Understanding stocks & shares ISA

Alex9384

I opened my first ever S&S ISA just a month ago with Trading 212.

My understanding is that I can pay a maximum of 20k into that ISA and once the money is in, then whatever profit I make within that ISA is tax free, no matter how much, even if it went up to 1 million?

Next year I can open another ISA and pay another 20k into it? So I can have 2 ISAs, then 3 ISAs, then 4 ISAs, each with 20k in it, as long as they are opened 1 year after each other?

Also, do I need to care about the 30 days bed & breakfasting rule at all?

I'm still not sure what exactly it is. Articles that I searched are talking about losses and repurchasing same shares, and that it's "impossible" to repurchase the same stock within 30 days. Does that apply only when shares were sold at a loss?

Linton

Alex9384 said:

I opened my first ever S&S ISA just a month ago with Trading 212.

1) My understanding is that I can pay a maximum of 20k into that ISA and once the money is in, then whatever profit I make within that ISA is tax free, no matter how much, even if it went up to 1 million?

2) Next year I can open another ISA and pay another 20k into it? So I can have 2 ISAs, then 3 ISAs, then 4 ISAs, each with 20k in it, as long as they are opened 1 year after each other?

3) Also, do I need to care about the 30 days bed & breakfasting rule at all?

I'm still not sure what exactly it is. Articles that I searched are talking about losses and repurchasing same shares, and that it's "impossible" to repurchase the same stock within 30 days. Does that apply only when shares were sold at a loss?

1) Correct, any gains within an S&S ISA become part of the ISA. The £20k limit only applies to new contributions.

2) You simply add up to £20k during each tax year to your existing S&S ISA. You dont need a new one.

3) Bed and breakfasting is selling when your profits approach the CGT allowance and re-buying the same investment almost immediately, This used to be a valuable way to avoid CGT. The loophole was closed a long time ago by the 30 days rule which said that if you re-buy within 30 days both transactions are ignored for tax purposes. So the process was not banned, it just became pointless. Also The CGT allowance is much smaller than it was so any benefits are much less worthwhile.  

But none of this applies when you are rebuying within a ISA since an ISA hides all transactions affecting tax from HMRC.

Keep_pedalling

If you also hold equities outside your ISA you should look at taking advantage of you CGT allowance to bed and ISA some of that before using spare cash to fund your ISA. For example if you purchased a bunch os shares in Acme PLC at £1 per share and they are worth £1.30 at the end of the tax year, you can sell 13,000 of them taking £3,000 tax free profit then repurchase those shares within your ISA at the beginning of the following tax year, with no need to wait 30 days. 

jimjames

Alex9384 said:

My understanding is that I can pay a maximum of 20k into that ISA and once the money is in, then whatever profit I make within that ISA is tax free, no matter how much, even if it went up to 1 million

Absolutely. There are many people who have invested in ISAs for years that have very substantial amounts in them and quite a few are ISA millionaires. It's a huge benefit when used over decades as all income and gains inside are tax free. So if you have a million in there and are getting 3% dividends each year that is £30,000 of income that is totally tax free even when removed from the ISA.

p00hsticks

Alex9384 said:

Next year I can open another ISA and pay another 20k into it? So I can have 2 ISAs, then 3 ISAs, then 4 ISAs, each with 20k in it, as long as they are opened 1 year after each other?

An alternative to having multiple ISAs is to just add £20k to your existing one each year......

wmb194

Alex9384 said:

I opened my first ever S&S ISA just a month ago with Trading 212.

My understanding is that I can pay a maximum of 20k into that ISA and once the money is in, then whatever profit I make within that ISA is tax free, no matter how much, even if it went up to 1 million?

Next year I can open another ISA and pay another 20k into it? So I can have 2 ISAs, then 3 ISAs, then 4 ISAs, each with 20k in it, as long as they are opened 1 year after each other?

This tax year the rules changed and you can now deposit money into as many Isas of each type as you like, maximum £20k p.a. between all of them. Freetrade's S&S Isa has become more interesting as from yesterday it became a Flexible Isa.

Alex9384

Thanks all!

So basically I can buy and sell the same stock as many times as I wish. Or just sell a portion of my shares, then buy more, etc.

This is important for me because I'm interested in swing trading (days/weeks), although I intend to hold some stocks long term, such as National Grid or a couple REITs.

Btw, I assume I still need to file a tax return even if the tax is zero?

Alex9384

Keep_pedalling said:

If you also hold equities outside your ISA you should look at taking advantage of you CGT allowance to bed and ISA some of that before using spare cash to fund your ISA. For example if you purchased a bunch os shares in Acme PLC at £1 per share and they are worth £1.30 at the end of the tax year, you can sell 13,000 of them taking £3,000 tax free profit then repurchase those shares within your ISA at the beginning of the following tax year, with no need to wait 30 days. 

Thanks.
I have something in the standard Invest account since free shares for friend referrals are added there by Trading212 and I also bought a couple blue chips as my ISA was already maxed out.

Another thing, for example in Slovakia if you hold your shares for at least 1 year, they then become exempt from CGT. Is there anything like that in the UK?

Alex9384

Someone said in a different MSE thread that you shouldn't hold the same stock in two different investment accounts because it somehow complicates taxes? I don't remember exactly.

My questions is, is "the same stock" considered the one that has the same ISIN? Or any stock from the same company? For example Alphabet Class A shares vs Class C shares are "the same stock" or not? What if you hold Class A in one account and buy Class C in another?

ColdIron

Alex9384 said:

This is important for me because I'm interested in swing trading (days/weeks)

AKA a fast way to lose money

You will be up against professionals and a lot of software. What makes you think you have the edge over them?

OK if you want a bit of (potentially expensive) fun with a few thousand but not a serious strategy to increase your wealth

Alex9384

mark_cycling00 said:

I suspect that the type of person who's successful at day trading is the type of person who could quickly understand the relatively simple concept of ISAs. 

How are you going to research and evaluate a REIT if you're struggling to discover if you pay CGT after 1 year or not.

Really please be careful with your money 

Thanks, but I didn't say day trading, I said swing trading, which means holding for days/weeks, in some cases months. I think day trading is purely about technicals whereas swing trading involves fundamentals. I aim to buy companies which are good enough to keep long term even if they temporarily dip after I buy them.

I'm not "struggling to discover", I just hate reading about taxes in a bureaucratic language and I find it easier to ask people who are already experienced in it. Is this not a form of discovering? I think that's the main purpose of forums like this.