General Investment account - Do I NEED to use the full CGT allowance?

Aaron3195

I'm due to be inheriting some money soon and I have been researching GIAs, as the ISA and SIPP will have already been filled to the maximum allowed for the current tax year.

I have found that to utilise my full CGT tax-free allowance, I would have to sell £39,000 worth of shares to realise a gain of £3,000 for the allowance (if the All-World Income OEIC performed at a generous 8%). After Bed and ISA, this leaves £19,000 of cash remaining and cannot reinvest into the same fund due to the 30 day rule, or invest it elsewhere immediately. That's time out of the market, or faffing about with more tax calculations to think about with the 2nd GIA fund.

In all my searches and AI prompts, it recommends using the full allowance. But why? Is this beneficial to me in ways I'm not seeing? Or is it fine to just sell £20,000 of shares only for Bed and ISA and the remainder of the money can stay in the GIA untouched instead?

The GIA is a long term plan and will be used to fill my ISA each year for the next 10 years or so.

NoMore

It's the most tax efficient to take advantage of the 3k tax free allowance, otherwise you're just storing up gains for more tax later.

Of course, if you don't want to do it, that's up to you.

dunstonh

After Bed and ISA, this leaves £19,000 of cash remaining and cannot reinvest into the same fund due to the 30 day rule, or invest it elsewhere immediately. That's time out of the market, or faffing about with more tax calculations to think about with the 2nd GIA fund.

There are plenty of similar funds. So, that bit isnt an issue. If your platform pre-funds switches, then you are effectively not out of the market. If your platform doesn't prefund, then you are looking at several days.

its up to do you if you think the tax allowances are worth that or not.

In all my searches and AI prompts, it recommends using the full allowance. But why? Is this beneficial to me in ways I'm not seeing? Or is it fine to just sell £20,000 of shares only for Bed and ISA and the remainder of the money can stay in the GIA untouched instead?

The CGT allowance is a use it or lose it allowance. I suspect lots of people regret not using more of the allowance when it used to be £12,300.

If you think the gains will not be an issue next tax year (after all, you can bed & ISA again in 6 weeks time), then just use enough for the ISA now and do the rest later.

Aaron3195

Thanks for the responses. I only plan to use half of the inheritance in a GIA as I'm not comfortable putting in the full amount. Other half will just generate interest in high rate savings accounts, so its unlikely I will ever need to withdraw the GIA fully in an emergency and face CGT.

InvesterJones

As dunstonh says, it's hard to have a crystal ball into the future and in another year in those 10 you're considering you might want to use more allowance.. or the allowances might change.

As an aside, don't forget about the dividend allowance too - the limit seems pretty small these days and easy to bump into, especially if you don't crack on in the new tax year with your bed and ISA (ex-dev date for HSBC all-world is May) - on 39K you'll be over.

kimwp

It's not clear how you intend to use your GIA to fund your ISA for the next ten years and I'm new to GIAs (as of last year), but these are my thoughts-

The stock market goes up (on average), so each year, a smaller amount of your original investment will use up the capital gains allowance. (You can sell more than this and pay tax of course)

If you invest in a stock/fund etc that you are invested in already, then when you sell, you use the average investment price(?), so you need to keep track of the price and how much you bought etc.

EthicsGradient

If "the GIA is a long term plan and will be used to fill my ISA each year for the next 10 years or so", then it almost certainly is worth using your CGT allowance each year.

Say you start with £150k, and it does grow at 8% each year. If you only sell £20k each year to fund the ISA, then yes, after year 1, the gain on that £20k is £1481 (from (1-1/1.08)*20000), so no tax to pay. But after year 2, it's (1-1/(1.08*1.08))*20000 = £2853 - close to the allowance. And after year 3, it's £4123 - the proportion of what you're cashing in from the GIA that is capital gain is increasing, and now you have to pay CGT.

If you withdraw another £20k after year 1 and invest it in a similar fund, you still won't hit the CG allowance in year 1, but you'll then have an investment of £20k that starts from "no capital gain", meaning you could sell that in future years, when £20k from it is includes a gain still under the CG allowance. It may not stave off paying some CGT for the whole 10 years, but there will be a benefit.

Aaron3195

https://forums.moneysavingexpert.com/discussion/comment/81886544#Comment_81886544

That makes sense, I will definitely use my full allowance every time then in that case. I should have made some future year projections in google sheets to have spotted this

ChilliBob

If you do go down the road of selling then keep good records - lookup a section 104 holding/share pool.