index invested 100% into company shares (equities) yes it is quite risky. If you are looking at an index and seeing it go up by 10% every year you are probably looking at the last 10 years in which there hasn't been a major crash, and in which the values were bouncing back upwards from a low point. Whereas if you looked at the 10 years before that, you'd see a different story with a couple of crashes.

As you say, a big market crash will drop the value of the index and any fund that tracks it. 'Risk' means different things to different people. If you had £250k and after 18 months it had dropped in value to be worth £150k, would you be ok with that?

Remember that if you are drawing £20k spending money from a fund valued at £150k, you've taken out over 13% (close to a seventh of its value) and don't have so much left to keep you going in future years. whereas if it had been worth £250k the withdrawal would have only been 8% of the value (closer to a thirteenth of the value). So the best thing to do when markets are down is wait it out for a few years and ideally add more to the pot at the low prices. Some people say they will be fine with it, and that in theory, that's what they would do when faced with the crash. But then that ideal behaviour doesn't turn into *actual* behaviour when they see their investment fund go from being worth £250k to 150k, or even just from £30k to £15-20k.

but they might recover quickly

. Yes, they might. But when to are looking at your investment fund worth £150k and remembering fondly how it used to be worth £250k, it's not much comfort for someone to say, "cheer up, it might recover quickly" - because also, it might not.

danm

one thing to bear in mind however is that once withdrawn the ability for that money to grow tax free is lost forever.


if you really needed £25,000 do you have other sources of cash you could use instead. if you where then concerned about having too much invested in one asset class you could sell units and hold cash in the ISA wrappe to preserve its tax status