How to use the Vangaurd General Account tax efficiently?

dllive

Hi

I max out my S&S ISA each year and I put my max allowance into my SIPP, so Ive decided to invest further funds into a Vangaurd General Account.

A few questions please:

1) Am I right in thinking I can earn £2k tax free?

2) How much would I need to invest before I need to worry about being taxed on the yearly income?

3) Should I only invest in Vanguard funds which pay an income (rather than accumulation)?

4) Until I go over the (£2k?) income tax threshold, do I need to declare it on my tax returns? 

5) Are there any Vanguard funds which would better suit this approach? High yield income paying ones I guess.

6) Is it best to make monthly payments into the general account, or all at once?

Thanks

Dazed_and_C0nfused

You've got the wrong end of the stick about the tax aspects.

1.  No.  ISA's are tax free/exempt.  You can have unwrapped dividends of £2,000* which will be taxed at 0%.  But they may still increase your overall liability as they are still taxable income.

2.  In niche situations £1 of dividend income can increase your tax liability.  More commonly they can impact HICBC and tapered Personal Allowance

4.  You have to declare all taxable income on a Self Assessment return.  Taxable dividends are no different.

*£1,000 from 6 April 2023

GeoffTF

https://www.gov.uk/tax-on-dividends

It makes life easier if you use the income version of UK domiciled OEICs in the GA. The tax rules for Irish domiciled OEICs are more complicated. Vanguard does not support the accumulating versions of its ETFs on its own platform.

If you file a Self Assessment, include the dividends.

I put the lowest yielding equity funds in the GIA to minimise dividend tax. I have also made sure they are funds that Vanguard is likely to support for the rest of my life. I would not want one to be wound up landing me with a Capital Gains Tax bill.

Making monthly investments in the GA will complicate the tax reporting.

jimjames

dllive said:

Hi

I max out my S&S ISA each year and I put my max allowance into my SIPP, so Ive decided to invest further funds into a Vangaurd General Account.

A few questions please:

1) Am I right in thinking I can earn £2k tax free?

It depends what you mean by "earn". Investments can have capital growth and income, you get separate allowances for each of these. CGT allowance is dropping to £3k over the next few years.

dllive

Thanks guys, very useful.

GeoffTF said:

I put the lowest yielding equity funds in the GIA to minimise dividend tax. 

Thats interesting. So lower yielding funds (to minimise divvie tax) but funds with better prospects to grow (because CGT allowance is currently quite generous, so the fund would have to grown exponentially for it to trigger a capital gain tax payment). Is that the idea?

Can I ask what Vanguard funds you hold? (I wont take it as advice, merely a starting point for me to do my own research. My initial thoughts are VWRL, VUSA and LifeStrategy100).

GeoffTF said:

Making monthly investments in the GA will complicate the tax reporting.

Does Vanguard not provide a tax certificate, or can I not generate a document saying "This tax year you earned x amount of income"?

ColdIron

dllive said:

GeoffTF said:

Making monthly investments in the GA will complicate the tax reporting.

Does Vanguard not provide a tax certificate, or can I not generate a document saying "This tax year you earned x amount of income"?

For dividends, yes they will and it's accepted by HMRC. For capital gains you will need to keep your own records but it's not hard providing you keep accurate records from day one. Whack the data from your contract notes into an excel spreadsheet

GeoffTF

dllive said:

Thanks guys, very useful.

GeoffTF said:

I put the lowest yielding equity funds in the GIA to minimise dividend tax. 

Thats interesting. So lower yielding funds (to minimise divvie tax) but funds with better prospects to grow (because CGT allowance is currently quite generous, so the fund would have to grown exponentially for it to trigger a capital gain tax payment). Is that the idea?

Can I ask what Vanguard funds you hold? (I wont take it as advice, merely a starting point for me to do my own research. My initial thoughts are VWRL, VUSA and LifeStrategy100).

GeoffTF said:

Making monthly investments in the GA will complicate the tax reporting.

Does Vanguard not provide a tax certificate, or can I not generate a document saying "This tax year you earned x amount of income"?

Here is a Moneveator article, "Tax efficient investing in the UK (or what order to put things into an ISA or SIPP)":

https://monevator.com/tax-efficient-investing-uk-order-isa-sipp/

It is important to read the comment by grey gym sock. What is best for you depends on your circumstances, which will be different to mine. It also depends on what happens in the future, both to your investments and to the tax rules.

For what it is worth, I have a large holding of Vanguard Developed World ex UK in my Vanguard GA, and a smaller one in my iWeb ISA. The original investment in that fund was more than ten years ago and it now has a huge capital gain. I also have much smaller holdings of VFEM in my iWeb dealing account and ISA. These investments have not fared so well. My iWeb ISA also has a holding of Vanguard FTSE 100 Unit Trust, which I bought relatively recently. I have got VEVE in my Vanguard SIPP. I have a lot of bank term accounts that are being reinvested in direct holdings of index linked gilts as they mature.

Vanguard does provide tax certificates, but they may not tell the whole story, and do not address CGT at all. They will not include ETF excess reportable income, for example. Broker's tax certificates can be misleading and sometimes contain errors. I had to get my iWeb tax certificate corrected last year. I am afraid you will either have to do a lot of studying or hire an accountant.

dllive

Thanks @GeoffTF, very helpful. Ill be burning the midnight oil over the next few evenings.

dllive

ColdIron said:

dllive said:

GeoffTF said:

Making monthly investments in the GA will complicate the tax reporting.

Does Vanguard not provide a tax certificate, or can I not generate a document saying "This tax year you earned x amount of income"?

For dividends, yes they will and it's accepted by HMRC. For capital gains you will need to keep your own records but it's not hard providing you keep accurate records from day one. Whack the data from your contract notes into an excel spreadsheet

What data should I be recording from each contract note? So far I have columns for:
Order No./Deal Ref.
Fund name
Order Date
Unit Price
Units purchased
Amount invested

Do I need all these columns?

Thanks

Keith80

For transaction records on any Vanguard holding, first see them all listed under Investments, and then click on the specific holding. This generates a price graph indicating points (including since the inception of your account) where you bought or sold units (including any that Vanguard may have sold to cover fees). Details of each transaction are listed below the graph.

GeoffTF

dllive said:

ColdIron said:

dllive said:

GeoffTF said:

Making monthly investments in the GA will complicate the tax reporting.

Does Vanguard not provide a tax certificate, or can I not generate a document saying "This tax year you earned x amount of income"?

For dividends, yes they will and it's accepted by HMRC. For capital gains you will need to keep your own records but it's not hard providing you keep accurate records from day one. Whack the data from your contract notes into an excel spreadsheet

What data should I be recording from each contract note? So far I have columns for:
Order No./Deal Ref.
Fund name
Order Date
Unit Price
Units purchased
Amount invested

Do I need all these columns?

Thanks

You may need to provide HMRC with proof of the purchase at some time in the distant future. I suggest that you keep the pdf for the contract note. I keep a financial transaction diary. A typical entry might be:

03/01/23 Bought 20.4629 Vanguard Dev ex UK for £8,144.42 Vanguard GA

(You can include the costs of acquisition in the cost for CGT purposes.) Make sure that you have a local back up and a cloud back up of your data.