400k cash investment tax implications

poseidon1

dunstonh said:

Finally having mentioned investment bonds no longer suitable for your specific needs ( because of the new GIA), for those who are knowledgeable in the intricacies of investment bonds, it is possible to buy direct or go through a commission refund broker per link below.  However, for those who are not familiar with the investment bond tax regime  (which seems to be the vast majority on this forum), then invariably consult an IFA.

Investment bonds have their benefits but are somewhat opaque in their structuring and investor tax outcomes. 
https://investment-bond-shop.co.uk/investment-considerations/frequently-asked-questions/#:~:text=What is a Discount Broker,bond to the financial adviser.

I think that site is way out of date and it contains incorrect information.  e.g. its says " Investment Bonds are categorised as insurance business and the compensation limits are 90% of the claim with no upper limit. ".

Investment bonds have 100% FSCS protection with no upper limit if insured funds are used (external insured funds may not be but its never been tested and opinions vary).    The 90% limit is for motor, pet, travel, home etc.

FSCS limits changed in July 2015.  It appears that the site is at least a decade old in that case.

Plus, references to commission on investment bonds are a bit mixed up and include pre RDR standards, which would make it pre 2013.   Most providers of modern investment bonds don't include commission any most are unbundled like other tax wrappers and platform based ones are whole of market.

Indeed, I just logged into a quote portal that would handle the old fashioned insurance products and it flagged up that the bond service is no longer available as a result of a reduction in product availability and limited usage.

So, I then logged into Defaqto and filtered "available on a non-advised basis", and just 6 of the 24 were, and you wouldn't want any of them (all minor friendly society versions).

That doesn't prevent the 18 advised versions being put in place on an execution only basis, but it would mean that commission isn't available.  All but 2 were platform based and the two that were not were for salesforce FAs.  Platforms don't pay commission.  

Modern platform-based investment bonds are not opaque.  Many old ones were.   They are certainly more complicated when it comes to surrenders and withdrawal management though.

Got to confess, did not delve into this particular site too deeply since was not overly impressed at the limited onshore/offshore offerings.

Frankly, given the very low awareness of investment bonds amongst the investing public,  doubt all but a very few  would be trying to avail themselves of these DIY services.

When I mentioned opaque, that was by reference to differing tax treatments of offshore versus onshore bonds, and the ultimate results for tax paying investors when chargeable events occur. On this forum do come across investment bond investors confused their bond gains are subject to complicated  income tax rules rather than CGT.

Generally it seems Investment bond solutions are sold to the investing public, rather than something they are likely to  request in preference to anything else.

dunstonh

Frankly, given the very low awareness of investment bonds amongst the investing public,  doubt all but a very few  would be trying to avail themselves of these DIY services.

Most of the pre-RDR providers stopped offering their onshore bonds as the 2008 CGT changes made unwrapped (GIAs) similar to investment bonds.   When the lower 10% CGT rate was introduced, it really killed them off.   So, the legacy providers didnt see the point of spending money to update them as the sales were so low.  So, you were left with either very out of date products or the handful of platforms that had it coded in already and didn't need to do any work.

When I mentioned opaque, that was by reference to differing tax treatments of offshore versus onshore bonds, and the ultimate results for tax paying investors when chargeable events occur. On this forum do come across investment bond investors confused their bond gains are subject to complicated  income tax rules rather than CGT.

Generally it seems Investment bond solutions are sold to the investing public, rather than something they are likely to  request in preference to anything else.

The funny thing is that before the early 2000s, onshore investment bonds were the primary wrapper used.   And back then, people didn't really DIY.

Investment bonds may be the optimal solution for many larger investors (as part of a multi-wrapper solution), but most DIY investors aren't going to know they exist.

droopsnoot

poseidon1 said:

flopsy1973 said:

Hi if I go down the investment bond route are these able to be set up DIY or will I need adviser? 
Someone mentioned earlier about selling existing holdings for others.. I have about 40k already in GIA in funds and shares these ideally need to be sheltered into isa I'm guessing?
My original plan was to put the 400k into some multi asset funds and withdraw my isa subscriptions out of there yearly but the above advice is not to do that ?
Thanks

You said on the 6th August you placed £280k in ISA and GIA. I assumed £40k in ISAs and £240k in GIA, leaving just £120k uninvested of the original £400k?

Confusingly, your recent post above gives a somewhat different picture of what you have done. 

It was @dunstonh who said they had placed the £280k, @flopsy1973 didn't quote properly, just copied the text from the earlier post. 

poseidon1

droopsnoot said:

poseidon1 said:

flopsy1973 said:

Hi if I go down the investment bond route are these able to be set up DIY or will I need adviser? 
Someone mentioned earlier about selling existing holdings for others.. I have about 40k already in GIA in funds and shares these ideally need to be sheltered into isa I'm guessing?
My original plan was to put the 400k into some multi asset funds and withdraw my isa subscriptions out of there yearly but the above advice is not to do that ?
Thanks

You said on the 6th August you placed £280k in ISA and GIA. I assumed £40k in ISAs and £240k in GIA, leaving just £120k uninvested of the original £400k?

