Tax on investments

VXman

Can someone just explain in simple terms the tax situation with investments - particularity related to funds. So for example if I had £50,000 in a VLS and sold the lot, what are the tax issues?. Just wondering if ISA's have any value for me.

As I see it you pay CGT on the profit. However, is that divided over the years you had that money invested?

So, say I had that 50K in the fund for 3 years. Profit was £15K. Therefore roughly 5K per year. CGT allowance is £12300 so no CGT is due. Income tax is only on dividends. Therefore the ISA is not required. Am I correct? Have I missed anything?

Albermarle

However, is that divided over the years you had that money invested?

No 

What you can do though is sell part of the investment in different tax years to make best use of the CGT allowance.

Just wondering if ISA's have any value for me.

Yes , no need to worry about CGT or dividend tax . Even if you do not pay any tax on unwrapped investments you still have to keep detailed records .

ColdIron

It's not divided by the years, CGT arises in the financial year that you dispose of the asset so in your example you would pay tax on the £2,700 balance. You could of course spread that across 2 sales in 2 different years

An ISA is a no brainer in almost all circumstances

VXman

OK - that makes sense. Thanks.

jimjames

VXman said:

So, say I had that 50K in the fund for 3 years. Profit was £15K. Therefore roughly 5K per year. CGT allowance is £12300 so no CGT is due. Income tax is only on dividends. Therefore the ISA is not required. Am I correct? Have I missed anything?

Also remember that income tax is due on dividends regardless of whether you receive them or not. So income from a fund will be taxable even if it is reinvested. Inside an ISA you have no worries about this.