A couple of ISA-related questions.

OldBill

Keep_pedalling said:

OldBill said:

(i) I've never actually "self-assessed" and am not "registered for self assessment" - I am retired from a government agency which, for security reasons, does not allow its employees to do this - I have even had to do Probate by paper forms ;
(ii) the total amount of the assets (£57,000) does appear to be more than 4 x the allowance of £49,200. 

So both of the above don't apply - is that right?

(Edit:  I just accessed the gov.uk website and completed the "Check if you need to send a Self Assessment tax return" - it said I didn't).

If it's wrong, could I avoid having to declare anything just by selling & then withdrawing half of the £57,000 before the end of this tax year, and the other half after April 6 2022?  Is that possible?

How much of this £57k is a gain from your original investment? Unless you started with less than £21k then you could simply sell £20k per year without incurring any CG liability, and deposit it into your ISA. In 3 years you would have converted all of it without picking up any CGT or the need to report any of it.

I deposited £56k just last month.  So £1k gain to date.

So 3 x "bed & ISAs" would do it, so long as I did not make any more deposits into the GIA?  Is that it?

(Again, sorry for being dumb,but where does the £21k figure come from?).

Keep_pedalling

OldBill said:

Keep_pedalling said:

OldBill said:

(i) I've never actually "self-assessed" and am not "registered for self assessment" - I am retired from a government agency which, for security reasons, does not allow its employees to do this - I have even had to do Probate by paper forms ;
(ii) the total amount of the assets (£57,000) does appear to be more than 4 x the allowance of £49,200. 

So both of the above don't apply - is that right?

(Edit:  I just accessed the gov.uk website and completed the "Check if you need to send a Self Assessment tax return" - it said I didn't).

If it's wrong, could I avoid having to declare anything just by selling & then withdrawing half of the £57,000 before the end of this tax year, and the other half after April 6 2022?  Is that possible?

How much of this £57k is a gain from your original investment? Unless you started with less than £21k then you could simply sell £20k per year without incurring any CG liability, and deposit it into your ISA. In 3 years you would have converted all of it without picking up any CGT or the need to report any of it.

I deposited £56k just last month.  So £1k gain to date.

So 3 x "bed & ISAs" would do it, so long as I did not make any more deposits into the GIA?  Is that it?

(Again, sorry for being dumb,but where does the £21k figure come from?).

With just £1000 gain you are a long way from from having a CG issue. Yes it would would take 3 years to shift your GIA investment Ito an ISA if you added nothing to it or it did not see a high level of growth in that period. 

The £21k is simply 3 years CG allowance.

if you also have cash to put into an ISA I would prioritise that over moving the GIA assets as currently you still have plenty of room for growth without having to worry about CGT. It has taken us 10 years to empty out GIAs and fill our ISAs and we have not paid any CGT on nearly £200k of GIA growth in that period by exploiting our annual allowances.

OldBill

"The £21k is simply 3 years CG allowance." - I thought the CG allowance was £12,300 pa?

"If you also have cash to put into an ISA I would prioritise that over moving the GIA assets as currently you still have plenty of room for growth without having to worry about CGT. It has taken us 10 years to empty out GIAs and fill our ISAs and we have not paid any CGT on nearly £200k of GIA growth in that period by exploiting our annual allowances." - I have and I will, so long as I don't have to be hit with CGT AND do not have to report any of it.  I just don't want the hassle.

If I could calculate what a "safe" amount would be to hold in a GIA, and at the same time stay legally and safely under the CGT radar, I would do so.  I can't get my head around the "exploiting the annual allowance" thing - it is that which I find confusing.  What would a "ballpark" figure be to enable one to do that (assuming there would be no freakishly high level of growth)?

eskbanker

OldBill said:

"The £21k is simply 3 years CG allowance." - I thought the CG allowance was £12,300 pa?

@Keep_pedalling presumably meant that £57K minus three years of CGT allowance is (roughly) £21K, i.e. if you buy at £21K and sell at £57K over three years (evenly) then you'd be below the CGT threshold.

OldBill said:

If I could calculate what a "safe" amount would be to hold in a GIA, and at the same time stay legally and safely under the CGT radar, I would do so.  I can't get my head around the "exploiting the annual allowance" thing - it is that which I find confusing.  What would a "ballpark" figure be to enable one to do that (assuming there would be no freakishly high level of growth)?

If you want to avoid CGT for ever and sell in one go then your aggregate growth can't exceed £12,300, or whatever the future equivalent is - it could increase with inflation or could be reformed entirely.  If you're able and willing to sell across multiple tax years then that would allow significantly more growth without CGT liability.

However, asking that question at all reaffirms that you're very much letting the tax tail wag the investment dog, which really isn't a sensible approach, even if there was a simple answer to that question....

Keep_pedalling

OldBill said:

"The £21k is simply 3 years CG allowance." - I thought the CG allowance was £12,300 pa?

