Capital Gains Tax on withdrawals from a General Investment Account

littlemoney

Nearly 10 years ago I was persuaded that it would be a good long term investment to moved money from savings accounts into an low risk GIA as generally it should out perform savings interest rates. I haven't taken any money out and the fund is not performing that well, which the IFA agrees with and he is moving my investment. I don't see much recovery for at least 12 month if not longer. Perhaps longer.

I want to take some money out as I can better returns in Fixed rate bonds for the next year but it has left with with not much money on easy access should I have large expensse over the next year or two. As soon as I mentioned withdrawals he said I would liable for capital gains tax. The value has gone up since I invested but in the last 12 months it has been dropping in value.

Am I allowed to withdraw a certain amount a year to avid the tax and if so, how much. It seems that setting the investment up was easy but withdrawals may be costly.

I am getting to the age where if it takes 10 years for the market to recover, I might not be here by that date to benefit. I don't need the money at this minute but I would like more "just in case money"

Is there an idiots guide to understanding this so I know what I can expect and the best way forward to get my money at minimum tax costs or do I have to bit the bullet and accept a large tax bill.

Sorry for the long post but I am totally confused. Thanks.

Cold_comfort

Check HMRC's guide to the basics of Capital Gains Tax. The CGT allowance before you have to pay tax has been halved this year to £6,000 and will be halved again to £3,000 next year. Fortunately, the tax rate on gains from shares is relatively low - 10% for basic rate taxpayers and 20% for higher rate taxpayers - though this could change in the future so it may be prudent not to wait too long to realise your gains.

Note if you are looking to switch to fixed income, you might want to consider low coupon gilts where most of the return is capital gain, which for gilts is exempt from CGT. After tax is taken into account, these currently can work out better than the fixed rate bonds offered by banks and building societies.

littlemoney

Cold_comfort said:

Check HMRC's guide to the basics of Capital Gains Tax. The CGT allowance before you have to pay tax has been halved this year to £6,000 and will be halved again to £3,000 next year. Fortunately, the tax rate on gains from shares is relatively low - 10% for basic rate taxpayers and 20% for higher rate taxpayers - though this could change in the future so it may be prudent not to wait too long to realise your gains.

Note if you are looking to switch to fixed income, you might want to consider low coupon gilts where most of the return is capital gain, which for gilts is exempt from CGT. After tax is taken into account, these currently can work out better than the fixed rate bonds offered by banks and building societies.

Thanks for the link. Hope it's written for an idiot who knows nothing about it.

I am being stupid but what do you mean "prudent not to wait too long to realise your gains". Do you mean taking my money out of the GIA.

I've never heard of "low coupon gilts"

eskbanker

littlemoney said:

the fund is not performing that well, which the IFA agrees with and he is moving my investment

[...]

As soon as I mentioned withdrawals he said I would liable for capital gains tax.

Just to be clear, it's selling that triggers any CGT liability, not withdrawing, so as soon as fund units are sold the CGT needs to be calculated, even if the proceeds will be reinvested within the GIA - an IFA should know this, so make sure the two of you are on the same page and communicating clearly!

ColdIron

littlemoney said:

As soon as I mentioned withdrawals he said I would liable for capital gains tax. The value has gone up since I invested but in the last 12 months it has been dropping in value.

You only pay CGT on your profit, the difference between what you paid for it and what you sold it for (excluding fees and stamp duty if any). But you may not pay any tax at all depending on the sums involved

Am I allowed to withdraw a certain amount a year to avid the tax and if so, how much.

Yes. You have an 'allowance', the Annual Exempt Amount. £6,000 this year and £3,000 next year. If that doesn't cover all your gain you can sell a proportion to stay within this amount. You can spread subsequent disposals over future years, or just pay the tax

I haven't taken any money out and the fund is not performing that well, which the IFA agrees with and he is moving my investment.

If you switch into something else you have the same issue with CGT, You pay it on disposal and it doesn't matter if you put it into something else or withdraw it

Is there an idiots guide to understanding this

Have a look at this

https://www.which.co.uk/money/tax/capital-gains-tax/capital-gains-tax-on-shares-aOus88Q1VUve

ColdIron

littlemoney said:

Cold_comfort said:

Check HMRC's guide to the basics of Capital Gains Tax. The CGT allowance before you have to pay tax has been halved this year to £6,000 and will be halved again to £3,000 next year. Fortunately, the tax rate on gains from shares is relatively low - 10% for basic rate taxpayers and 20% for higher rate taxpayers - though this could change in the future so it may be prudent not to wait too long to realise your gains.

Note if you are looking to switch to fixed income, you might want to consider low coupon gilts where most of the return is capital gain, which for gilts is exempt from CGT. After tax is taken into account, these currently can work out better than the fixed rate bonds offered by banks and building societies.

I am being stupid but what do you mean "prudent not to wait too long to realise your gains". Do you mean taking my money out of the GIA.

Cold_comfort means to sell/move sooner rather than later to take maximum advantage of the decreasing 'allowance'

I do hope that your 'advisor' is recommending that you move it into an ISA (and perhaps a pension) and you have been doing so every year

A 10 year investment in a GIA seems very long unless the sums involved are large (in excess of £185,480)

Keep_pedalling

Did your FA not advise you to move your ISA allowance from your GIA to an ISA account each year? You could have moved £200k into an ISA over the last 10 years without paying a penny in CGT.

littlemoney

Keep_pedalling said:

Did your FA not advise you to move your ISA allowance from your GIA to an ISA account each year? You could have moved £200k into an ISA over the last 10 years without paying a penny in CGT.

Yes I have been moving over each year. Usually I get an email in June/July asking if I want to switch. This year I didn't and have opened a fixed rate cash ISA as both ISA and GIA investment has been performing poorly.

dunstonh

I haven't taken any money out and the fund is not performing that well, which the IFA agrees with and he is moving my investment. I don't see much recovery for at least 12 month if not longer. Perhaps longer.

For most people, the low point was October 2022 and things have been recovering since then. 2023 is, for most people, in profit.  So, it seems strange that yours is not.

 The value has gone up since I invested but in the last 12 months it has been dropping in value.

Again, that seems strange as the high point was around Nov/Dec 2021 and with the low point being October 2022, most of the losses happened more than 12 months ago.

I am getting to the age where if it takes 10 years for the market to recover, I might not be here by that date to benefit. I don't need the money at this minute but I would like more "just in case money"

Most recoveries take less than a year from the low point but larger ones typically take a year or two. Extreme loss periods may take a few beyond that.