How to invest via GIA to manage any tax due

homestraight

Hi all

I've read with interest on the board about investing in a GIA and making use of Capital Gains Allowance and Dividend Allowance to minimise tax due on any gains.

Assuming I (aged 42, no spouse) have very good cash buffer,  used up S&S ISA/JISA (son) allowances (multiasset funds/global index trackers), and maximised pension contributions with DB pension (AA issues being monitored), that leads one to consider GIA for any excess money after normal expenditure, treats and planned outgoings. 

Few questions
- approx. how much could you invest in total in a GIA and not pay tax? Assuming no CGA or DA have been used already. 
- how would one structure those investments in a GIA to achieve this? 
Would/could you still use a multi asset fund or index tracker? Or would we be looking at alternate investments to achieve this? If so what sort of investment should I research? 
Would accumulation or distribution units  matter?
- With a good DB pension accruing and 20+ years to invest this excess money, with the aim of maximising return, I'd be tempted with 100% equities but I understand bond income is taxed differently? And that this might be an important tool to use in a GIA?
I would need to research this more but any pointers are much appreciated. 

Many thanks
HS

HHarry

How do you think you’ll need to take the money out of your GIA?  If it’s in one go and potentially in excess of the CGT allowance then it probably needs some more planning.  If you think you’ll be able to do a series of yearly withdrawls to fully uilise your allowance then how you structure it is probably less important.

lr1277

Not sure I understand your questions but here are my points of view.

You can put any amounts you want in a GIA. The amount of tax you pay is based on the dividends earned or the capital gains made, both values being above their respective allowances. 

If you choose growth stocks, they may not pay dividends. But if any stock you choose, you will have to pay income tax above the relevant thresholds.
CGT is calculated when you sell. You made made a profit. You have made a loss. The sum of the profits and losses above the allowance will be the figure used for CGT purposes.
Say you buy in the current tax year, but don’t sell till June 2042, you won’t have to consider CGT till you sell and the tax return is due for the 2042/43 tax year, for example.
My point is, you could put a billion pounds in your GIA but you may not pay any income tax or CGT because you had chosen terrible shares. Conversely if you are profitable, even with very little capital, you jay have tax to pay.

Some funds can come as income units and/or accumulation units. If you choose the accumulation units in a fund, every year (hopefully), you will be given units in lieu of cash. You need to include these units as income when submitting your tax return. If I had the choice of these units, i would buy income units to avoid the hassle.

As far as I know, income from bonds is treated the same as income from shares. But beware, I have never held bonds so I may be talking rubbish. The government did offer bonds to pensioners that matured a few years in the future. The money could not be withdrawn till the bond matured. However the pensioner would have to include the notional income on their tax return and pay tax on it if required.

Hope that helps.

wmb194

lr1277 said:

As far as I know, income from bonds is treated the same as income from shares. But beware, I have never held bonds so I may be talking rubbish.

Bonds pay interest so it's taxed in the same way and falls into the same allowances as interest paid by e.g., a savings account.

In some circumstances income from shares can also be classified as interest and there are also Property Income Distributions (PID) paid by real estate investment trusts (REITs*) and these are taxed as 'other income' and in a GIA will have 20% tax withheld at source. Your stockbroker will usually tell you how the income has been classified but obviously you can also pay attention to company announcements.

The government (NS&I) bond you're referring to was a savings account so isn't relevant to stock market investments.

EthicsGradient

Income from bonds, or funds whose assets are over 60% bonds, is treated as savings income. A higher rate taxpayer pays no income tax on the first £500 of this income (combined with interest from savings accounts, of course), basic rate payer on the first £1000. £500 would be the income from a bond fund worth £12,500 at 4% yield. Above that, it'll be taxed at the normal income rate for the taxpayer - 20%, 40% or 45%.

True dividends have a £2,000 allowance, whatever your tax band, and then, from April, attract 8.75%, 33.75% or 39.35% (that latter for additional rate payers). 

