All Star Manager Portfolio

FATHEROFTWO_2

The markets just now appear to be very volatile.

It could also be an excellent buying opportunity.Bearing in mind all that has been said before.I think I will invest the 50K in possibly 4 segments over the next year possible investing the bond elements only in 2 larger segments as the yield rates for High yield bonds just now are 8 percent and the corporate yields are about 5 percent with the Share based funds in 4 segments to even out the rough edges.Any thoughts on this ?

Also re the ACC and INC am I correct in saying that no tax is paid on the yield /dividend whilst it is within a share isa?

If this is correct if the investment was OUTSIDE an ISA wrapper would I be better investing in the ACC as the yield/dividends would be reinvested and Not taxed or is it taxed in the ACC anyway ?

My thoughts were 2009/2010 I will have no cash to invest in a Cash ISA I could then change the Non wrapped ACC funds into wrapped INC funds for that tax year.

Its getting a bit complicated I know but has anyone any idea if these assumptions are correct ?

cloud_dog

FATHEROFTWO wrote: »

The markets just now appear to be very volatile.

It could also be an excellent buying opportunity.Bearing in mind all that has been said before.I think I will invest the 50K in possibly 4 segments over the next year possible investing the bond elements only in 2 larger segments as the yield rates for High yield bonds just now are 8 percent and the corporate yields are about 5 percent with the Share based funds in 4 segments to even out the rough edges.Any thoughts on this ?

I think its going to be difficult for people to offer an opinion on this, as you say markets are volatile atm. Certainly spreading the timing of your investments is probably better than investing in one go. The important thing is that you are comfortable with the strategy and can accept any paper losses in the near future.

Also re the ACC and INC am I correct in saying that no tax is paid on the yield /dividend whilst it is within a share isa?

No additional income tax is paid for a higher rate tax payer, all equity dividends have basic tax deducted. Also you don't need to worry about CGT.

If this is correct if the investment was OUTSIDE an ISA wrapper would I be better investing in the ACC as the yield/dividends would be reinvested and Not taxed or is it taxed in the ACC anyway ?

Yes, if you are a higher rate tax payer, otherwise then the difference should be nill.

My thoughts were 2009/2010 I will have no cash to invest in a Cash ISA I could then change the Non wrapped ACC funds into wrapped INC funds for that tax year.

How you have put it is slightly inaccurate as you would basically have to sell your ACC investments(s), move the money into the S&S ISA, and re-buy INC investment(s) within an ISA.

cloud_dog

FATHEROFTWO_2

Thanks Cloud dog I wasnt aware that you had to sell the ACC and re buy it as an INC within the same fund.I presumed you just changed the set up of the Fund.

So Basically I will pay tax on the Yield anyway and it doesnt matter if its ACC or Inc.

meester

cloud_dog wrote: »

If this is correct if the investment was OUTSIDE an ISA wrapper would I be better investing in the ACC as the yield/dividends would be reinvested and Not taxed or is it taxed in the ACC anyway ?

Yes, if you are a higher rate tax payer, otherwise then the difference should be nill.

It doesn't make any difference. The higher rate tax payer still pays tax on the income, even if it is accumulated. It's still income, regardless of whether it's converted into new units or not.

cloud_dog

FATHEROFTWO wrote: »

Thanks Cloud dog I wasnt aware that you had to sell the ACC and re buy it as an INC within the same fund.I presumed you just changed the set up of the Fund.

Its not to do with the fund, the only way to get money in to an ISA is as cash; therefore if you have bought the ACC fund outside of an ISA but really want the INC fund within an ISA then you will need to deposit cah in the S&S ISA in order to buy the INC fund within the ISA.

There's nothing to stop you purchasing the INC fund outside of an ISA, and if you are (and will remain) a basic rate tax payer then there is little taxable benefit.

I say 'little' because in certain circumstances income derived from within an ISA is ignored for certain credits, i.e. pension credits (should this be applicable (ever)).

So Basically I will pay tax on the Yield anyway and it doesnt matter if its ACC or Inc.

Not exactly. Everyone, irrespective of tax status, pays basic rate tax on income derived via equity/fund dividends. ACC fund 'roll' the income up in to the unit price thereby treating the increase as capital not income. Its a way of juggling or utilising the most efficient tax route for an individual.

I think the question for all of this is, are you or are you ever likely to be a higher rate income tax payer. Additionally if you ever wish to liquidate the monies in one go you may incur CGT liabilities.

meester wrote:

It doesn't make any difference. The higher rate tax payer still pays tax on the income, even if it is accumulated. It's still income, regardless of whether it's converted into new units or not.

