Stocks and shares ISA

earlgrey_3

cheerfulcat wrote: »

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.

TDWaterhouse and Alliance might not have annual charges but claw the costs back in other ways. Pillings are another who don't have an annual charge but charge for every dividend they collect.

Yes you can sell the rights, and pay the costs of doing that, or not take up the rights.

Yes your point may be valid for people who do become liable for gains despite the allowance but it still remains that many people will derive no benefit whatsoever from having a shares ISA - no more than that.

earlgrey_3

dunstonh wrote: »

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.

I think I made that exact point Dunston. I said above "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."

To keep it simple, everyone who pays income tax would have a tax benefit from a cash ISA but not everyone would benefit from shares ISA.

cheerfulcat

earlgrey wrote: »

To keep it simple, everyone who pays income tax would have a tax benefit from a cash ISA but not everyone would benefit from shares ISA.

But as dh points out, within an ISA income from corporate bonds and bond funds as well as gilts is also free of income tax for a basic rate taxpayer. OK, the tax advantages are nowhere near as good as those of PEPs but they should not be dismissed out of hand!

debbie42

Regardless of the potential tax benefits, I feel the £25 annual cost of my S&S ISA is money well spent if it means I don't have to bother with filling out the details on a tax return.

earlgrey_3

cheerfulcat wrote: »

OK, the tax advantages are nowhere near as good as those of PEPs

Precisely, so claiming as you did that the arguments made against ISAs were the same as about PEPs was off the mark.

cheerfulcat wrote: »

but they should not be dismissed out of hand!

Nor would I suggest that.

I get tax benefits from both ISAs and PEPs but while ISAs are a great sales tool I'm sure the best IFAs would always explain to clients that for some there maybe limited or zero tax benefit. Many with small investments need never exceed their annual £9600 tax allowance and be liable for CGT.

snarffie

earlgrey wrote: »

Precisely, so claiming as you did that the arguments made against ISAs were the same as about PEPs was off the mark.
Nor would I suggest that.

I get tax benefits from both ISAs and PEPs but while ISAs are a great sales tool I'm sure the best IFAs would always explain to clients that for some there maybe limited or zero tax benefit. Many with small investments need never exceed their annual £9600 tax allowance and be liable for CGT.

So, the £9600 CGT limit is an annual limit. That is, you would have to make capital gains in a financial year to be liable. Is that right? I ask this because over a number of years, the likelihood of making accumulated capital gains of £9600 is almost inevitable if I was to invest £3600 per year.

The other question is regarding dividends, which appear to be the main element in an ISA which will attract taxes. Is it better to generally avoid portfolios which pay out dividends, or do you just take into account the tax burden of dividends. The other option would be to have dividends ploughed back into buying more shares-does this avoid paying taxes within the isa?

Sorry, I'm just beginning at this, so I appreciate that a lot of my questions might be naive (Just finished Alvin Hall's 'Your money or your Life' and started reading 'Investing for Dummies' - need I say more )

debbie42

snarffie wrote: »

So, the £9600 CGT limit is an annual limit. That is, you would have to make capital gains in a financial year to be liable. <snip>

The other question is regarding dividends, which appear to be the main element in an ISA which will attract taxes. Is it better to generally avoid portfolios which pay out dividends, or do you just take into account the tax burden of dividends. The other option would be to have dividends ploughed back into buying more shares-does this avoid paying taxes within the isa?

Yes, you have a yearly allowance for CGT. You are only liable for taxes if you exceed that limit. You can carry forward losses, to offset liabilities, but not the allowance, IYSWIM.

You can't avoid the UK tax credit on dividends, even if in an ISA. I don't consider that an issue personally when deciding which shares etc. to invest in, as that seems a bit too much like the tax tail wagging the dog.

edit: Forgot to say that in my case I elect to keep the dividends within the ISA so I can re-invest them as and when I choose. I vaguely recall being asked this when the ISA was set up, but that may vary according to provider?

snarffie

debbie42 wrote: »

edit: Forgot to say that in my case I elect to keep the dividends within the ISA so I can re-invest them as and when I choose. I vaguely recall being asked this when the ISA was set up, but that may vary according to provider?

So if I start receiving dividends, even if they are kept within the isa and reinvested, I still have to fill out self-assessment tax forms every year? I am PAYE at the moment, and have obviously avoided this nastiness so far.

cheerfulcat

snarffie wrote: »

So, the £9600 CGT limit is an annual limit. That is, you would have to make capital gains in a financial year to be liable. Is that right? I ask this because over a number of years, the likelihood of making accumulated capital gains of £9600 is almost inevitable if I was to invest £3600 per year.

Yes, and that is exactly the point I've been trying ( unsuccessfully, it seems, as far as earlgrey is concerned! ) to make. Outside of an ISA someone making regular investments will almost certainly be looking at capital gains higher - possibly by a large margin - than the CGT exempt amount at some point.

You don't have to declare the dividends received in an ISA, so you can continue to avoid the SA tax return for now...

debbie42

snarffie wrote: »

So if I start receiving dividends, even if they are kept within the isa and reinvested, I still have to fill out self-assessment tax forms every year?

No, sorry if I gave that impression. All dividends generated by shares within an ISA do not need to be declared on your tax return, regardless of whether you elect to have them paid to an account outside of your ISA or not.

I elect to keep them within my ISA so that my funds accumulate within the ISA itself (that's the idea anyway).