Moving into stocks and shares (ISA wrapper? Dividend relief?)

anniemals

I am looking to move into stocks and shares but am new to it so want to start small.

My current situation for context is as follows:

- c.£75k in savings - c.£60k of which is in cash ISA
- Higher rate tax bracket
- Maxing out my PSA each year
- Likely to max out my ISA limit each year
- Likely to need a substantial portion of my savings within three years to buy a new home, but would not pull out of the stocks and shares (hence why I am keeping it relatively small)

I have already maxed out my cash ISA for this year, but it is flexible so I can pull out of it.

I want to start by investing £2k in stocks and shares immediately, then drip feed in a smaller amount (say £200) every month.

So, my question is - do I pull out of my cash ISA to invest in a stocks and shares ISA, or do I make use of the £500 dividend allowance and invest outside of an ISA wrapper? If the latter, am I complicating things for myself further down the line, once I (hopefully) start exceeding my dividend allowance.

I hope that makes sense - all input appreciated!

Qyburn

anniemals said:

I have already maxed out my cash ISA for this year, but it is flexible so I can pull out of it.

Withdrawal from a flexible ISA can only be paid back into the same account. But you could transfer the ISA to a Stock and Shares ISA.

jimjames

Bad idea to invest outside the ISA wrapper but keep cash inside it. You'll cause yourself a lot of hassle in the future and also no guarantee the allowances will remain the same as you'll have to account for CGT as well. None of these issues in an ISA 

Mikeeee_2

anniemals said:

I am looking to move into stocks and shares but am new to it so want to start small.

My current situation for context is as follows:

- c.£75k in savings - c.£60k of which is in cash ISA
- Higher rate tax bracket
- Maxing out my PSA each year
- Likely to max out my ISA limit each year
- Likely to need a substantial portion of my savings within three years to buy a new home, but would not pull out of the stocks and shares (hence why I am keeping it relatively small)

I have already maxed out my cash ISA for this year, but it is flexible so I can pull out of it.

I want to start by investing £2k in stocks and shares immediately, then drip feed in a smaller amount (say £200) every month.

So, my question is - do I pull out of my cash ISA to invest in a stocks and shares ISA, or do I make use of the £500 dividend allowance and invest outside of an ISA wrapper? If the latter, am I complicating things for myself further down the line, once I (hopefully) start exceeding my dividend allowance.

I hope that makes sense - all input appreciated!

I wouldn't withdraw the money from the cash ISA and add it to the s&s ISA. You can usually transfer it though so you retain your annual contribution of £20k.

I just want to clear one point up. You said you're buying a new home, but is it your first home and are you under 40?

Dazed_and_C0nfused

anniemals said:

I am looking to move into stocks and shares but am new to it so want to start small.

My current situation for context is as follows:

- c.£75k in savings - c.£60k of which is in cash ISA
- Higher rate tax bracket
- Maxing out my PSA each year
- Likely to max out my ISA limit each year
- Likely to need a substantial portion of my savings within three years to buy a new home, but would not pull out of the stocks and shares (hence why I am keeping it relatively small)

I have already maxed out my cash ISA for this year, but it is flexible so I can pull out of it.

I want to start by investing £2k in stocks and shares immediately, then drip feed in a smaller amount (say £200) every month.

So, my question is - do I pull out of my cash ISA to invest in a stocks and shares ISA, or do I make use of the £500 dividend allowance and invest outside of an ISA wrapper? If the latter, am I complicating things for myself further down the line, once I (hopefully) start exceeding my dividend allowance.

I hope that makes sense - all input appreciated!

There isn't an "allowance" for dividends in the normal sense.

It's a 0% tax band (as is the PSA) so if tapered Personal Allowance or HICBC are factors for you then even £500 taxed at 0% can impact those and increase your overall liability.

anniemals

Mikeeee_2 said:

anniemals said:

I wouldn't withdraw the money from the cash ISA and add it to the s&s ISA. You can usually transfer it though so you retain your annual contribution of £20k.

