Tax and share ISAs

Gemius

I have the maximum in a cash ISA for this year and still have enough spare cash to put the maximum in a share ISA.
I am however a little confused about the tax saved with a share ISA.
I may be wrong but I understand you are only liable to Capital Gains Tax on the profits of a share ISA and as that doesn't start until you withdraw in excess of £9000+ profit from the ISA in a single tax year it's hardly likely to affect someone like myself who is putting their first slice in at age 63 and unlikely to be able to build the share holding up to much above say £10,000 Bearing in mind that the cash ISA will always take priority on available cash.
Can someone confirm that what I'm saying is correct and perhaps give their opinion on whether a share ISA is really any better for me than putting the money in a bond or fixed rate savings account.

cheerfulcat

Hello, Gemius,

You are confusing the wrapper ( ISA ) with the contents ( cash or stocks and shares ).
The ISA wrapper means that anything held in it is invisible to the taxman. So the interest paid on cash held in a cash ISA is tax free, and any profits on investments in a stocks and shares ISA is free of capital gains tax. Dividends in a stocks and shares ISA are free of higher rate tax.

I may be wrong but I understand you are only liable to Capital Gains Tax on the profits of a share ISA and as that doesn't start until you withdraw in excess of £9000+ profit from the ISA in a single tax year it's hardly likely to affect someone like myself who is putting their first slice in at age 63 and unlikely to be able to build the share holding up to much above say £10,000

The £9000+ you're thinking of refers to the amount of profit you are allowed to make tax-free outside of an ISA. Within an ISA, gains are tax-free regardless of the amount.

Can someone confirm that what I'm saying is correct and perhaps give their opinion on whether a share ISA is really any better for me than putting the money in a bond or fixed rate savings account.

Staying in cash ( assuming that by " bond " you mean a fixed term savings account ) means that you are almost guaranteed to lose money over the long term - given that you could be looking at another 25-30 years, I would think that a stocks and shares ISA might be worth consideration.

Darth_Trader

It also depends on how good you turn out to be at choosing your shares/funds/etc within the shares ISA. If you do badly - hopefully not - then in an ISA you lose the chance to offset your losses against future profits in terms of CGT. (Maybe someone who's better informed about current tax rules could comment on this. And clarify for me! TIA) Of course, we all assume we're going to win in the long term with a nicely diversified portfolio held within an ISA.

I think dividends are taxed at 10% within an ISA wrapper (so better if you're a higher-rate taxpayer), and in the self-select ISAs (as opposed to ones such as Fidelity's which deal with OEICs/UTs/ITs only) you can take a cash position, which attracts interest at a pretty pathetic rate, and which is nevertheless taxed at 20%.

But as cheerfulcat said, definitely worth investigating further, if investing for the medium to long-term.

Gemius

Thanks for your help. I'm considering a Tracker fund now through one of the Fund supermarkets.I don't want to take too many risks!

Aegis

Gemius wrote: »

Thanks for your help. I'm considering a Tracker fund now through one of the Fund supermarkets.I don't want to take too many risks!

Well, tracker funds are higher risk than managed funds in the same sector because they lose the downside protection that comes with active management.

Just remember that if you're buying trackers for lower risk!