Capital Gains Tax query

Nuggy96

This might be a stupid question but quite new to the investment world.

If I already have a S&S ISA with Vanguard that I have paid in this year, I cannot open another one. A friend has a referral code for nutmeg that he gets £100 if I join and I get 6 month fee free. I understand I cannot open/invest in another S&S ISA with nutmeg as I have one with Vanguard. However, I can open a General Investment Account, but this wouldn't be under the ISA tax wrapper. I'm not really looking for answers re whether I should just put my money in vanguard and forget about nutmeg, rather I was wondering what are the taxes I would have to pay on this General Investment Account that isn't an ISA, would it just be Capital Gains Tax, and if I was to invest only £500 and then £100 a month around 5 years I would've invested £6500. In this scenario chances are I wouldn't get over the £12,300 CGT bracket so would I pay nil tax? 

Thanks in advance

Gadfium

CGT is irrelevant until you realise a profit exceeding the CGT limit in any one tax year.

Nuggy96

Gadfium said:

CGT is irrelevant until you realise a profit exceeding the CGT limit in any one tax year.

So in theory in this case there's no difference between a General Investment Account (non-ISA) vs a S&S ISA if I invest as said above around £6-10,000 as my gains highly unlikely will be above £12,300 bracket? I wouldn't have to pay any other taxes either such as income tax?

ColdIron

Any dividends would be liable to dividend tax but again this has a £2,000 annual 'allowance' as well so unlikely you would actually need to pay any tax. However you will need to keep accurate records of purchases, sales and dividends just in case you are challenged by HMRC. Same with interest (if any)

https://www.gov.uk/tax-on-dividends

bowlhead99

Nuggy96 said:

Gadfium said:

CGT is irrelevant until you realise a profit exceeding the CGT limit in any one tax year.

So in theory in this case there's no difference between a General Investment Account (non-ISA) vs a S&S ISA if I invest as said above around £6-10,000 as my gains highly unlikely will be above £12,300 bracket? I wouldn't have to pay any other taxes either such as income tax?

If the income from these investments taken together with any other dividends or interest outside an ISA exceeds your personal saving allowance (if investing in a fund paying or accumulating interest distributions) or dividend allowance (if investing in a fund paying or accumulating dividend distributions) then you would need to pay tax on the income... but the amount of interest or income per tax year you'd make on a £10k investment is not going to be a lot, so if it's your only investment you're likely to be within the allowances. 

Note however that even if the income from the fund is within those allowances and taxed at 0%, it's still 'income' and so would cause your total income to rise, which might be a factor if higher income causes you to lose personal allowance (income over £100k per year) and pay more tax because of that, or pay child benefit clawback, or have your personal savings allowance reduced from £1000 to £500 or £nil for going into the higher rate or additional rate tax brackets (at £50k or £150k of total income).

For many people it would not be an issue at all to have a small amount of investment funds outside an ISA or pension wrapper, because there wouldn't be any CGT or income tax to pay. But you would have to keep records, so that if challenged on it you could prove that you hadn't made enough to pay either type of tax. 

grumiofoundation

When you are investing small amounts over a short time period (edit most likely) no real advantage to ISA, especially if just opening accounts with the minimum for cashback (I'm always happy when the offers allow GIAs).

The nutmeg deal is pretty good - when I did this you only have to invest £500, there was no requirement for an ongoing monthly payment (only mention as your OP said you would pay in £100 per month).

Nuggy96

bowlhead99 said:

Nuggy96 said:

Gadfium said:

CGT is irrelevant until you realise a profit exceeding the CGT limit in any one tax year.

So in theory in this case there's no difference between a General Investment Account (non-ISA) vs a S&S ISA if I invest as said above around £6-10,000 as my gains highly unlikely will be above £12,300 bracket? I wouldn't have to pay any other taxes either such as income tax?

If the income from these investments taken together with any other dividends or interest outside an ISA exceeds your personal saving allowance (if investing in a fund paying or accumulating interest distributions) or dividend allowance (if investing in a fund paying or accumulating dividend distributions) then you would need to pay tax on the income... but the amount of interest or income per tax year you'd make on a £10k investment is not going to be a lot, so if it's your only investment you're likely to be within the allowances. 

Note however that even if the income from the fund is within those allowances and taxed at 0%, it's still 'income' and so would cause your total income to rise, which might be a factor if higher income causes you to lose personal allowance (income over £100k per year) and pay more tax because of that, or pay child benefit clawback, or have your personal savings allowance reduced from £1000 to £500 or £nil for going into the higher rate or additional rate tax brackets (at £50k or £150k of total income).

