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Treatment of income units within an ISA

Smackeroonie
Smackeroonie Posts: 1 Newbie
in ISAs & tax-free savings
Let's say that a number of units from a unit trust are held within an ISA, with a mixture of Accumulation units and Income units.

Would all the income from the income units be treated as free from income tax?

Would the situation change if they were to be held on account or immediately reinvested and would such a reinvestment count towards the annual subscription limit?

I'm sure this is fairly basic, but I'm struggling to get my head around it!
«1

Comments

  • colsten
    colsten Posts: 17,597 Forumite
    10,000 Posts Seventh Anniversary Photogenic Name Dropper
    Anything within an ISA is tax free.

    Only new cash deposits that you make count towards your annual allowance.
  • sorcerer
    sorcerer Posts: 878 Forumite
    Just the clarify this a bit, you will have no future income tax to pay, however share dividends will be taxed at source (10%), and this will get paid, even if they are in an ISA. If you income comes from Bonds, then these will not be taxed, and sometimes you can get a tax reclaim coming into your ISA, depending on what you have invested in.
  • RobStaffs
    RobStaffs Posts: 308 Forumite
    Part of the Furniture 100 Posts Combo Breaker
    sorcerer wrote: »
    Just the clarify this a bit, you will have no future income tax to pay, however share dividends will be taxed at source (10%), and this will get paid, even if they are in an ISA. If you income comes from Bonds, then these will not be taxed, and sometimes you can get a tax reclaim coming into your ISA, depending on what you have invested in.
    what happens if you are a non tax payer. Can you reclaim tax paid of the share dividends?
  • jem16
    jem16 Posts: 19,746 Forumite
    Part of the Furniture 10,000 Posts Name Dropper Photogenic
    RobStaffs wrote: »
    what happens if you are a non tax payer. Can you reclaim tax paid of the share dividends?

    No you cannot.
  • lpgm
    lpgm Posts: 359 Forumite
    Part of the Furniture 100 Posts Combo Breaker
    Dividends aren't taxed at all inside an ISA. The 10% tax/10% tax credit game just happens outside the ISA.
  • Eco_Miser
    Eco_Miser Posts: 4,938 Forumite
    Part of the Furniture 1,000 Posts Photogenic Name Dropper
    Dividends aren't taxed at all, except for higher rate taxpayers; that is, no tax is withheld. The amount declared as a dividend is the amount received by shareholders. However, for historical reasons, the payment is deemed to be 10/9 of that amount less a 10% tax credit, which is not reclaimable, but can be deducted from higher-rate tax.
    Eco Miser
    Saving money for well over half a century
  • sorcerer
    sorcerer Posts: 878 Forumite
    lpgm wrote: »
    Dividends aren't taxed at all inside an ISA. The 10% tax/10% tax credit game just happens outside the ISA.

    That's odd how do you explain all those tax credits i get every few months from some of invesments inside my ISA?
  • masonic
    masonic Posts: 27,939 Forumite
    Part of the Furniture 10,000 Posts Photogenic Name Dropper
    edited 26 January 2015 at 7:09AM
    sorcerer wrote: »
    That's odd how do you explain all those tax credits i get every few months from some of invesments inside my ISA?
    They are probably coming from interest rather than dividends. Dividends are subject to corporation tax, which is charged to the company distributing and so cannot be reclaimed by you, whereas distributions of interest are subject to income tax, which is charged to you and is reclaimable. Or at least that's how I understand it.
  • lpgm
    lpgm Posts: 359 Forumite
    Part of the Furniture 100 Posts Combo Breaker
    sorcerer wrote: »
    That's odd how do you explain all those tax credits i get every few months from some of invesments inside my ISA?

    You might well see the tax credits, but they don't come into play inside an ISA (before 1997 you could turn them into extra cash, as I understand it). As Eco Miser points out, a basic rate tax payer gets dividends *effectively* tax-free outside an ISA too - they get taxed on an imaginary bigger amount (one-ninth bigger) and this 10% tax is 'paid' by the credit, which takes them back to the original dividend they got.
  • masonic
    masonic Posts: 27,939 Forumite
    Part of the Furniture 10,000 Posts Photogenic Name Dropper
    lpgm wrote: »
    You might well see the tax credits, but they don't come into play inside an ISA (before 1997 you could turn them into extra cash, as I understand it).
    What sorcerer is referring to (I'm fairly certain) is actual cash added to the balance of his S&S ISA from bond funds that distribute interest net of basic rate income tax.
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