How to invest via GIA to manage any tax due

homestraight

EthicsGradient said:

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).

Thank you. Really useful info and some food for thought re having different investments to rebalance

homestraight

ColdIron said:

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

Thank you.
Very helpful responses.

Avoiding tax is not the intention. 

Thinking about maximising return whilst utilitising allowances and how best to do that. 

You've given me some stuff to think about.  Cheers

homestraight

Dazed_and_C0nfused 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. 

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.

Thank you and all others for the really helpful responses. 
Don't claim child benefit. Useful info to consider though.


Thanks all.  Will do some more research.
Any further input or guidance always welcome too 

Thrugelmir

Focus on making a decent return. Paying tax is simply a byproduct. Far too often there are threads on this or the pensions board where the tail is allowed to wag the dog. An understanding of the underlying investments hasn't been grasped at all.