Understanding taxation on unwrapped investments (GIA)

Mrs_Z · 15 January at 10:02PM

I'm trying to get my head around the taxation aspect of General Investment Account which I'm considering as an option to some spare cash that is not currently needed and which I think could be working harder than laying on the standard bank account. SIPP and Stocks & Shares ISA have already been utilised for this year, and there is a separate emergency fund covering 3 yrs worth of (modest) living expenses.
I would be investing in funds - not in individual shares - probably index tracker type.
So am I correct in understanding that you only have to do a tax return to the HMRC when a realised profit exceeds the yearly capital gain allowance?
And it's better to have the funds as income type rather than accumulation and there is also a tax free dividend allowance of £2,000 - which again, I'm assuming you only need to report this via the tax return if you exceed this?
Current paye earnings are £300 pcm (£3,600p.a).
Basic questions but haven't managed to find a definite answer.

GeoffTF · 15 January at 10:26PM

Basically the answer is "yes". You have to file a capital gains tax calculation of you dispose of £42,000 or more or your gain is more than £12,300. If you are using UK domiciled OEICs or Unit Trusts, the income versions make life easier, but you will need to learn about equalisation. If you are using ETFs, you will have to learn about Excess Reportable Income.

EthicsGradient · 15 January at 10:40PM

If you already submit a self-assessment tax return (eg you're self-employed), then you need to put all dividends you receive on it, even if they don't exceed the £2,000 in total. Accumulation funds still contain the same amount of 'income', and are thus subject to the same amount of income tax as the equivalent income funds; it's just that they automatically reinvest the income in the same fund for you.

If you ever have to include capital gains in your return (currently either a total of more than £49,200 in assets sold in a tax year, or gross gains among them of more than £12,300 in all) then you ought to have kept records for accumulation funds of this reinvestment, all the time until you sell the fund (which is why many suggest holding income-type funds outside an ISA - for simplicity).

Mrs_Z · 16 January at 7:15PM

Thanks for the confirmation. I don't currently submit a self assessment and really want to keep any income or gains below the level when one has to fill one in. I shall look into GIAs further, it was the taxation aspect that has put me off so far!

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Understanding taxation on unwrapped investments (GIA)

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