Stocks & Shares: General Investment Account - Tax question

PaulW63

I’ve recently started investing monthly money into a S&S ‘general investment account’ with AJ Bell.

I don’t plan to withdraw any money at all for at least 5 years and just looking to build up another savings pot for when I retire. 

I also use (and max out), my annual ISA allowance.

My question relates to the yearly tax implications on said S&S GIA (I’m currently a 40% tax payer with the usual £500 annual allowance). 

Will I have to pay yearly tax on any gains accrued, even if I don’t withdraw anything?

ie…let’s say my account is showing a £1500 gain in the first year on my investments…. will I have to pay 40% interest on £1000 even if I don’t touch it, or is interest only payable on anything I withdraw in the applicable year?

My plan (hope), is that when I do eventually decide to ‘cash in’, I’ll be retired and only liable for 20% tax on anything I’ve earned over £1000 on the account over the years. 

Thank you for taking time to read this and for any advice forthcoming!

masonic

It's unlikely you'd obtain any interest within your GIA unless holding cash or very low risk investments. Any interest would be taxable on the (notional) distribution date of the fund or when paid for a cash balance.

You are more likely to receive dividends, which are not taxed as interest, or capital gains, which are only taxed when you sell investments.

You should probably read up on these so you understand how they work and the rates of tax applicable.

PaulW63

masonic said:

It's unlikely you'd obtain any interest within your GIA unless holding cash or very low risk investments. Any interest would be taxable on the (notional) distribution date of the fund or when paid for a cash balance.

You are more likely to receive dividends, which are not taxed as interest, or capital gains, which are only taxed when you sell investments.

You should probably read up on these so you understand how they work and the rates of tax applicable.

Thanks for your reply. 

Maybe I’ve worded it incorrectly. (I’m changing my original post now)

I’m a complete beginner to S&S and only ever put my money into cash ISAs and general fixed interest savings accounts. 

I’m already seeing a few hundred pounds “gain” on my S&S original investment after a couple of months, so I was wondering if I’d be taxed yearly on any “gain” showing over the £500 yearly allowance for my tax band, even if I leave the money in the account year after year. 

TheSpectator

PaulW63 said:

masonic said:

It's unlikely you'd obtain any interest within your GIA unless holding cash or very low risk investments. Any interest would be taxable on the (notional) distribution date of the fund or when paid for a cash balance.

You are more likely to receive dividends, which are not taxed as interest, or capital gains, which are only taxed when you sell investments.

You should probably read up on these so you understand how they work and the rates of tax applicable.

Thanks for your reply. 

Maybe I’ve worded it incorrectly. (I’m changing my original post now)

I’m a complete beginner to S&S and only ever put my money into cash ISAs and general fixed interest savings accounts. 

I’m already seeing a few hundred pounds “gain” on my S&S original investment after a couple of months, so I was wondering if I’d be taxed yearly on any “gain” showing over the £500 yearly allowance for my tax band, even if I leave the money in the account year after year. 

There is no 'gain' until you actually sell the shares and when you do so it has nothing to do with your personal savings allowance for Income Tax purposes. The gain woukd be subject to capital gains tax which currently has an annual exemption of £3000

masonic

PaulW63 said:

masonic said:

It's unlikely you'd obtain any interest within your GIA unless holding cash or very low risk investments. Any interest would be taxable on the (notional) distribution date of the fund or when paid for a cash balance.

You are more likely to receive dividends, which are not taxed as interest, or capital gains, which are only taxed when you sell investments.

You should probably read up on these so you understand how they work and the rates of tax applicable.

Thanks for your reply. 

Maybe I’ve worded it incorrectly. (I’m changing my original post now)

I’m a complete beginner to S&S and only ever put my money into cash ISAs and general fixed interest savings accounts. 

I’m already seeing a few hundred pounds “gain” on my S&S original investment after a couple of months, so I was wondering if I’d be taxed yearly on any “gain” showing over the £500 yearly allowance for my tax band, even if I leave the money in the account year after year. 