Forecasting the income you'll get is relatively easy; capital gains are harder to predict, but as lr1277 says, you can choose when it happens (unless you need the cash, of course). So you can't really say "how much can you invest without paying CGT?" It becomes more a question of "can I sell this investment without attracting tax?" or "should I sell something and reinvest in something else, to make use of this year's CG allowance, and help avoid a bill in the future when I will want the cash?"

Juggling capital gains is one aspect that holding several different investments can help - if you just hold one, that's your only choice to sell, but if you have several, you can choose to sell something with a high gain relative to its worth (eg it's worth £16,000, and has a gain of £12,000), or something with a lower relative gain (eg worth £40,000, with a gain or £12,000).

Albermarle

 approx. how much could you invest in total in a GIA and not pay tax? Assuming no CGA or DA have been used already. 

I have no personal experience but in other threads , figures of  £100K to £150 K have been mentioned .

Presumably quite a lot of strategic buying and selling and careful choice of investments is needed, to achieve those sorts of figures. 

ColdIron

homestraight said:

- approx. how much could you invest in total in a GIA and not pay tax? Assuming no CGA or DA have been used already.

For dividends as much as would keep you within the dividend allowance. For capital gains you can control the sales and spread them over more than one year

- how would one structure those investments in a GIA to achieve this?

Don't let the tax tail wag the investment dog. What you invest in is far more important than what you can shave off in tax. My GIA is focussed on dividends which I take as I am retired. There would be little point in reducing my dividend income by £3,000 to save £225. I would rather pay some tax and have a portfolio that met my objectives

Would/could you still use a multi asset fund or index tracker?

If that best meets your objective yes, if not no

Or would we be looking at alternate investments to achieve this? If so what sort of investment should I research?

You could find some poorly performing investments and avoid tax altogether if that is your primary aim

Would accumulation or distribution units  matter?

No

I understand bond income is taxed differently? And that this might be an important tool to use in a GIA?

Bond income is often interest and you can use other allowances such as your personal allowance to cover that

GeoffTF

This should be of interest:

https://monevator.com/bonds-and-bond-funds-taxed/

It is worth noting that Vanguard LifeStrategy 60 distributions are taxed as dividends. You might be better of with a ladder of savings accounts rather than a bond fund, depending on your tax status. It is worth noting that both the main opposition parties have proposed taxing dividends and capital gains as income.

ChilliBob

I personally go for income vs accumulation funds so that any dividends are very clearly spelt out and easy to view. If you do want Acc you need to watch for the dividends. It's no biggie but probably easier to choose one and stick as opposed to mixing. 

I think it's better to think of your whole portfolio and then the wrappers. Anything you think might 'shoot the lights out' or pay shed loads in dividends is, best in an isa. E. G. If you thought SMT would go from its lows to skyrocket, best in an ISA.

If you choose ETFS in a GIA you need to look up the rather obscure excess reported income figure and declare than kn a tax return. 

There's no reason not to use the very same multi asset funds or global trackers in the GIA if you have already decoded you're comfortable with them to be honest.

Dazed_and_C0nfused

 approx. how much could you invest in total in a GIA and not pay tax? Assuming no CGA or DA have been used already. 

You need to factor in that the £2,000 dividend nil rate band (aka dividend allowance) forms part of your adjusted net income so is a factor in establishing your Personal Allowance (high earners) and the High Income Child Benefit Charge.

For example taxable pay £50,000 plus dividends of £2,000 result in an income tax liability of £0 on the dividends (£2,000 taxed at 0%).

But it also means an adjusted net income of £52k so 20% of any Child Benefit would have to be paid back to HMRC even though you have not had to pay any tax on the dividend income.

homestraight

HHarry said:

How do you think you’ll need to take the money out of your GIA?  If it’s in one go and potentially in excess of the CGT allowance then it probably needs some more planning.  If you think you’ll be able to do a series of yearly withdrawls to fully uilise your allowance then how you structure it is probably less important.

Thank you. 
Would intend to make use of the CGA allowance yearly.