"If you also have cash to put into an ISA I would prioritise that over moving the GIA assets as currently you still have plenty of room for growth without having to worry about CGT. It has taken us 10 years to empty out GIAs and fill our ISAs and we have not paid any CGT on nearly £200k of GIA growth in that period by exploiting our annual allowances." - I have and I will, so long as I don't have to be hit with CGT AND do not have to report any of it.  I just don't want the hassle.

If I could calculate what a "safe" amount would be to hold in a GIA, and at the same time stay legally and safely under the CGT radar, I would do so.  I can't get my head around the "exploiting the annual allowance" thing - it is that which I find confusing.  What would a "ballpark" figure be to enable one to do that (assuming there would be no freakishly high level of growth)?

Sorry, I did not make myself clear, eskbanker is correct in what I meant. 

It is the gain that matters in your GIA not the total value. In your case you don’t have to worry about CGT as you don’t have enough to exploit, so just concentrating on getting as much into ISA as you can.

In the future this may not be the case and you may find your GIA contains higher gains that needs a different approach, but as long as you don’t need to lay your hands on the lot in one go it is very easy to avoid having to pay CGT as in the following example.

Initial investment £100k
current value £150k 
potential taxable gain £50k - £12,300 = £37,300

in year 1 I can sell £36,900 of those assets of which contains £12,300 of gain. As this is equal to my annual allowance there is no tax to pay, and I can put £20k into my ISA. The remaining £16,300 can be reinvested in my GIA either in a different fund (which can be done immediately) or back into the original investments if I buy back after 30 days of the sale.

I would now have a GIA account worth £130k with £37,300 of gain in it. Repeating this exercise over another 3 years will move your entire gain into a tax free wrapper without paying tax on the way in. 

OldBill

Thanks, Keep_pedalling.  I follow your example up to "In year 1 . . . ", but get lost after that.

OldBill

Bemr said:

If you invest £100k in a GIA and sell it all a year later for £112k, there’s no tax to pay because your £12k profit is less than the £12,300 tax free allowance.

If you immediately re-invest the £112k in a different fund in a GIA and sell it all a year later for £124k, again there’s no tax to pay because the £12k profit is less than the CGT allowance.

Repeat that for 5 years at £12k profit per year and you have £160k with no tax to pay.

Conversely if you just left your original £100k investment for 5 years and sold it for £160k, then you’d need to pay tax on gains above the £12,300 allowance - tax on £47,700.

That is a simplified example which assumes you sell 100% (to keep the math simple) and because in reality you wouldn’t have gains that consistent - some years you may have a loss and other years a greater profit - to stay within the 12,300 allowance on those better performing years you’d need to sell less than 100% and that’s where the math gets a little more complicated to work out exactly how much.  But once you understand the concept the sums are fairly simple.

Thanks, Bemr. I get the basic concept, it's doing the math to work out exactly how much to sell - THAT is precise;y where I stumble.  Is there a "formula" that can be applied to assist with this?  

Also, as an aside, I understand that if you sell more than 4 x the Annual CGT Allowance (4 x £12,300 = £49,200) - the "disposal proceeds limit" - you are obliged to advise HMRC, but only if you are already registered for Self-Assessment.  However, disposals of the amounts you mention above (e.g. £112,000), even if below the tax-free allowance, might well draw the attention of HMRC who may suspect that your calculations are wrong and so require you to submit a return anyway because of that.  Or is that just paranoia?!

eskbanker

OldBill said:
I get the basic concept, it's doing the math to work out exactly how much to sell - THAT is precise;y where I stumble.  Is there a "formula" that can be applied to assist with this?

Yes - the basic formula is <number of units sold> x <gain per unit> = <taxable gain>

This can therefore be expressed as <number of units sold> = <taxable gain> / <gain per unit>

If you fix the desired taxable gain as £12,300, this becomes <number of units sold> = £12,300 / <gain per unit>

so, if your gain per unit was, say, a mathematically convenient £12.30, then you'd sell 1,000 units to use up your allowance.

Obviously you need to do that calculation based on an assumption about the gain, which will typically vary from one day to the next (or more frequently, depending on what you're selling), so you might leave a bit of a margin if you want to be sure of being within the allowance.

OldBill

There is a firm called TaxScouts who, for an all-in fee of £119, promise to sort people's Self Assessment affairs.  I searched for them on these forums, but there are only a couple of references to their calculator as a rough guide to calculating one's liability.  No further information re their reliability, professional standing, etc.  But it would appear, on the surface at least, to be another option - unless someone knows otherwise.

masonic

OldBill said:

There is a firm called TaxScouts who, for an all-in fee of £119, promise to sort people's Self Assessment affairs.  I searched for them on these forums, but there are only a couple of references to their calculator as a rough guide to calculating one's liability.  No further information re their reliability, professional standing, etc.  But it would appear, on the surface at least, to be another option - unless someone knows otherwise.

There are several free calculators available via your favourite search engine. £119 seems like a lot to pay when your affairs are quite simple and at least one generous poster has already done the calculation for you free of charge.