Stocks and shares ISA

trashcan_2

Do any off you save in the stocks and shares part of your isa allowance.

Do they preform well?

How do they work out the tax when its unknow how the stock and shares will preform.

Thanks

Aegis

Stock and shares outside an ISA are taxed when you realise your assets (i.e. sell) whereupon you pay capital gains tax where appropriate. You're also taxed on dividend income at an additional 25% of the remaining dividend after the tax credit effectively paid at source.

Within the stocks and shares ISA, these taxes do not apply.

Other than that, the stocks and shares portfolio in an ISA can perform pretty much any way depending on what the investor chose to do with it!

snarffie

So are there absolutely no taxes to be paid on S&S ISA's? Do you have to pay any taxes when you cash in any investments wrapped in the isa? For example, if you had £3600 in your S&S ISA, which increased in value by 10% in a year, could you withdraw the £360 profit that you made?

I know you would tend not to work over such a short term, but is it something that can be done in principle, without paying tax?

dunstonh

So are there absolutely no taxes to be paid on S&S ISA's?

Inheritance tax still applies and there are some taxes/stamp duty that cannot be avoided within the investment but you are personally exempt from CGT and income tax.

Do you have to pay any taxes when you cash in any investments wrapped in the isa?

no.

earlgrey_3

snarffie wrote: »

So are there absolutely no taxes to be paid on S&S ISA's? Do you have to pay any taxes when you cash in any investments wrapped in the isa? For example, if you had £3600 in your S&S ISA, which increased in value by 10% in a year, could you withdraw the £360 profit that you made?

I know you would tend not to work over such a short term, but is it something that can be done in principle, without paying tax?

You wouldn't pay any tax on £360 any way as you are allowed £9,600 a year capital gains tax allowance on top of your normal income tax allowance.

Nor will a a basic rate tax payer save anything on the tax paid on dividends. Dividends are paid net with a 10% tax credit that is not reclaimable regardless of whether the shares are inside an ISA or not.

So if you are a basic rate payer you won't currently save any tax by having shares in an ISA.

If you temporarily have cash in a shares ISA you'll still be deducted 20% on the interest - unlike in a cash ISA.

If you later become a higher rate payer the situation would be different and having your investments in an ISA might affect you if are over 65 and would benefit from the age-related tax allowance but have an income above the threshold.

cheerfulcat

earlgrey wrote: »

Nor will a a basic rate tax payer save anything on the tax paid on dividends. Dividends are paid net with a 10% tax credit that is not reclaimable regardless of whether the shares are inside an ISA or not.

However, gross dividend income added to other income may push a basic rate taxpayer into the higher rate band.

So if you are a basic rate payer you won't currently save any tax by having shares in an ISA.

That depends entirely on the performance of the investments - someone holding one or more of the top-performing funds ( or indeed shares ) of the last few years outside of an ISA could well be looking at a possible CGT liability. Bear in mind too that with the abolition of taper relief, tax will now be payable on inflation.

If you later become a higher rate payer the situation would be different

People, including many who should have known better, made exactly the same argument when PEPs were introduced. You are overlooking the effect of compounding returns over time.

earlgrey_3

Yes, there are lots of ifs and buts as we don't know the future and I tried to make it as clear as possible.If you are a basic rate payer but your circumstances change then so will your tax position.

cheerfulcat wrote: »

People, including many who should have known better, made exactly the same argument when PEPs were introduced. You are overlooking the effect of compounding returns over time.

In PEPs under the old rules tax that is paid on dividends within a PEP could be reclaimed. In ISAs it now can't be reclaimed so the argument is clearly a different one from then. There's no tax to pay on capital gains below £9600 each year whether inside or outside of an ISA.

Basic rate payers may not see any immediate tax benefits from a shares ISA as they would from a cash ISA so need to weigh up any costs and restrictions before deciding.

cheerfulcat

earlgrey wrote: »

Basic rate payers may not see any immediate tax benefits from a shares ISA as they would from a cash ISA so need to weigh up any costs and restrictions before deciding.

Given that the extra costs of holding investments in an ISA are minimal - indeed, non-existent in some cases - I don't see the point in not using the wrapper?

earlgrey_3

cheerfulcat wrote: »

Given that the extra costs of holding investments in an ISA are minimal - indeed, non-existent in some cases - I don't see the point in not using the wrapper?

They are normally only non-existent if you invest solely in collective products that give the provider an annual trail commission. The cost of providing the ISA comes from that commission. On both UTs that don't pay a trail commission and on shares, including ITs, you'll usually pay an additional fee for the ISA package.

You may also pay a fee for certain corporate actions such as to take up rights issues. There may also be inconveniences: when there's a rights issue if you've used up your annual allowance you may have to sell shares to release funds within the ISA to buy the rights. Bit of a pain and extra cost.

Fact is some may benefit from a shares ISA, but many won't. They need to do their own calculations.

cheerfulcat

Alliance Trust and TD Waterhouse amongst others make no annual charge, regardless of what is held.

Not all brokers charge for corporate actions within an ISA, and some of the brokers that do, make the same charges outside of the ISA.

The rights issue thing is a slight red herring - you can sell the rights if necessary.

My point is, for a minimal ( or even nil ) cost it is possible to shelter all future gains from CGT - anyone who is planning to invest over the longer term should IMO be doing so within an ISA whenever possible, regardless of their income tax band.

dunstonh

Fixed interest/bond funds clearly have a benefit being in ISAs and the compound effect should not be ignored. 10 years of £7000/£7200 a year would soon see you having to worry about CGT on an annual basis if you didnt ISA.

You shouldnt rule out other benefits such as higher rate tax and basic rate taxpayers over 65 who are close to the age allowance reduction. Plus, those using them for future income provision may use equity funds now but when they take the income there will almost certainly be a higher content of fixed interest/bond funds.