Confusingly, your recent post above gives a somewhat different picture of what you have done. 

It was @dunstonh who said they had placed the £280k, @flopsy1973 didn't quote properly, just copied the text from the earlier post. 

Many thanks for spotting my oversight.

This somewhat changes the whole tenor of my response if £40k is the only amount currently invested in a GIA by the OP at the moment.

Seems to me on the basis the OP really does not want to continually submit annual self assessment tax returns by reason of the GIA, that should  be sold in favour of the ISA shelter although seems this years allowances already utilised. Therefore could consider selling ( if not showing losses) and hold that cash pending decision on investment bonds. May necessitate a self assessment tax return for  the current tax year depending on activity.

As regards investment bonds, I refer back to my original post of 8 August suggesting a hybrid investment bond/ cash approach, with significant cash held back to fund at least 5 years of ISAs.

 In my view, and based on @dunstonh's observations on the matter, suitable investment bonds  should be  acquired only on an IFA advised basis, accepting there is a cost to such advice and ongoing servicing.

Finally, a GIA approach is an alternative if the OP is prepared to pay for an accountant to handle year end tax returns ( does not sound as if they would be confident doing the tax compliance  themselves).

However even with GIA it would be highly inappropriate to commit the entire £400k up front with the view to selling £40k annually to fund ISAs.  As with the Investment bond suggestion it would be a hybrid GIA/cash approach, again leaving the GIA element to accumulate over 5 years at which point consider investment sales depending on how it has performed.

flopsy1973

Yes sorry for the confusion 
400k cash available 
310k in Isa
40k in GIA funds and stocks
Have to do self assessment this year for first time as I have gone over my savings allowance do I need to include 40k in GIA ? If so what?
So investment bond only available via IFA?

dunstonh

So investment bond only available via IFA?

IFA or FA.   FA versions are likely to be limited (Defaqto shows them as more expensive versions of the IFA equivalent).

Have to do self assessment this year for first time as I have gone over my savings allowance do I need to include 40k in GIA ? If so what?

The three things that are reported to HMRC from the GIA are the dividends, interest and capital gains realised.

If you are talking about just £40k in the GIA, then you should be able to manage the withdrawals to bed & ISA each year, creating minimal taxation and not requiring an investment bond.

poseidon1

dunstonh said:

So investment bond only available via IFA?

IFA or FA.   FA versions are likely to be limited (Defaqto shows them as more expensive versions of the IFA equivalent).

Have to do self assessment this year for first time as I have gone over my savings allowance do I need to include 40k in GIA ? If so what?

The three things that are reported to HMRC from the GIA are the dividends, interest and capital gains realised.

If you are talking about just £40k in the GIA, then you should be able to manage the withdrawals to bed & ISA each year, creating minimal taxation and not requiring an investment bond.

But if steadily getting rid of the £40k  GIA, but now suggesting taking investment bonds  completely off the table, what then for the £400k ?
Leave entirely in cash  ( or near cash ) for next 10 years of ISA funding?

OP does seem to want something potentially  better than declining bank interest on deposit accounts, whilst transitioning across to an eventual  wholly tax free ISA conclusion.

dunstonh

poseidon1 said:

dunstonh said:

So investment bond only available via IFA?

IFA or FA.   FA versions are likely to be limited (Defaqto shows them as more expensive versions of the IFA equivalent).

Have to do self assessment this year for first time as I have gone over my savings allowance do I need to include 40k in GIA ? If so what?

The three things that are reported to HMRC from the GIA are the dividends, interest and capital gains realised.

If you are talking about just £40k in the GIA, then you should be able to manage the withdrawals to bed & ISA each year, creating minimal taxation and not requiring an investment bond.

But if steadily getting rid of the £40k  GIA, but now suggesting taking investment bonds  completely off the table, what then for the £400k ?
Leave entirely in cash  ( or near cash ) for next 10 years of ISA funding?

OP does seem to want something potentially  better than declining bank interest on deposit accounts, whilst transitioning across to an eventual  wholly tax free ISA conclusion.

I may be misreading it, but I took it as £400k, of which £310k was in an ISA.  However, looking at the first post again, if it is actually £400k excluding existing ISA & GIA, then the investment bond should be under consideration (with annual bed & ISA likely to be from a combination of GIA and bond).  

Alternatively, accept that a GIA will not be optimal, but not significantly different, and that an annual return to HMRC will be required.

There is also the happy coincidence that investments into investment bonds are not included in the local authority care means testing, as long as that was not the reason for taking one out.