Divesting to fund house renovations

r6mile

Hello,

My wife received an inheritance about 4 years ago, which was invested through a local IFA into some Aviva funds. Approx 122k is inside a GIA, and 11k in a stocks and shares ISA. My wife works part time and earns just below the PA.

(Yes I also don’t know why he didn’t max out the 20k ISA allowance to start with, and I also know we should have been gradually transferring 20k from the GIA into the ISA every year, but last few years have been very busy with kids etc and our mind has been elsewhere to be Frank).

The GIA had appreciated by 22k since then, of which 17k capital gains and 5k reinvested dividends, which I’ve just checked were just below the tax free dividend allowance every year.

We are going to need to divest the bulk of this in order to fund major house renovations. Likely starting in the next 12 months though tbc, probably stretching into next FY too. We can’t really afford for this investment to go down very much at this point as obviously we won’t have time to recoup any losses.

My plan was to

1) leave the ISA as it is, and divest only if really needed
2) divest approx half of the GIA, so as to take advantage of the CGT 6k tax free allowance this year. This should result in a CGT liability of under £300 this year
3) put the above into a decent savings account, now that interest rates are going up
4) keep the rest in the GIA to be divested next FY year and take advantage of the reset CGT tax free allowance (which I know is halving to 3k)

I just wanted to sense check this plan and see what others think?

Linton

I dont see how you get £300 CGT liability.

Are you making use of both your CGT allowances?  If not your wife gives you half of the inheritance with no tax implications other than the original date/value of purchase remaining in place.  Then you can sell your half claiming on your CGT allowance.  This should if I have calculated correctly enable you to avoid all CGT over 2 years.

Otherwise your plan seems sensible if she really wants to spend all/most all of that money on renovations

r6mile

Thank you, yes I had forgotten she could ‘gift’ me half the assets and take advantage of my allowance.

The £300 CGT liability was based on roughly £9k capital gains (if she divests half of her GIA), minus 6k tax free allowance leaves 3k taxable at 10%. 

And yes re the renovations, more of a need really as we have 3 small kids and are running out of space!

eskbanker

r6mile said:

We are going to need to divest the bulk of this in order to fund major house renovations. Likely starting in the next 12 months though tbc, probably stretching into next FY too. We can’t really afford for this investment to go down very much at this point as obviously we won’t have time to recoup any losses.

My plan was to

[...]
4) keep the rest in the GIA to be divested next FY year and take advantage of the reset CGT tax free allowance (which I know is halving to 3k)

In what sense can you not afford losses?  Obviously remaining invested until next FY does have a very real prospect of losses, so, even though earlier divesting isn't appealing because of CGT, what will you do if the remaining investments have lost significant value by next year?

dlevene

Could you transfer the S&S ISA to a cash ISA if you don't want to be exposed to any further market movements?

r6mile

eskbanker said:

r6mile said:

We are going to need to divest the bulk of this in order to fund major house renovations. Likely starting in the next 12 months though tbc, probably stretching into next FY too. We can’t really afford for this investment to go down very much at this point as obviously we won’t have time to recoup any losses.

My plan was to

[...]
4) keep the rest in the GIA to be divested next FY year and take advantage of the reset CGT tax free allowance (which I know is halving to 3k)

In what sense can you not afford losses?  Obviously remaining invested until next FY does have a very real prospect of losses, so, even though earlier divesting isn't appealing because of CGT, what will you do if the remaining investments have lost significant value by next year?

I guess it felt like ‘cashing in’ 50% - especially now that interest rates are going up - felt like a balanced approach. As of course the remaining 50% invested could also go up.

I should say her risk appetite not particularly high which is reflected in the funds in her GIA.

eskbanker

r6mile said:

eskbanker said:

r6mile said:

We are going to need to divest the bulk of this in order to fund major house renovations. Likely starting in the next 12 months though tbc, probably stretching into next FY too. We can’t really afford for this investment to go down very much at this point as obviously we won’t have time to recoup any losses.

My plan was to

[...]
4) keep the rest in the GIA to be divested next FY year and take advantage of the reset CGT tax free allowance (which I know is halving to 3k)

In what sense can you not afford losses?  Obviously remaining invested until next FY does have a very real prospect of losses, so, even though earlier divesting isn't appealing because of CGT, what will you do if the remaining investments have lost significant value by next year?

I guess it felt like ‘cashing in’ 50% - especially now that interest rates are going up - felt like a balanced approach. As of course the remaining 50% invested could also go up.

I should say her risk appetite not particularly high which is reflected in the funds in her GIA.

Yes, I'm not necessarily challenging the approach, but just highlighting that it's at risk of not fulfilling the desire not to lose value, so the issue is how important value preservation really is to you.  Investing is always promoted as a long term activity, so effectively choosing to invest for less than a year is perhaps a much higher risk than your wife appreciates, regardless of what the investments actually are....