For many people it would not be an issue at all to have a small amount of investment funds outside an ISA or pension wrapper, because there wouldn't be any CGT or income tax to pay. But you would have to keep records, so that if challenged on it you could prove that you hadn't made enough to pay either type of tax. 

Hi Bowlhead,

Thanks for your answer, so to clarify my position, my S&S ISA doesn't affect at all so that's fine, I'm a basic tax rate payer getting say £500 per year in interest from savings accounts which eats up my personal savings allowance of £1k. The gains I make from the GIA wouldn't eat into my PSA of £500 remaining would it? Would I have to pay any income tax on these gains? or it just CGT?

Nuggy96

grumiofoundation said:

When you are investing small amounts over a short time period no real advantage to ISA, especially if just opening accounts with the minimum for cashback (I'm always happy when the offers allow GIAs).

The nutmeg deal is pretty good - when I did this you only have to invest £500, there was no requirement for an ongoing monthly payment (only mention as your OP said you would pay in £100 per month).

Hi Grum,

Yeah that's my plan I just wanted to make sure I wasn't going to get stung with any taxes or fees, as I understand should probs investment for at least 2-5 years, get my cashback which is £100 and can run. So I probably wouldn't have to pay any tax for 5 years if it was £500 initial plus £6k over 5 years? unless stocks somehow rise by 200%?

bowlhead99

Nuggy96 said:

bowlhead99 said:

Nuggy96 said:

Gadfium said:

CGT is irrelevant until you realise a profit exceeding the CGT limit in any one tax year.

So in theory in this case there's no difference between a General Investment Account (non-ISA) vs a S&S ISA if I invest as said above around £6-10,000 as my gains highly unlikely will be above £12,300 bracket? I wouldn't have to pay any other taxes either such as income tax?

If the income from these investments taken together with any other dividends or interest outside an ISA exceeds your personal saving allowance (if investing in a fund paying or accumulating interest distributions) or dividend allowance (if investing in a fund paying or accumulating dividend distributions) then you would need to pay tax on the income... but the amount of interest or income per tax year you'd make on a £10k investment is not going to be a lot, so if it's your only investment you're likely to be within the allowances. 

Note however that even if the income from the fund is within those allowances and taxed at 0%, it's still 'income' and so would cause your total income to rise, which might be a factor if higher income causes you to lose personal allowance (income over £100k per year) and pay more tax because of that, or pay child benefit clawback, or have your personal savings allowance reduced from £1000 to £500 or £nil for going into the higher rate or additional rate tax brackets (at £50k or £150k of total income).

For many people it would not be an issue at all to have a small amount of investment funds outside an ISA or pension wrapper, because there wouldn't be any CGT or income tax to pay. But you would have to keep records, so that if challenged on it you could prove that you hadn't made enough to pay either type of tax. 

Hi Bowlhead,

Thanks for your answer, so to clarify my position, my S&S ISA doesn't affect at all so that's fine, I'm a basic tax rate payer getting say £500 per year in interest from savings accounts which eats up my personal savings allowance of £1k. The gains I make from the GIA wouldn't eat into my PSA of £500 remaining would it? Would I have to pay any income tax on these gains? or it just CGT?

The general answer to this is that if you're investing in a non-isa-protected fund or funds that are mostly or exclusively invested in interest-producing investments (e.g. cash and bonds), then the gains on it would go under capital gains tax but the income earned may be treated as interest rather than dividends and so would go against your remaining personal savings allowance 

Whereas if the investments held in the funds you're using are more than 40% invested in equities (shares), the gains on them still go under capital gains tax but the income earned is treated as dividends (rather than interest) and would go against your £2000 p.a. dividend allowance.

83705628

bowlhead99 said:

Nuggy96 said:

bowlhead99 said:

Nuggy96 said:

Gadfium said:

CGT is irrelevant until you realise a profit exceeding the CGT limit in any one tax year.

So in theory in this case there's no difference between a General Investment Account (non-ISA) vs a S&S ISA if I invest as said above around £6-10,000 as my gains highly unlikely will be above £12,300 bracket? I wouldn't have to pay any other taxes either such as income tax?

If the income from these investments taken together with any other dividends or interest outside an ISA exceeds your personal saving allowance (if investing in a fund paying or accumulating interest distributions) or dividend allowance (if investing in a fund paying or accumulating dividend distributions) then you would need to pay tax on the income... but the amount of interest or income per tax year you'd make on a £10k investment is not going to be a lot, so if it's your only investment you're likely to be within the allowances. 

