tax on investment return

tip_t0p

I am trying to compare locking away £100k v investing it in relation to how much tax I would pay on any gains. I can work out that if I locked the money away at 4.5% for 5 years I would gain £24617 before tax and £19700 after tax, at my current basic tax rate. I have used my £1k allowance already. Can someone please let me know how much tax I would pay if my investments in stocks and shares went from £100k to £124617 and I cashed out? I have no other investments.

Thanks.

dunstonh

 Can someone please let me know how much tax I would pay if my investments in stocks and shares went from £100k to £124617 and I cashed out?

Which tax wrappers would you be using?  (e.g pension, ISA, offshore bond, onshore bond or unwrapped)
Over what period?  (ie. would you bed & ISA each year to use the ISA allowances, would CGT allowances be available?)
Investments don't mature - hence, likely timescale is important rather than an arbitrary timescale.
For example, if for 5 years would allow you to use 5 years of ISA allowance.  You could rebalance each year to use the annual CGT allowance and then move £20k into the ISA.    In this case, you would probably pay little or no tax.

tip_t0p

Thanks. I should have said we have used our ISA allowance. We inherited the investments and are thinking of cashing in half and letting the other half carry on. We are getting older now and would rather know what we have is 'safe'.  I just wanted to know how much tax I would pay roughly on the equal amount of money taken from investments v savings at 4.5%. I am all too aware of how much the tax man takes from savings interest. Too much.

Thanks.

JGB1955

If you have inherited the shares CGT would be based on gains between date of inheritance and date of sale.  

Tax when you sell shares: Work out your gain - GOV.UK  may help.

tip_t0p

Thanks. So it's not a simple % then like on savings interest?

eskbanker

It's difficult to make a meaningful comparison when there are so many more variables with investing - the elephant in the room is the massively variable returns on investments, but the tax regime is more complex, in terms of income tax on dividends as well as capital gains tax on disposal.

The decision about saving versus investing should be more about objectives and risk tolerance, etc, rather than trying to equate notional outcomes while making significant assumptions....

tip_t0p

Thanks for the comment. We have invested before but after the Truss budget found we less risk averse than we thought. Lesson learnt perhaps.

And yes I know the markets have gone crazy since then.

Thanks.

eskbanker

tip_t0p said:

Thanks for the comment. We have invested before but after the Truss budget found we less risk averse than we thought. Lesson learnt perhaps.

And yes I know the markets have gone crazy since then.

Thanks.

What makes you say that?  Markets fluctuate significantly all the time, and I wouldn't have described the last few years as being particularly abnormal....

kempiejon

tip_t0p said:

Thanks. I should have said we have used our ISA allowance. We inherited the investments and are thinking of cashing in half and letting the other half carry on. We are getting older now and would rather know what we have is 'safe'.  I just wanted to know how much tax I would pay roughly on the equal amount of money taken from investments v savings at 4.5%. I am all too aware of how much the tax man takes from savings interest. Too much.

Thanks.

If it's all abut tax rates if you cashed out half and put £50k into premium bonds you wouldn't pay any tax and get £1-2k each year. tax free for as long as you like.
If one has to pay tax I'm of the opinion that lower rates are best and if one invested in dividend paying UK shares 8.75% is an attractive rate basic rate tax payers. Investing in dividends is not as easy as opening savings accounts.

dunstonh

And yes I know the markets have gone crazy since then.

Truss was October 2022 and her issues had no impact on the global stockmarkets.
2023 was postive
2024 was positive
2025 is flat so far.  (yes it fell back over the last month but only wiped out January and February gains).

EthicsGradient

tip_t0p said:

Thanks. I should have said we have used our ISA allowance. We inherited the investments and are thinking of cashing in half and letting the other half carry on. We are getting older now and would rather know what we have is 'safe'.  I just wanted to know how much tax I would pay roughly on the equal amount of money taken from investments v savings at 4.5%. I am all too aware of how much the tax man takes from savings interest. Too much.

Thanks.

Do you mean that you have used your ISA allowances (it sounds like you are couple) for the 24-25 tax year, and have separate plans to use all the future yearly allowances already made? Whether you decide to have the inheritance as cash savings or as investments, it would make sense to use your ISA allowances when you can. If you haven't made plans for the 25-26 etc. allowances, then you can use them for this inheritance, over 3 years or so.