Capital Gains Tax: to raise cash, sell shares from ISA or outside?

mijut

If I want to raise some cash, is it better to sell shares from within my ISA (no CGT to pay, but tax-free status of those shares lost) or sell shares outside (would  have to pay CGT as over allowance, but tax-free status not an issue)?

Keep_pedalling

Sell as many as you can from outside your ISA that uses up your annual allowance and the rest from your ISA. Come April 6th sell more from outside your ISA to use up next years allowable gains and use the cash to top up your ISA.

ColdIron

It depends on your circumstances, priorities and the sums involved. If it was a only a small bill I would preserve my ISA but that's just me. Some people focus on tax to the detriment of all other considerations

Presumably you have a plan for dealing with CGT issues. How does it figure within that plan? The issue won't go away. CGT avoidance is not hard but it does require planning (phased withdrawals being the most obvious). Do you have a spouse whose 'allowance' could be shared?

You might look at disposing sufficient unwrapped assets to maximise the Annual Exempt Amount and take the balance from the ISA

InvesterJones

mijut said:

If I want to raise some cash, is it better to sell shares from within my ISA (no CGT to pay, but tax-free status of those shares lost) or sell shares outside (would  have to pay CGT as over allowance, but tax-free status not an issue)?

You can only know for sure with hindsight as to whether the tax you paid in CGT was less than the tax you would save on the profit of the shares for the amount of time they stay in the ISA. If you plan to keep them in the ISA for many many years then perhaps it is. If you plan to access the ISA anyway in a few years, perhaps not?

artyboy

If you do intend to sell shares, then definitely make use of your £3k CGT allowance each year. 

And if there are years that you don't want to sell, but still have unwrapped investments, then you can at least Bed and ISA up to the CGT allowance limit, to make any future gains tax free.

The way CGT allowance has been decimated, (firstly by the Tories reducing it from £12k to £3k; and then Labour raising the rates so it's a minimum of 18% now) is scandalous - it's not even as though it's fungible with your personal tax allowance like savings interest is. 

Anyway, rant over and I'll just carry on selling, just slower than before. It shows the importance of the ISA wrapper, although they'll probably be coming for that one next...

mijut

Many thanks for all your replies. Very informative. I am studying them.

mijut

A thought: if I were to sell shares from the ISA, the future dividends I would lose on those shares would be greater than those future dividends I would lose if I were to sell outside the ISA since they would be taxed. This loss would mount up year by year, whereas the CGT payable if selling outside the ISA is a one-off cost. So it seems to me that it would make sense to sell outside the ISA. Agree, or am I missing something?

EthicsGradient

mijut said:

A thought: if I were to sell shares from the ISA, the future dividends I would lose on those shares would be greater than those future dividends I would lose if I were to sell outside the ISA since they would be taxed. This loss would mount up year by year, whereas the CGT payable if selling outside the ISA is a one-off cost. So it seems to me that it would make sense to sell outside the ISA. Agree, or am I missing something?

That might depend on if you see yourself hanging on to the remaining shares forever (ie until you die - there's no CGT on inherited shares), or if you think you will sell them eventually - or even quite soon. Remember that to raise a given amount of cash, you need to sell more outside the ISA now, to pay the CGT as well. I think you'd need to do a full "what if" calculation with some assumptions of what you'll do later.