As mentioned above, investments generate both income and capital gains. These are taxed differently. You need to be able to calculate the amount of each, so detailed records are required if investing outside of a S&S ISA or pension product. It is usually preferred to prioritise putting investments into an ISA both from a tax and record keeping perspective.

Dividends (including dividends received into accumulation funds) are taxed yearly, whereas capital gains are taxed at the point that you sell the investment. Since you've not stated what you've invested in, it is impossible to say how much of your overall growth would be taxed yearly.

PaulW63

TheSpectator said:

PaulW63 said:

masonic said:

It's unlikely you'd obtain any interest within your GIA unless holding cash or very low risk investments. Any interest would be taxable on the (notional) distribution date of the fund or when paid for a cash balance.

You are more likely to receive dividends, which are not taxed as interest, or capital gains, which are only taxed when you sell investments.

You should probably read up on these so you understand how they work and the rates of tax applicable.

Thanks for your reply. 

Maybe I’ve worded it incorrectly. (I’m changing my original post now)

I’m a complete beginner to S&S and only ever put my money into cash ISAs and general fixed interest savings accounts. 

I’m already seeing a few hundred pounds “gain” on my S&S original investment after a couple of months, so I was wondering if I’d be taxed yearly on any “gain” showing over the £500 yearly allowance for my tax band, even if I leave the money in the account year after year. 

There is no 'gain' until you actually sell the shares and when you do so it has nothing to do with your personal savings allowance for Income Tax purposes. The gain woukd be subject to capital gains tax which currently has an annual exemption of £3000

Brilliant.. thank you. 

Tassie_Devil

From a tax point of view, in a GIA it’s easier to go for the inc version of funds rather than the Acc version in order to identify dividends received. 

PaulW63

masonic said:

PaulW63 said:

masonic said:

It's unlikely you'd obtain any interest within your GIA unless holding cash or very low risk investments. Any interest would be taxable on the (notional) distribution date of the fund or when paid for a cash balance.

You are more likely to receive dividends, which are not taxed as interest, or capital gains, which are only taxed when you sell investments.

You should probably read up on these so you understand how they work and the rates of tax applicable.

Thanks for your reply. 

Maybe I’ve worded it incorrectly. (I’m changing my original post now)

I’m a complete beginner to S&S and only ever put my money into cash ISAs and general fixed interest savings accounts. 

I’m already seeing a few hundred pounds “gain” on my S&S original investment after a couple of months, so I was wondering if I’d be taxed yearly on any “gain” showing over the £500 yearly allowance for my tax band, even if I leave the money in the account year after year. 

As mentioned above, investments generate both income and capital gains. These are taxed differently. You need to be able to calculate the amount of each, so detailed records are required if investing outside of a S&S ISA or pension product. It is usually preferred to prioritise putting investments into an ISA both from a tax and record keeping perspective.

Dividends (including dividends received into accumulation funds) are taxed yearly, whereas capital gains are taxed at the point that you sell the investment. Since you've not stated what you've invested in, it is impossible to say how much of your overall growth would be taxed yearly.

And this is why I’ve steered WELL clear of stocks and shares in the past…. 😂
I find it so bloomin’ complicated compared with the certainty of putting a lump sum into a fixed term account with a guaranteed return. 

As I previously mentioned, I’m a complete novice and greener than green when it comes to S&S investing.
I’ve opened an AJ Bell Dodl account (ideal for beginners I believe) and invested mainly in ‘ready made’ funds…

My initial choices:

SPDR S&P 500 UCITS ETF
Vanguard LifeStrategy 80% Equity fund
Vanguard UK FTSE Top 100 Index Unit Trust
EasyJet PLC

So far so good…. It’s all a bit of fun atm, and very much separate to my other ‘guaranteed return’ (& stress free) investments!

Thanks ever so much for taking time to reply. Most helpful. 

👍🙂

dunstonh

I find it so bloomin’ complicated compared with the certainty of putting a lump sum into a fixed term account with a guaranteed return. 

