Tax on GIA investments

Pat38493

Is anyone aware of an easy but detailed explainer on how tax works on GIA.  I have never looked into this before as up to now all my investments were in tax wrappers but I expect this to change during the next year.

I am aware that CGT and income tax comes into play but I am looking for all the details to understand things like:
- For different types of investments, exactly how are the taxed and when is the point the tax has to be calculated and paid? (Funds, ETF, Bonds etc).  (example if I hold a global tracker equity fund in an GIA, exactly how and when I would incur a  tax liability).
- How can I leverage my CGT allowance which I have never bothered about before?
- Is the tax calculated individuall on each investment in the GIA and who actually has to figure it out and calculate it, and what do I need to do personally to check or submit.

LHW99

Tax would be reckoned up at the end of a tax year IMO, and that could include capital gains tax (eg if you sell shares & make a profit) not sure if this is due within a certain time of the sale. Dividends over a tax year if you have income units, and you may have to make a calculation for accumulation units using data such as equalisation, and then there is foreign income. I think details of the last two would be supplied by the platform.

Secret2ndAccount

You can buy individual shares, or funds or ETF's. If they pay dividends, you add up your total dividend income over a tax year. The first 500 is tax free. After that you pay tax depending on your other income. You add your other taxable income to your dividends to determine your dividend tax rate
If you earn less than 12,570 you can earn more dividends with no tax until you hit 13,070
If your total income is > 13,070 you pay 8.75% tax on your dividends
If your total income is > 50,770 you pay 33.75% tax on your dividends above that level
Above 125k, the rate is 39.35%

Additionally, there is capital gains tax. If you don't sell anything, there is no CGT. At the moment you sell, you subtract the price you originally paid from the final price you received. That is your gain. You total all of your capital gains each tax year and pay tax as follows (different rates apply to houses - this is for investing):
First 3,000 - no tax.  After that, add up your total income (salary + cap gains - 3000)
Total less than 50k,  tax rate is 10%
Total above 50k, rate goes up to 20% for the part above 50k

If you haven't sold anything during a year, you can sell enough to realise a 3k gain (and pay no tax) just before the end of the tax year. You can't buy exactly the same thing back again within 30 days, though you could buy those investments in your ISA, and buy something different in your GIA
If you make a loss, you can offset that against the gains you have made - it's the annual total that matters. If you make a large loss you can tell HMRC you want to save it up for future use.

My platform provider would send me an annual statement listing all my dividends, purchases and sales. You will need to keep records to calculate your own capital gains.

It used to be much better, but you can still earn 3.5k per year with no tax.

Pat38493

Secret2ndAccount said:

You can buy individual shares, or funds or ETF's. If they pay dividends, you add up your total dividend income over a tax year. The first 500 is tax free. After that you pay tax depending on your other income. You add your other taxable income to your dividends to determine your dividend tax rate
If you earn less than 12,570 you can earn more dividends with no tax until you hit 13,070
If your total income is > 13,070 you pay 8.75% tax on your dividends
If your total income is > 50,770 you pay 33.75% tax on your dividends above that level
Above 125k, the rate is 39.35%

Additionally, there is capital gains tax. If you don't sell anything, there is no CGT. At the moment you sell, you subtract the price you originally paid from the final price you received. That is your gain. You total all of your capital gains each tax year and pay tax as follows (different rates apply to houses - this is for investing):
First 3,000 - no tax.  After that, add up your total income (salary + cap gains - 3000)
Total less than 50k,  tax rate is 10%
Total above 50k, rate goes up to 20% for the part above 50k

If you haven't sold anything during a year, you can sell enough to realise a 3k gain (and pay no tax) just before the end of the tax year. You can't buy exactly the same thing back again within 30 days, though you could buy those investments in your ISA, and buy something different in your GIA
If you make a loss, you can offset that against the gains you have made - it's the annual total that matters. If you make a large loss you can tell HMRC you want to save it up for future use.

