400k cash investment tax implications

flopsy1973

Hi
I have 400k that I wish to get invested and apart from the GIA route which has tax implications. I can slowly use this money to fund my ISA each year but that has CGT impications and it will take years. I went to see IFA and they suggested investment bonds which I don't know much about so going to do some research. Has anyone got experience of using these or any other suggestions?
The IFA wanted 2% initial and 0.85 ongoing which I thought was expensive 

Dazed_and_C0nfused

flopsy1973 said:

Hi
I have 400k that I wish to get invested and apart from the GIA route which has tax implications. I can slowly use this money to fund my ISA each year but that has CGT impications and it will take years. I went to see IFA and they suggested investment bonds which I don't know much about so going to do some research. Has anyone got experience of using these or any other suggestions?
The IFA wanted 2% initial and 0.85 ongoing which I thought was expensive 

Could you expand on the CGT implications you envisage being a factor?

I'm quite sure investment bonds have a place in some peoples investment portfolio but personally I'm not a fan of putting money into something I don't understand.

You will no doubt get a variety of views on the IFA fees but in my eyes £8,000 is a lot to part with.

InvesterJones

flopsy1973 said:

Hi
I have 400k that I wish to get invested and apart from the GIA route which has tax implications. I can slowly use this money to fund my ISA each year but that has CGT impications and it will take years. I went to see IFA and they suggested investment bonds which I don't know much about so going to do some research. Has anyone got experience of using these or any other suggestions?
The IFA wanted 2% initial and 0.85 ongoing which I thought was expensive 

There are no CGT implications to money held in an ISA. However, you'll still have to decide what to do with the remainder after using allowances. I wouldn't worry too much about avoiding tax - getting a well diversified investment that hopefully performs well could work out better after tax than something which isn't taxed in the first place - but such decisions are usually best made on the understand of what sort of timeframe you're looking to use the investment in - let that appetite for volatility determine the investment, rather than tax status.

Albermarle

flopsy1973 said:

Hi
I have 400k that I wish to get invested and apart from the GIA route which has tax implications. I can slowly use this money to fund my ISA each year but that has CGT impications and it will take years. I went to see IFA and they suggested investment bonds which I don't know much about so going to do some research. Has anyone got experience of using these or any other suggestions?
The IFA wanted 2% initial and 0.85 ongoing which I thought was expensive 

Just because that is what they asked, it does not mean you can not make a counter proposal. Same as with all business.
You could try 1% initial and 0.5% ongoing, as 'that seems more like the going rate' 

The resident IFA on the forum has suggested a couple of times that investment bonds may become more attractive again for some people, due to possible changes to be announced in the budget. However like D&C , it is not an area I know about.

dunstonh

 I went to see IFA and they suggested investment bonds which I don't know much about so going to do some research. Has anyone got experience of using these or any other suggestions?

Investment bond wrapper was the main option after ISA back in the days when CGT was less favourable than current.    They have come back into play with the lower CGT allowance and expected to return even more to favour after Wednesday.

The IFA wanted 2% initial and 0.85 ongoing which I thought was expensive 

On £400k, 2% is expensive.  You would expect some tapering of the charge by that point.    0.85% as a bottom line all in (i.e. platform, funds and adviser) is a good price.   0.85% only for adviser is at the upper end.

Offshore investment bonds are not subject to CGT or dividend tax or tax on interest.   There is no internal taxation.   They are subject to income tax and chargeable gains.     So, if you keep your chargeable gains within the basic rate band, there is a good chance that offshore bonds will be better than GIA as income tax at 20% would be charged above the personal allowance.

Onshore bonds have internal taxation that tends to float between 13-18% (based on the equity/bond mix).   Again, no CGT or dividend tax or tax on interest personally.   And no personal taxation if you keep the chargeable gain within the basic rate band or lower.     

Whilst the onshore version may appear better at first glance, the internal taxation is a drag that the offshore bond doesn't get.   So, typically, offshore bonds beat onshore bonds. Although there are occasions it may not.

We will know more about what options are going to be best after Wednesday but platforms that currently don't offer an onshore and/or offshore bond are rushing to get them in place as they expect to see an uptick in people using them.  Platforms that already offer those wrappers have ramped up their marketing of that fact.

The key to the suitability of investment bonds is the future intention of how the money is to be accessed.    And often, combination of wrappers will be best - some in ISA, some in pension, some in GIA and some in bond.

Wait until Wednesday at least (probably worth a few days after as a minimum as often stuff in the budget is not fully talked about but hidden in the report and found out about later).  Then we will have a much better idea.

poseidon1

dunstonh said:

 I went to see IFA and they suggested investment bonds which I don't know much about so going to do some research. Has anyone got experience of using these or any other suggestions?

Investment bond wrapper was the main option after ISA back in the days when CGT was less favourable than current.    They have come back into play with the lower CGT allowance and expected to return even more to favour after Wednesday.

The IFA wanted 2% initial and 0.85 ongoing which I thought was expensive 

On £400k, 2% is expensive.  You would expect some tapering of the charge by that point.    0.85% as a bottom line all in (i.e. platform, funds and adviser) is a good price.   0.85% only for adviser is at the upper end.

Offshore investment bonds are not subject to CGT or dividend tax or tax on interest.   There is no internal taxation.   They are subject to income tax and chargeable gains.     So, if you keep your chargeable gains within the basic rate band, there is a good chance that offshore bonds will be better than GIA as income tax at 20% would be charged above the personal allowance.

Onshore bonds have internal taxation that tends to float between 13-18% (based on the equity/bond mix).   Again, no CGT or dividend tax or tax on interest personally.   And no personal taxation if you keep the chargeable gain within the basic rate band or lower.     