Note however that even if the income from the fund is within those allowances and taxed at 0%, it's still 'income' and so would cause your total income to rise, which might be a factor if higher income causes you to lose personal allowance (income over £100k per year) and pay more tax because of that, or pay child benefit clawback, or have your personal savings allowance reduced from £1000 to £500 or £nil for going into the higher rate or additional rate tax brackets (at £50k or £150k of total income).

For many people it would not be an issue at all to have a small amount of investment funds outside an ISA or pension wrapper, because there wouldn't be any CGT or income tax to pay. But you would have to keep records, so that if challenged on it you could prove that you hadn't made enough to pay either type of tax. 

Hi Bowlhead,

Thanks for your answer, so to clarify my position, my S&S ISA doesn't affect at all so that's fine, I'm a basic tax rate payer getting say £500 per year in interest from savings accounts which eats up my personal savings allowance of £1k. The gains I make from the GIA wouldn't eat into my PSA of £500 remaining would it? Would I have to pay any income tax on these gains? or it just CGT?

The general answer to this is that if you're investing in a non-isa-protected fund or funds that are mostly or exclusively invested in interest-producing investments (e.g. cash and bonds), then the gains on it would go under capital gains tax but the income earned may be treated as interest rather than dividends and so would go against your remaining personal savings allowance 

Whereas if the investments held in the funds you're using are more than 40% invested in equities (shares), the gains on them still go under capital gains tax but the income earned is treated as dividends (rather than interest) and would go against your £2000 p.a. dividend allowance.

/
How is this worked out for accumulating unit trusts? Do you have to work out the dividends you would have received had you held income units and tax that as income less the dividend allowance, and then the capital gains vs the capital gains threshold? Also is the dividend allowance on top of the PTA? Say you earn £12.5k this year from work and receive over £2k in dividends what happens with that?

Nuggy96

bowlhead99 said:

Nuggy96 said:

bowlhead99 said:

Nuggy96 said:

Gadfium said:

CGT is irrelevant until you realise a profit exceeding the CGT limit in any one tax year.

So in theory in this case there's no difference between a General Investment Account (non-ISA) vs a S&S ISA if I invest as said above around £6-10,000 as my gains highly unlikely will be above £12,300 bracket? I wouldn't have to pay any other taxes either such as income tax?

If the income from these investments taken together with any other dividends or interest outside an ISA exceeds your personal saving allowance (if investing in a fund paying or accumulating interest distributions) or dividend allowance (if investing in a fund paying or accumulating dividend distributions) then you would need to pay tax on the income... but the amount of interest or income per tax year you'd make on a £10k investment is not going to be a lot, so if it's your only investment you're likely to be within the allowances. 

Note however that even if the income from the fund is within those allowances and taxed at 0%, it's still 'income' and so would cause your total income to rise, which might be a factor if higher income causes you to lose personal allowance (income over £100k per year) and pay more tax because of that, or pay child benefit clawback, or have your personal savings allowance reduced from £1000 to £500 or £nil for going into the higher rate or additional rate tax brackets (at £50k or £150k of total income).

For many people it would not be an issue at all to have a small amount of investment funds outside an ISA or pension wrapper, because there wouldn't be any CGT or income tax to pay. But you would have to keep records, so that if challenged on it you could prove that you hadn't made enough to pay either type of tax. 

Hi Bowlhead,

Thanks for your answer, so to clarify my position, my S&S ISA doesn't affect at all so that's fine, I'm a basic tax rate payer getting say £500 per year in interest from savings accounts which eats up my personal savings allowance of £1k. The gains I make from the GIA wouldn't eat into my PSA of £500 remaining would it? Would I have to pay any income tax on these gains? or it just CGT?

The general answer to this is that if you're investing in a non-isa-protected fund or funds that are mostly or exclusively invested in interest-producing investments (e.g. cash and bonds), then the gains on it would go under capital gains tax but the income earned may be treated as interest rather than dividends and so would go against your remaining personal savings allowance 

Whereas if the investments held in the funds you're using are more than 40% invested in equities (shares), the gains on them still go under capital gains tax but the income earned is treated as dividends (rather than interest) and would go against your £2000 p.a. dividend allowance.

The categorisation of this lies fully with HMRC? I would be investing in probs 8/10 risk with nutmeg so mainly equities.
My main worry is i guess going over my PSA allowance of £1k but i think unlikely.
My final question, would i need to submit any paperwork regarding my shares at any point i.e. end of tax year or when selling shares, as at the moment, I don't have to submit anything tax wise for interest in current/savings accounts