I just want to clear one point up. You said you're buying a new home, but is it your first home and are you under 40?

Thanks for your reply. I am already a home owner (and used the H2B for that), but am under 40

If I transferred, wouldn’t I need to transfer the whole ISA (rather than just £2k)?

anniemals

Dazed_and_C0nfused said:

There isn't an "allowance" for dividends in the normal sense.

It's a 0% tax band (as is the PSA) so if tapered Personal Allowance or HICBC are factors for you then even £500 taxed at 0% can impact those and increase your overall liability.

I see. I have this year broken the £100k mark so the tapering is a bit of a worry…

Dazed_and_C0nfused

anniemals said:

Dazed_and_C0nfused said:

There isn't an "allowance" for dividends in the normal sense.

It's a 0% tax band (as is the PSA) so if tapered Personal Allowance or HICBC are factors for you then even £500 taxed at 0% can impact those and increase your overall liability.

I see. I have this year broken the £100k mark so the tapering is a bit of a worry…

If you're adjusted net income is in the £100,000 to £125,140 range then the dividends could further reduce your Personal Allowance.

Say you have (taxable) untaxed interest of £500 and dividends of £500 as well.  Both would be taxed at 0% but your adjusted net income would be £1,000 more and therefore you would lose £500 of your Personal Allowance.

This means £500 more of your earnings would be taxed at 40%, adding £200 to your tax liability.

So the interest and dividends really have an effective tax rate of 20% in that situation.

EthicsGradient

anniemals said:

I am looking to move into stocks and shares but am new to it so want to start small.

My current situation for context is as follows:

- c.£75k in savings - c.£60k of which is in cash ISA
- Higher rate tax bracket
- Maxing out my PSA each year
- Likely to max out my ISA limit each year
- Likely to need a substantial portion of my savings within three years to buy a new home, but would not pull out of the stocks and shares (hence why I am keeping it relatively small)

I have already maxed out my cash ISA for this year, but it is flexible so I can pull out of it.

I want to start by investing £2k in stocks and shares immediately, then drip feed in a smaller amount (say £200) every month.

So, my question is - do I pull out of my cash ISA to invest in a stocks and shares ISA, or do I make use of the £500 dividend allowance and invest outside of an ISA wrapper? If the latter, am I complicating things for myself further down the line, once I (hopefully) start exceeding my dividend allowance.

I hope that makes sense - all input appreciated!

Since you've already maxed out your ISA allowance with the flexible cash ISA, you won't be able to do the drip feed into an S&S ISA this year with contributions, and even if your flexible ISA does allow partial transfers out to other ISAs (you need to check this with the provider), you don't want the hassle of arranging this every month.

So your drip feed into stocks and shares this tax year will have to be outside a wrapper. That'll build up about £1400, and you may as well put the £2k into the same place now. When the 25-26 tax year starts, you could then move that into an S&S ISA - you won't have exceeded the £3k gain, realistically, and if you do this with a provider that does "bed & ISA", which is selling your investment outside and immediately putting the proceeds into an ISA and re-buying the same thing, you won't be out of the market. And after that, you can put the £200/month directly into the ISA as a contribution. And you can work out what the remainder of your ISA allowance will be, and put that into a cash one.

I suppose you could transfer the whole amount you expect to invest this year in one go into an S&S ISA (say £2000+£1400=£3400), and then invest £2000 of it, leave £1400 of it in cash, and then convert it, inside the ISA, to the investment by £200 each month, but you'll probably get a lower rate of interest on the cash in an S&S ISA than in an actual cash ISA. Check what is available (ah, just looked what Trading 212 cut their interest rate to - still 5%, so that's not bad. https://forums.moneysavingexpert.com/discussion/6549988/trading-212-gbp-interest-rate-cut If they offer what you want to invest in, that might work. But work out the investment you want first, and then find which provider offers it)

badger09

Have you considered investing more  in your Pension?

dunstonh

pension and offshore bond are two alternative tax wrappers that may be useful in your situation.