My platform provider would send me an annual statement listing all my dividends, purchases and sales. You will need to keep records to calculate your own capital gains.

It used to be much better, but you can still earn 3.5k per year with no tax.

Thanks - and if you are holding accumulation funds in a GIA how do you know what the capital gain is?  

Hoenir

You'll need to maintain your own records. 

Secret2ndAccount

In my opinion it's easier to hold distributing funds in a GIA. If you hold Acc, then you have to calculate the notional dividends each year, and pay tax on them. Then, when you sell, you subtract the income from the capital gain. If you hold distributing units, the tax is the same, but the numbers are a bit more accessible to do the calculations.


One bit of additional info I haven't yet mentioned. If a fund contains more than 60% cash or bonds, then the income is considered interest, not dividends. Need to be aware of this if you go for 'safe' investments in the GIA, and put your volatile stuff in the SIPP/ISA. That's kinda the sensible path so you don't get hit with a load of CGT if your investment is a big winner. Just keep both thoughts in mind.

poseidon1

Secret2ndAccount said:

In my opinion it's easier to hold distributing funds in a GIA. If you hold Acc, then you have to calculate the notional dividends each year, and pay tax on them. Then, when you sell, you subtract the income from the capital gain. If you hold distributing units, the tax is the same, but the numbers are a bit more accessible to do the calculations.


One bit of additional info I haven't yet mentioned. If a fund contains more than 60% cash or bonds, then the income is considered interest, not dividends. Need to be aware of this if you go for 'safe' investments in the GIA, and put your volatile stuff in the SIPP/ISA. That's kinda the sensible path so you don't get hit with a load of CGT if your investment is a big winner. Just keep both thoughts in mind.

On the two DIY platforms I use ( HL & ii ), both produce tax year-end dividend and interest reports which summarise your general investment account taxable income for self assessment tax reporting purposes.   The reports will also identify equalisation payments, and should indicate income accumulated where a distribution fund was not utilised.

However, you do have to maintain your own records of taxable gains and losses  for cgt purposes.

Pat38493

Secret2ndAccount said:

In my opinion it's easier to hold distributing funds in a GIA. If you hold Acc, then you have to calculate the notional dividends each year, and pay tax on them. Then, when you sell, you subtract the income from the capital gain. If you hold distributing units, the tax is the same, but the numbers are a bit more accessible to do the calculations.


One bit of additional info I haven't yet mentioned. If a fund contains more than 60% cash or bonds, then the income is considered interest, not dividends. Need to be aware of this if you go for 'safe' investments in the GIA, and put your volatile stuff in the SIPP/ISA. That's kinda the sensible path so you don't get hit with a load of CGT if your investment is a big winner. Just keep both thoughts in mind.

Thanks - That seems to make sense, but if you do that in some providers like II for example, I think that you have to pay (albeit reduced) transaction fees for each dividend reinvestment.  I will look into this a bit more.

ColdIron

Secret2ndAccount said:

In my opinion it's easier to hold distributing funds in a GIA. If you hold Acc, then you have to calculate the notional dividends each year, and pay tax on them. Then, when you sell, you subtract the income from the capital gain.

While that is true it's not a silver bullet. You're substituting one issue for another. With Inc units you need to consider equalisation payments when determining your capital gain. You deduct them from you base cost thereby increasing your gain so it's more a case of choose your calculation

Pat38493

If I have made capital gains and/or dividends but it’s within my allowance so no tax to actually pay, do I still need to report it?

Presumably to do this I would contact HMRC and tell them I need to complete a tax return?

Sarahspangles

Pat38493 said:

If I have made capital gains and/or dividends but it’s within my allowance so no tax to actually pay, do I still need to report it?

Presumably to do this I would contact HMRC and tell them I need to complete a tax return?

The tests on whether/how you need to report are changing, we were just looking, I still have the page open

https://www.gov.uk/capital-gains-tax/work-out-need-to-pay