Re-invested dividends from Stocks & Shares ISAs

Wolfie_bill

My Wife and I have (separate) Stocks & Shares ISAs with a "no-advice" / self-select broker (X-O).  The dividends from our shares are kept within the S&S wrapper (unless we choose to withdraw them).  As you know we have a £20K limit on the investment into these S&S ISAs.  My question is ... "Are the dividends we receive treated as part of that 20K limit"?

eskbanker

No, the £20K is the annual allowance for contributions you can make into the ISA wrapper from outside it - once the money is within the ISA then any subsequent investment growth or dividends aren't measured against that limit....

jimjames

eskbanker said:

No, the £20K is the annual allowance for contributions you can make into the ISA wrapper from outside it - once the money is within the ISA then any subsequent investment growth or dividends aren't measured against that limit....

It's the really great thing with ISAs and something I keep expecting to be attacked with some form of taxation. When you can quite reasonably have over £500k in an ISA (and some over a £1million) that is completely tax free and generating income that is also tax free it does start to be quite a potential target for the government. 

eskbanker

The most recently published government stats show an average ISA value of £26,180, so it's maybe not quite as lucrative a target as you might think, although there are over 22 million of them....

Alexland

Mmm.. £500k in ISAs maybe taking 5% pa dividends from some income smoothed ITs.

I wish our S&S ISAs were bigger but they suffer from it always being better to make pension and LISA contributions. There's a devil in me that's tempted to have a crazy tax year where we only make enough pension contributions to get employee matching, pay 40% tax, don't claim child benefit, don't earn LISA bonuses and give the ISAs a boost for an earlier retirement. But it would be so very inefficient and wasteful it wouldn't add much anyway.

Mysterz

The ISA allowance is £20,000 for tax year 20/21. It is the input amount not the divi reinvestment amounts added. Remember if you take advice on your ISA and you are charged a fee it may be possible to pay the fee separately so it doesn’t reduce the amount of your initial investment. 

Wolfie_bill

I just wanted to say thank you to all those who have taken the time and trouble to provide advice.  I thought along the same lines, but it has been very re-assuring to have your collective expert views - thanks.

jimjames

Alexland said:

Mmm.. £500k in ISAs maybe taking 5% pa dividends from some income smoothed ITs.

I wish our S&S ISAs were bigger but they suffer from it always being better to make pension and LISA contributions. There's a devil in me that's tempted to have a crazy tax year where we only make enough pension contributions to get employee matching, pay 40% tax, don't claim child benefit, don't earn LISA bonuses and give the ISAs a boost for an earlier retirement. But it would be so very inefficient and wasteful it wouldn't add much anyway.

As of this year Child benefit no longer makes a difference so I'm going full out on the ISAs this year although like you say matching pension too.

Alexland

jimjames said:

As of this year Child benefit no longer makes a difference so I'm going full out on the ISAs this year although like you say matching pension too.

Nice - happy being a higher rate taxpayer. Unless the rules change I probably have that child benefit restriction for the rest of my working life as our youngest is still not much taller than my knees.

BuildTheWall

jimjames said:

eskbanker said:

No, the £20K is the annual allowance for contributions you can make into the ISA wrapper from outside it - once the money is within the ISA then any subsequent investment growth or dividends aren't measured against that limit....

It's the really great thing with ISAs and something I keep expecting to be attacked with some form of taxation. When you can quite reasonably have over £500k in an ISA (and some over a £1million) that is completely tax free and generating income that is also tax free it does start to be quite a potential target for the government. 

Remember that your ISA contributions are made from taxed income. You have already paid the tax before contributing. Unlike pensions which are not taxed while contributing but are taxed on withdrawal. Which is why pensions are more likely a target for governments than ISAs. Of course there’s a possibility that ISA contributions could be restricted below 20k in the future.