Whilst the onshore version may appear better at first glance, the internal taxation is a drag that the offshore bond doesn't get.   So, typically, offshore bonds beat onshore bonds. Although there are occasions it may not.

We will know more about what options are going to be best after Wednesday but platforms that currently don't offer an onshore and/or offshore bond are rushing to get them in place as they expect to see an uptick in people using them.  Platforms that already offer those wrappers have ramped up their marketing of that fact.

The key to the suitability of investment bonds is the future intention of how the money is to be accessed.    And often, combination of wrappers will be best - some in ISA, some in pension, some in GIA and some in bond.

Wait until Wednesday at least (probably worth a few days after as a minimum as often stuff in the budget is not fully talked about but hidden in the report and found out about later).  Then we will have a much better idea.

dunstonh, have noted your revisting the investment bonds possibilty you identified in a thread i started this week on the possible return of the dreaded investment income surcharge tax regime. 

I very much hope that that tax regime does not return next Wednesday ( it would certainly affect me adversely), but if some semblance of it does return, I have no doubt you will be busy both professionally and on this forum explaining in more detail the pros and cons of investment bonds for basic rate and higher rate taxpayers.

I had originally been thinking about such bonds in the context of IHT planning for myself  (where the bonds have useful trust administration advantages ), but let's see next week if there are any other compelling reasons to look at them afresh.

flopsy1973

Dazed_and_C0nfused said:

flopsy1973 said:

Hi
I have 400k that I wish to get invested and apart from the GIA route which has tax implications. I can slowly use this money to fund my ISA each year but that has CGT impications and it will take years. I went to see IFA and they suggested investment bonds which I don't know much about so going to do some research. Has anyone got experience of using these or any other suggestions?
The IFA wanted 2% initial and 0.85 ongoing which I thought was expensive 

Could you expand on the CGT implications you envisage being a factor?

I'm quite sure investment bonds have a place in some peoples investment portfolio but personally I'm not a fan of putting money into something I don't understand.

You will no doubt get a variety of views on the IFA fees but in my eyes £8,000 is a lot to part with.

This money would be in GIA and I would be selling some of it each year to fill my IS A allowance so probably triggering CGT as I understand it 

MX5huggy

Don’t forget the pension option you can contribute the lower of your total earnings for the year or £60k (plus any unused allowance form 3 previous years). 

flopsy1973

dunstonh said:

 I went to see IFA and they suggested investment bonds which I don't know much about so going to do some research. Has anyone got experience of using these or any other suggestions?

Investment bond wrapper was the main option after ISA back in the days when CGT was less favourable than current.    They have come back into play with the lower CGT allowance and expected to return even more to favour after Wednesday.

The IFA wanted 2% initial and 0.85 ongoing which I thought was expensive 

On £400k, 2% is expensive.  You would expect some tapering of the charge by that point.    0.85% as a bottom line all in (i.e. platform, funds and adviser) is a good price.   0.85% only for adviser is at the upper end.

Offshore investment bonds are not subject to CGT or dividend tax or tax on interest.   There is no internal taxation.   They are subject to income tax and chargeable gains.     So, if you keep your chargeable gains within the basic rate band, there is a good chance that offshore bonds will be better than GIA as income tax at 20% would be charged above the personal allowance.

Onshore bonds have internal taxation that tends to float between 13-18% (based on the equity/bond mix).   Again, no CGT or dividend tax or tax on interest personally.   And no personal taxation if you keep the chargeable gain within the basic rate band or lower.     

Whilst the onshore version may appear better at first glance, the internal taxation is a drag that the offshore bond doesn't get.   So, typically, offshore bonds beat onshore bonds. Although there are occasions it may not.

We will know more about what options are going to be best after Wednesday but platforms that currently don't offer an onshore and/or offshore bond are rushing to get them in place as they expect to see an uptick in people using them.  Platforms that already offer those wrappers have ramped up their marketing of that fact.

The key to the suitability of investment bonds is the future intention of how the money is to be accessed.    And often, combination of wrappers will be best - some in ISA, some in pension, some in GIA and some in bond.

Wait until Wednesday at least (probably worth a few days after as a minimum as often stuff in the budget is not fully talked about but hidden in the report and found out about later).  Then we will have a much better idea.

So after the budget  and as basic rate taxpayer I plan to keep this money invested for at least 10 yrs what are the better options for me. I can only find limited information on investment bonds and how they work ?

flopsy1973

More I read about investment bonds not sure if they are the right option as I would need to withdraw 40k per year to fill out ISA allowance? and read the charges on these may also outweigh the tax advantages ? Are they the most suitable tool for what I am trying to achieve ?
If i stayed with GIA what would i need to do regarding reporting and tax return as this what i am weary off. 
I have another meeting with IFA on Monday what questions do I need to be asking?

masonic

flopsy1973 said:

More I read about investment bonds not sure if they are the right option as I would need to withdraw 40k per year to fill out ISA allowance? and read the charges on these may also outweigh the tax advantages ? Are they the most suitable tool for what I am trying to achieve ?
If i stayed with GIA what would i need to do regarding reporting and tax return as this what i am weary off. 
I have another meeting with IFA on Monday what questions do I need to be asking?

You can normally pull down 5% income per year without tax implications. If the other 5% could be taken within your basic rate band then taxation wouldn't be a drawback. Or you could invest half in the investment bond and half elsewhere. The effect of charges would be a bit of a concern for me, but is less with the latter option. However, I don't know if the IFA would take umbrage with you taking half the money off the table.