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    • Sceptic001
    • By Sceptic001 13th Oct 16, 10:47 AM
    • 1,100Posts
    • 853Thanks
    Re-organising ETF investments to maximise tax allowances
    • #1
    • 13th Oct 16, 10:47 AM
    Re-organising ETF investments to maximise tax allowances 13th Oct 16 at 10:47 AM
    I have an S&S ISA containing individual shares and ETFs (ISF and IUKD)

    In response to falling interest rates I have also recently bought bond ETFs outside the ISA (EEXF, ISFX and INXG)

    As I understand it, share-based ETFs qualify for the new 5000 dividend allowance but bond-based ETFs do not. Is this correct?

    If so, it would seem rational to "swap" my holdings.

    This will also crystalise the capital gains on the bond ETFs, using this year's CGT 11,100 allowance.

    Apart from the dealing costs and small loss on the buy/sell spread, is there any down-side to doing this?

    Thanks for any help you can offer.
    Last edited by Sceptic001; 13-10-2016 at 5:00 PM. Reason: amend title
Page 1
    • Linton
    • By Linton 13th Oct 16, 11:05 AM
    • 9,385 Posts
    • 9,519 Thanks
    • #2
    • 13th Oct 16, 11:05 AM
    • #2
    • 13th Oct 16, 11:05 AM
    I would have thought that bond based ETFs would benefit from the 1000 savings allowance. The HMRC website says that:

    interest distributions (but not dividend distributions) from authorised unit trusts, open-ended investment companies and investment trusts

    do qualify. So whether that includes ETFs could be worth checking.
    • Sceptic001
    • By Sceptic001 13th Oct 16, 5:07 PM
    • 1,100 Posts
    • 853 Thanks
    • #3
    • 13th Oct 16, 5:07 PM
    • #3
    • 13th Oct 16, 5:07 PM
    Thanks, Linton, but my savings allowance is already accounted for. I assume you are right, but a bit of googling has failed to turn up the definitive answer.

    There seems to be a lack of clear information (not advice) about the tax treatment of ETFs for investors. I have looked at this document on the ishares website which, as far as I can see, fails to answer these simple questions.
    • bowlhead99
    • By bowlhead99 13th Oct 16, 5:37 PM
    • 7,833 Posts
    • 14,306 Thanks
    • #4
    • 13th Oct 16, 5:37 PM
    • #4
    • 13th Oct 16, 5:37 PM
    There is a good argument to say you should have your interest and property income-producing assets in an ISA and a large chunk of equity funds outside the wrapper, where you can utilise the handy dividend allowance and also hopefully manage the cgt through the annual exemption (likely the equity funds will produce larger gains over the long term in normal market conditions but hopefully still manageable).

    However, the counter argument would say, I hope for 7% a year from my equity funds and only 3.5 from my nice safe bond funds. So if I have 100k or 200k ISA today, cramming it with equities will allow it to double into a 200k or 400k ISA wrapper in ten years (ignoring new annual subscriptions). However if I cram it with bonds it will take two decades to reach that size.

    Having (say) a 200k ISA wrapper is very useful for whatever income-producing assets you eventually want to hold in retirement. Whereas putting the bonds in there (particularly now with yields on the floor and very depressed growth prospects) one might not really expect this useful "wrapper" to grow at anywhere near the same pace.

    However the sums and the psychology will be different for everyone and you can add 100k to the size of your is wrapper in five years anyway simply by utilising the annual contributions allowance which will be 20kpa from next April.
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