Using dividend and CGT allowances

etienneg

Higher interest rates have meant that more people are pushed beyond the PSA limit as so pay tax on some of their savings interest. I am well aware not to let tax override sensible decision-making - 80% of the interest is better than none! But common sense says 100% is even better, so looking to use unused allowances seems fair enough. I'm also aware of ISAs and premium bond winnings being tax free.

But what about dividend and CGT allowances? Obviously shares/funds are a possible investment for the long term, but what about short time scales (say 2-4 years)? Are there vehicles that in effect move what would be interest into dividend income or capital gains with minimal risk? I'm not looking for higher returns than savings accounts, but returns in the form of dividends or capital gains rather than interest.

kempiejon

etienneg said:

Higher interest rates have meant that more people are pushed beyond the PSA limit as so pay tax on some of their savings interest. I am well aware not to let tax override sensible decision-making - 80% of the interest is better than none! But common sense says 100% is even better, so looking to use unused allowances seems fair enough. I'm also aware of ISAs and premium bond winnings being tax free.

But what about dividend and CGT allowances? Obviously shares/funds are a possible investment for the long term, but what about short time scales (say 2-4 years)? Are there vehicles that in effect move what would be interest into dividend income or capital gains with minimal risk? I'm not looking for higher returns than savings accounts, but returns in the form of dividends or capital gains rather than interest.

I had this thought. Dividends are taxed at 8.75% and we have £500 tax free too. So there are more onerous taxes to pay. I have been buying shares for years so I am comfortable with harvesting capital gains each year but ideally keep your shares in ISAs and SIPPs first.
The more elaborate plan I now use for cash-like returns is to buy short date HM gilts. Gilts are exempt from capital gains though the coupon is interest. I bought gilts maturing in 1-2 years that only offered a fraction of a percent in interest but were available to buy at less than the maturity price.
In this scenario I effectively bought a pound for about 95p and some months later got a pound plus a fraction of a percent in interest. As the 95p turned into £1 I made 5p profit as a capital gain however as I said before gilts are exempt from capital gains. There are some costs involved in the trade about £20 so one needs to have a few £k to minimise dealing fees.

ColdIron

The dividend 'allowance' is now a princely £500. That will shield £43.75 from tax

Of course 8.75% is better than 20% but for how long will that be the case?

etienneg said:

Are there vehicles that in effect move what would be interest into dividend income or capital gains

Yes

with minimal risk?

Not really, no. E.g. things that can employ dividend/CGT allowances and rates

2-4 years is not long enough to invest with any safety

wmb194

etienneg said:

Higher interest rates have meant that more people are pushed beyond the PSA limit as so pay tax on some of their savings interest. I am well aware not to let tax override sensible decision-making - 80% of the interest is better than none! But common sense says 100% is even better, so looking to use unused allowances seems fair enough. I'm also aware of ISAs and premium bond winnings being tax free.

But what about dividend and CGT allowances? Obviously shares/funds are a possible investment for the long term, but what about short time scales (say 2-4 years)? Are there vehicles that in effect move what would be interest into dividend income or capital gains with minimal risk? I'm not looking for higher returns than savings accounts, but returns in the form of dividends or capital gains rather than interest.

Low coupon gilts bought below par (£100/£1) and are another option as they don't attract capital gains. You can buy them via stockbrokers like Hargreaves Lansdown, Halifax/iWeb and AJ Bell.

https://www.yieldgimp.com/

EthicsGradient

There is one money-market fund that seems to have managed to make part of its return as gains rather than income - abdrn Sterling Money Market. If you compare it with a few other (more are named here), its overall return is much the same as others:
Chart Tool | Trustnet
but if, under "chart basis" you switch to "without income reinvested", you see that, for most of them, when they pay out income the fund price comes back to its approximate "original" level, but abrdn managed, in a year, to get the fund price up about 1% (with about 5.4% total, so 4.4% must have been income).
How that has been achieved, I don't know. It wouldn't save you that much, but it might help.

Ciprico

If you're married you can pretty much double all the allowances, but some might say it's a heavy price to pay....

etienneg

Ciprico said:

If you're married you can pretty much double all the allowances, but some might say it's a heavy price to pay....

Yes, I am married and we do take advantage of the "double allowances". But that's not why we are married!

kempiejon

etienneg said:

Ciprico said:

If you're married you can pretty much double all the allowances, but some might say it's a heavy price to pay....

Yes, I am married and we do take advantage of the "double allowances". But that's not why we are married!

Must be for the inheritance tax exemptions then? We considered it.