Although in the vast majority of periods, that would result in a lower outcome.

My initial choices:

SPDR S&P 500 UCITS ETF

Vanguard LifeStrategy 80% Equity fund
Vanguard UK FTSE Top 100 Index Unit Trust
EasyJet PLC

A strange mix of investments.   Seems a bit random and haphazard and lacks any noticeable structure.
VLS is a multi-asset fund that has home bias.   You increase that home bias by having a UK large cap fund but then also adjust the bias towards the US by having an S&P500 fund.  And then a single company share.

You haven't given your weightings but why would you go for a home bias multi-asset fund, increase that bias and then tug it back again towards US whilst leaving the rest of the world reduced? 

ColdIron

PaulW63 said:

masonic said:

PaulW63 said:

masonic said:

It's unlikely you'd obtain any interest within your GIA unless holding cash or very low risk investments. Any interest would be taxable on the (notional) distribution date of the fund or when paid for a cash balance.

You are more likely to receive dividends, which are not taxed as interest, or capital gains, which are only taxed when you sell investments.

You should probably read up on these so you understand how they work and the rates of tax applicable.

Thanks for your reply. 

Maybe I’ve worded it incorrectly. (I’m changing my original post now)

I’m a complete beginner to S&S and only ever put my money into cash ISAs and general fixed interest savings accounts. 

I’m already seeing a few hundred pounds “gain” on my S&S original investment after a couple of months, so I was wondering if I’d be taxed yearly on any “gain” showing over the £500 yearly allowance for my tax band, even if I leave the money in the account year after year. 

As mentioned above, investments generate both income and capital gains. These are taxed differently. You need to be able to calculate the amount of each, so detailed records are required if investing outside of a S&S ISA or pension product. It is usually preferred to prioritise putting investments into an ISA both from a tax and record keeping perspective.

Dividends (including dividends received into accumulation funds) are taxed yearly, whereas capital gains are taxed at the point that you sell the investment. Since you've not stated what you've invested in, it is impossible to say how much of your overall growth would be taxed yearly.

My initial choices:

SPDR S&P 500 UCITS ETF

Disregarding the wisdom of this choice, ETFs are probably the most difficult things to deal with from a tax PoV. You will need to acquaint yourself with tax on ERI (Excess Reportable Income) as well as capital gains tax and (in the distributing version) tax on dividends

Hardly a wise choice for someone who is 'a complete novice and greener than green'. I know my way around unwrapped taxation and just won't use them outside an ISA/SIPP, life is too short. You would be well advised to find an open ended alternative ('fund'/OIEC/Unit Trust), there are many available

https://monevator.com/excess-reportable-income

PaulW63

dunstonh said:

I find it so bloomin’ complicated compared with the certainty of putting a lump sum into a fixed term account with a guaranteed return. 

Although in the vast majority of periods, that would result in a lower outcome.

My initial choices:

SPDR S&P 500 UCITS ETF

Vanguard LifeStrategy 80% Equity fund
Vanguard UK FTSE Top 100 Index Unit Trust
EasyJet PLC

A strange mix of investments.   Seems a bit random and haphazard and lucks any noticeable structure.
VLS is a multi-asset fund that has home bias.   You increase that home bias by having a UK large cap fund but then also adjust the bias towards the US by having an S&P500 fund.  And then a single company share.

You haven't given your weightings but why would you go for a home bias multi-asset fund, increase that bias and then tug it back again towards US whilst leaving the rest of the world reduced? 

This made me laugh out loud 😂😂
Not because of the content of your reply, you sound extremely knowledgable and wise. 

What made me laugh were your first couple of sentences which are absolutely spot-on and 100% describes my knowledge of anything S&S. 

I’ve only got involved to have a go with a few spare grand, but I’m thinking that it really isn’t for me. 

I think I’ll leave the money where it is for a year or two with my fingers crossed, but stop putting any more money in. 

I also think I’ll stick to guaranteed returns and premium bonds…

Thanks though for you informative and self realising response 👍👍 😄