400k cash investment tax implications

flopsy1973

So the charges are what concerns you regarding bonds ? So they are excessive? I don't see the point of half and half as originally this was to save me tax and  administration. If I'm going to split it then I might as well put all into GIA. 
SO am I right that I will have to complete a tax return with this kind of investment and when I sell to fund my ISA allowance each year what will I need to do then ? Thanks

flopsy1973

Revisiting this as it had taken this long for ifa to do cashflow forecast for me and telling me my best option is investment bond to avoid CGT. As nothing changed in budget what are views on this now ?

dunstonh

flopsy1973 said:

Revisiting this as it had taken this long for ifa to do cashflow forecast for me and telling me my best option is investment bond to avoid CGT. As nothing changed in budget what are views on this now ?

Investment bonds are back in play again and platforms are currently rushing to get that wrapper back in place if they haven't got one.  

However, its more nuanced than just an investment bond.    In many cases, it would be multiple wrappers.    
i.e. some into the pension wrapper (where timescale matches up), use the ISA wrapper, put a certain amount in a GIA to allow for dividend and interest allowance and CGT use and then put some into the investment bond.

That said, just this week I have placed £280k into an ISA and GIA and not used an investment bond as the asset mix of the underlying investments makes the GIA with direct taxation more tax efficient than the investment bond.  IFAs have taxation calculators available that allow comparison of the underlying investments and taxation to show which tax wrapper is better.

In many cases, GIA is still best as long as you use the annual CGT allowance, bed & ISA and bed & pension and don't mind reporting to HMRC each year.   If you wish to avoid HMRC reporting and can bed & ISA/pension from a bond and GIA, then a bit of GIA and a bit of investment bond can do that.

So the charges are what concerns you regarding bonds ? So they are excessive?

Picking up on your earlier post that was missed....   most platforms run their investment bond at no additional cost over other wrappers.   Some have very tiny differences.       

SO am I right that I will have to complete a tax return with this kind of investment and when I sell to fund my ISA allowance each year what will I need to do then ? Thanks

If you don't get a tax return and the gains are within your tax band. i.e. you are  basic rate taxpayer and you create a chargeable gain on the investment bond which, after top slicing relief, keeps you in the basic rate band, then there is no reporting to HMRC.   If it takes you into the next tax band, then you need to report it to HMRC.  you don't have to do a tax return if you don't get one.  You can just notify HMRC of the figures.   Pretty much the same as you would do with a GIA that results in dividends over £500, interest too much or CGT to be paid.

flopsy1973

That said, just this week I have placed £280k into an ISA and GIA and not used an investment bond as the asset mix of the underlying investments makes the GIA with direct taxation more tax efficient than the investment bond.  

What would make the above more tax efficient? 
I would like to avoid hmrc reporting if possible how do I go about that I want things simple as possible

flopsy1973

Any further insight of the above question please

aroominyork

Have you taken into account any existing SIPP/ISA investments and how you could rearrange them to minimise GIA tax? For example, if you want to buy an equity fund with your new GIA money but you already own a SIPP/ISA gilt fund, you could sell that gilt fund and buy a tax-wrapped equity fund, then use the GIA to buy a low coupon nominal gilt with similar duration to the gilt fund.

poseidon1

Given your original objective ( back in November) of being able to draw down £40k annually from your cash pile to fund ISAs, you could consider investment bonds for part of your cash ( £200k as suggested by masonic ?) but purely as an intial  capital accumulation vehicle  for 5 to 10 years, whilst retaining £200k cash to fund the next 5 years of ISA contributions.

Certainly going down the partial investment bond route, would give you the opportunity to withdraw £50k tax deferred at the end of year 5, and then £10k annually thereafter for the remainder of the 20 year 5% withdrawal period.

Not a perfect solution to your predicament, but has the advantage of allowing part of your capital to grow in an environment where you don't have to concern yourself about annual capital gains tax compliance, and income tax deferred up to 20 years.

Dunstonh has outlined his view of the cost issues related to adviser set up bonds, you have to decide whether those costs are worth it to you, compared with going down the DIY GIA route, and all the tax compliance issues that entails.