Which fund to use a wrapper ?

20122013

Previously I was hoping to put some of my spare cash in ILG or gilts but the situation has changed.

I am reviewing how to use my cash which is split into two main pots, a cash and a cash ISA. I am trying to decide when to use what and for which fund to minimise tax.

I hope not to access these funds for the next ten years, but I may need to sell and rebalance and sell and invest the STMMF :

The funds I am looking at

1. Index tracker ACC (OEIC)
2. Multi asset fund (OEIC)
3. STMMF (I may need to sell to invest in about one month's time )
4. Commodity (ETF)
5. Finance and Health (ETF or OEIC ?)

My thinking is to use cash for the Mutli asset funds? (as it is less volatile)
and the cash ISA for STMMF and HSBC ?

About the commodity funds, my current funds is an ETF and even if I don't sell, I will still need to report the tax annually? I am trying to decide when I buy more should it still be within a wrapper or not? and s long as it is an ACC and I am not selling than there will be tax ? and no tax to report?

InvesterJones

I'm a bit confused, you can't buy any of those in a savings account (cash) or a cash ISA. Do you mean a general investment account (GIA) and a stocks and shares ISA (S&S ISA)?

Generally, anything you don't want to even worry about considering the tax for, put in the S&S ISA.

For the GIA, you have capital gains and dividend allowances for equities, and your usual savings allowance for bond distributions & STMMF income (and a multi asset counts as either equities if they make up >40% of the fund I think or bonds/income if below) but beyond that things are taxable, and can get complex when considering things like excess reportable income.

20122013

https://forums.moneysavingexpert.com/discussion/comment/82069230#Comment_82069230

Thank you for your helpful post.

What I wanted to ask was how to decide when to use my cash and cash ISA when investing in S&S ISA or GIA. I have used up all my CGT and ISA allowances for this tax year.

masonic

You'd need to check the commodity ETF for ERI, but income is likely to be low, since futures contracts generally generate capital gains through a combination of spot growth and roll yield.

All the others will be generating some interest or dividends. The equity funds will also potentially generate capital gains.

I don't think the difference will be huge, and capital gains (and to some extent income) are unpredictable, so there probably isn't a right answer. Interest income will be taxed at the highest rate for a basic rate taxpayer. But if you can utilise your personal savings allowance and dividend allowance as best you can by generating a mix of income types outside the ISA that will be something.

InvesterJones

https://forums.moneysavingexpert.com/discussion/comment/82069564#Comment_82069564

The answer is the same. Decide what you want in the S&S ISA and then transfer from your cash ISA to fund this (assuming you are rebalancing from cash to stocks and shares), and what you want in your GIA (if anything) and fund that from cash.

GeoffTF

This all very confused. I picked up on:

"and s long as it is an ACC and I am not selling than there will be tax ? and no tax to report?"

That is not how the UK tax system works. You have to pay tax on dividends and interest irrespective of whether a fund reinvests them, but you can allow them against Capital Gains Tax if they are reinvested (to avoid being taxed twice). You potentially have Excess Reportable Income for foreign domiciled funds, which include all the ETFs. You always need to report tax annually if you exceed the tax free allowances (and sometimes if you do not).

You need to consider not only your immediate tax bill, but also what is likely to expand the size of your tax shelters the most.

I am inclined to ask why you want that rag bag of investments. I would be inclined to keep things simple. Nonetheless, it is difficult to make any sensible recommendations without knowing about your financial circumstances and objectives.

Newbie_John

If held outside ISA:

Index tracker ACC (OEIC) - CGT only when you sell (it may have little divi tax yearly)
Multi asset fund (OEIC) - some divi and interest tax yearly
STMMF (I may need to sell to invest in about one month's time ) - 100% interests tax
Commodity (ETF) - CGT when you sell
Finance and Health (ETF or OEIC ?) - CGT and divdividends

Low coupon gilts - interest tax on coupon only, no CGT on selling

InvesterJones

https://forums.moneysavingexpert.com/discussion/comment/82069839#Comment_82069839

Sadly it's little more complicated than that. The mutli-asset tax depends on the make up of the fund - it'll be either dividend OR interest tax, plus of course CGT. The ETFs will likely have ERI as well as CGT.

kempiejon

Previously I was hoping to put some of my spare cash in ILG or gilts but the situation has changed.

So what are your new objectives for the money over the next 3, 5 10+ years. A gilt ladder convention or IL has a very specific job. Your commodity, MMF, cash and ETFs looks in need of a strategy you've not shared here.

Watch out for commodity ETFs I believe some of them are Exchange Traded Commodities (ETC), others might be Exchange Traded Notes ETN and are synthetic and there is more than one index to follow. I don't have much detail 'cept I found them too complicated

Depending on your income, tax and saving amounts gilts are useful to keep a cap on the tax bill but as always maximising returns is oft preferred o'er minimising tax for the sake of it.

GeoffTF

https://forums.moneysavingexpert.com/discussion/comment/82069876#Comment_82069876

Furthermore, STMMFs are subject to CGT too. The details differ for different types of fund. Index tracker accumulating OEICs can have attract a lot of dividend or income tax. A lot of complexity and little knowledge is not a good combination. I have already hinted that the OP should simplify what he intends to do - or perhaps he should seek professional advice. Nonetheless, we do not know whether he is investing a large fortune or a relatively small sum.

GeoffTF

There is a Monevator article on this topic, but it is not complete:

https://monevator.com/tax-efficient-investing-uk-order-isa-sipp/

You cannot rely on third party sources.You should check with official sources.