General Investment Accounts

ForestBluebells

Does the growth on a general Investment account count as income when sold I.e. can it change your tax bracket when it comes to what rate of capital gains tax you pay? 

I believe cash savings accounts interest counts as income? Is the allowance for interest changing or did that stay the same?

EthicsGradient

Growth of an investment in a general investment account (this applies to each fund, stock, ETF etc. that you sell inside the account, not when you withdraw cash from it to a bank account) is a capital gain, and income from it is taxable income.

Yes, both can change your tax bracket - all the income counts (and yes, the band for dividends on which you pay tax at 0% is reducing from £2,000 this tax year to £1,000 in 2023-24, and to £500 from 2024-25 onwards); and the capital gain on which you pay CGT is added to your income to determine the tax bracket (ie this year, a capital gain of £30,000 would get taxed on 30000-12300=£17,700, and HMRC would add £17,700 to your 'normal' income to work out your bracket.

ForestBluebells

EthicsGradient said:

Growth of an investment in a general investment account (this applies to each fund, stock, ETF etc. that you sell inside the account, not when you withdraw cash from it to a bank account) is a capital gain, and income from it is taxable income.

Yes, both can change your tax bracket - all the income counts (and yes, the band for dividends on which you pay tax at 0% is reducing from £2,000 this tax year to £1,000 in 2023-24, and to £500 from 2024-25 onwards); and the capital gain on which you pay CGT is added to your income to determine the tax bracket (ie this year, a capital gain of £30,000 would get taxed on 30000-12300=£17,700, and HMRC would add £17,700 to your 'normal' income to work out your bracket.

I was worried about that. Does that mean it’s better to only sell enough to stay a lower rate tax payer instead of selling up to full capital gains tax allowance when trying to move over to an ISA and paying a higher rate of tax on it?

jimjames

Depends what you mean by "better". If you're selling to use the full CGT allowance then no tax would be payable anyway and at the current level that would fill an ISA in most situations as that's the gain not the overall proceeds.

ForestBluebells

jimjames said:

Depends what you mean by "better". If you're selling to use the full CGT allowance then no tax would be payable anyway and at the current level that would fill an ISA in most situations as that's the gain not the overall proceeds.

So it doesn’t matter if the gains take you to a higher tax bracket if only using the CGT allowance as no tax to pay and it won’t affect tax paid on other earned income? 

As the allowance decreases over the next few years though it might mean not withdrawing the full ISA allowance but restricting withdrawals to below CGT threshold? I can’t get my head around how it works. 

Malthusian

ForestBluebells said:

So it doesn’t matter if the gains take you to a higher tax bracket if only using the CGT allowance as no tax to pay and it won’t affect tax paid on other earned income? 

If your gains are under the CGT allowance they don't take you anywhere. There is nothing to add onto your income, and the gains aren't subject to either basic rate or higher rate CGT.

If you did have capital gains in excess of the allowance, they would sit on top of income for the purpose of the calculation. They don't change the tax paid on other income. 

As the allowance decreases over the next few years though it might mean not withdrawing the full ISA allowance but restricting withdrawals to below CGT threshold? 

Depends how big the gain is, and how long you would expect it to take before the ongoing tax saved on income / further gains made up for the initial tax hit.
It's impossible to say whether you should restrict withdrawals to the CGT threshold; it depends entirely on your own tax position and circumstances (e.g. whether you have other funds you could move into an ISA instead).

ForestBluebells

I fill my LISA each year and put £200 a month into S&S ISA. I was going to keep doing that and try move the GIA over to my ISA until it’s all moved. Just trying to understand the best way to do it as it’s new to me. I have some inheritance so I don’t usually breach any limits but just struggling to get my head around it. I know I need to be aware of dividends allowance too in GIA and something about Uk reporting funds I need to investigate more