Umm sort of...................No.

The OP question related to holding a fund as either the ACC or INC version inside or outside of an ISA. A higher rate tax payer does NOT pay additional tax on income (INC) derived from within an ISA.

Additionally, a higher rate tax payer will NOT incur additional income taxation if the investment is in an accumulation fund as the accumulation is reflected in the unit price, any transaction based on unit price (buy / sell (outside of an ISA) would be offset against CGT not income tax.

cloud_dog

FATHEROFTWO_2

cloud_dog wrote: »

Its not to do with the fund, the only way to get money in to an ISA is as cash; therefore if you have bought the ACC fund outside of an ISA but really want the INC fund within an ISA then you will need to deposit cah in the S&S ISA in order to buy the INC fund within the ISA.

There's nothing to stop you purchasing the INC fund outside of an ISA, and if you are (and will remain) a basic rate tax payer then there is little taxable benefit.

Ok if I buy a S&S ISA INC and come 2009/2010 want to move it still as a INC inside a S&S ISA surely I wouldnt have to sell it first to move it to cash then to move the cash inside the ISA then buy back the exact same INC FUND S&S ISA ?

The reason I asked the initial question was to avoid paying tax as we all do and thought by buying an ACC would avoid it and obviously it doesnt as I will pay tax anyway Im as well sticking with my original plan and that is to max out my income by having the INC FUND.

I cannot do that just now as I would prefer to fill my cash ISA first as I have the cash just now but next year I wont have the spare cash to use on a cash ISA.Hence the above plan.
Sorry about the confusion

meester

cloud_dog wrote: »

Umm sort of...................No.

The OP question related to holding a fund as either the ACC or INC version inside or outside of an ISA. A higher rate tax payer does NOT pay additional tax on income (INC) derived from within an ISA.

I never said they did. The question said "if the investment was OUTSIDE an ISA wrapper"

Additionally, a higher rate tax payer will NOT incur additional income taxation if the investment is in an accumulation fund as the accumulation is reflected in the unit price, any transaction based on unit price (buy / sell (outside of an ISA) would be offset against CGT not income tax.

You are absolutely wrong.

Have a look at SA150 (you should read this document when you fill in your annual tax return):

http://www.hmrc.gov.uk/worksheets/sa150.pdf

Page 13:

If you have accumulation units or shares in a UK authorised unit trust or UK open-ended investment company, the dividend is automatically reinvested in the unit trust or open-ended investment company. You must still enter the amount of the dividend, tax credit and dividend/distribution plus credit.

It's easy to see the logic - there is really no distinction between receiving the income and then using it to buy more units, and having the investment company do this for you. It's still income, and you are still taxed on it.

meester

FATHEROFTWO wrote: »

Ok if I buy a S&S ISA INC and come 2009/2010 want to move it still as a INC inside a S&S ISA surely I wouldnt have to sell it first to move it to cash then to move the cash inside the ISA then buy back the exact same INC FUND S&S ISA ?

The reason I asked the initial question was to avoid paying tax as we all do and thought by buying an ACC would avoid it and obviously it doesnt as I will pay tax anyway Im as well sticking with my original plan and that is to max out my income by having the INC FUND.

Whether that is a good idea or not depends on your need for the income.

Without dividend reinvestment the long-term performance of the stockmarket is poor. Unless you have built your nest egg, it's much better to reinvest your dividends. Of course if you do need the income the units produce for your daily living expenses, then it's necessary to spend them, but otherwise it really is prudent to reinvest as ACC Units.

jamesd

meester is correct about acumulation funds and distributions from them. If held outside a tax wrapper you should receive a letter giving details of the distributions from the fund and you include them when working out your total income, in the ways described by that SA150. If higher rate than you can end up having more tax to pay. If basic rate even after adding the amount of the distributions you can ignore this.

FATHEROFTWO, you can save tax by putting the income-producing investments into the S&S ISA first. That way the income from them will be free of tax. This normally means putting equity income and bond funds in first.

cloud_dog

meester wrote: »

Have a look at SA150 (you should read this document when you fill in your annual tax return):

http://www.hmrc.gov.uk/worksheets/sa150.pdf

Page 13:

If you have accumulation units or shares in a UK authorised unit trust or UK open-ended investment company, the dividend is automatically reinvested in the unit trust or open-ended investment company. You must still enter the amount of the dividend, tax credit and dividend/distribution plus credit.

I stand corrected - you live and learn, sorry OP.