Many Monevator readers rightly strive to shave tenths of a percent from the running cost of their portfolios. But some people – especially wealthier savers – ought to think even harder about tax-efficient investment.
That’s because the impact of paying taxes on share gains or dividends can dwarf all your cost-curbing in the long run.
Which is precisely why I bang on about mitigating your tax bill more than is entirely seemly.
Investment tax in the UK is a rich person’s problem
If you’re paying capital gains tax (CGT) on profits from share trades or on dividend income, you may be throwing away money.
For a minority of investors, regularly paying taxes on investments is inevitable. Perhaps they’re wealthy enough to have money leftover outside of their tax shelters, for example, yet not loaded enough to call on the UK’s legions of tax specialists to get creative.
But those lucky few aside, most of us can postpone, reduce, or even entirely avoid paying taxes on our investment gains by using ISAs and pensions.
We can also become knowledgeable about taxes on dividends and bond income, and hold our different assets in the most tax-efficient way.
If needed we can even judiciously manage our capital gains and losses every year on unsheltered assets, and defuse gains where possible. (Albeit the scope for the latter has been much reduced by the whittling away of the annual CGT allowance).
Like this, even if you can’t escape paying taxes on some of your investment returns, you might still try to delay the bulk until you’re retired, when you’ll probably be taxed at a lower rate.
How tax reduces your returns
How big a deal is paying tax on investments anyway?
Let’s consider two investors, Canny Christine and Flamboyant Freddie.
(Sorry if these names are too cute. As members of the Financial Writer’s Union we’re officially required to pick kitschy sobriquets when illustrating long-term returns with an example.)
Let’s assume Christine and Freddie both inherit £10,000 each. Nothing to be sneezed at, certainly – though Freddie isn’t against shoving a crisp £10 of it up his nose in the right circs – but also not enough to see HMRC unleash a plainclothes officer and a tax evasion detector van. (Not that we’ll be suggesting anything dodgy, of course.)
Now, when it comes to tax Flamboyant Freddie can’t be bothered to know.
Freddie thinks ISAs and pensions are for people who buy Tupperware in bulk from mail order catalogues. He regularly turns over his shares in a no-cost share trading app. He boasts about his wins to his friends who put up with him because he’s always good for a pint.
Freddie is my kind of drinking buddy, but he’s not my kind of investor.
Enter Canny Christine.
Christine uses ISAs from day one. She can easily put the whole £10,000 into a shares ISA right away, meaning her investment is entirely protected from tax forever more. And so she does just that
What happens to their respective loot after 20 years?
Two decades later
Everyone’s tax situation is different. The rate of tax on dividend income and capital gains depends on how much you have and what you earn. There’s no point me doing specific calculations.
Tax rates change all the time, too.
So let’s simply and arbitrarily assume:
- Our heroes each make 10% a year returns. We’ll ignore costs.
- Freddie pays tax on his returns at a rate of 25% every year.
- Canny Christine has no tax to pay.
Here’s how their money compounds over 20 years:
| Year | Freddie (taxed) |
Christine (no tax) |
|
0 |
£10,000 |
£10,000 |
|
1 |
£10,750 |
£11,000 |
|
2 |
£11,556 |
£12,100 |
|
3 |
£12,423 |
£13,310 |
|
4 |
£13,355 |
£14,641 |
|
5 |
£14,356 |
£16,105 |
|
6 |
£15,433 |
£17,716 |
|
7 |
£16,590 |
£19,487 |
|
8 |
£17,835 |
£21,436 |
|
9 |
£19,172 |
£23,579 |
|
10 |
£20,610 |
£25,937 |
|
11 |
£22,156 |
£28,531 |
|
12 |
£23,818 |
£31,384 |
|
13 |
£25,604 |
£34,523 |
|
14 |
£27,524 |
£37,975 |
|
15 |
£29,589 |
£41,772 |
|
16 |
£31,808 |
£45,950 |
|
17 |
£34,194 |
£50,545 |
|
18 |
£36,758 |
£55,599 |
|
19 |
£39,515 |
£61,159 |
|
20 |
£42,479 |
£67,275 |
(Note: You can also envisage this by comparing annual returns of 7.5% and 10% using a compound interest calculator).
Paying taxes on gains every year makes a stunning difference:
- After 20 years, Freddie’s pot is worth £42,479. He feels pretty good about quadrupling his money, thank you very much.
- But Canny Christine has £67,275!
Christine has an enormous 58% more money than Freddie. That’s entirely due to her prudence in sheltering her portfolio from tax.
Even if Christine’s returns were taxed in the end – maybe if you were modelling pensions not ISAs – and at the same rate as Freddie, she’s still ahead.
A 25% tax charge on Christine’s £57,275 investment gain takes her final pot down to £52,956.
By deferring her taxes and keeping her capital unmolested to grow until Year 20, she’s left with very nearly 20% more money in her pot than Freddie.
Tax-efficient investment in practice
This theoretical example isn’t over-burdened with realism.
In reality, returns from investment – and hence whether and how you’re taxed – won’t be smooth.
Most investors will invest far more than £10,000 over their lifetimes. So capital gains tax and dividend tax will become more of an issue as portfolios grow.
An investor’s personal tax profile will also change over time. Not least due to investment gains and dividends if they invest large amounts of money outside of tax-efficient investment shelters! But also because they’ll probably earn an increasing income at work.
Most salary earners who are canny enough to start investing in their 20s will end up as higher-rate taxpayers. And tax rates than might seem trivial as a basic-rate payer, such as dividend tax, ramp up with your salary.
Gimme shelter
So don’t get obsessed about the details above. Again, everyone’s exact tax profile and financial journey will be different.
Instead focus on the takeaways:
- Paying tax on dividends or share gains can take a big chunk out of your returns.
- Most of us can and should use ISAs or pensions. We might be able to shield all our investments from tax, or at least postpone taxes until retirement. (Part of your pension withdrawals will almost certainly be liable for income tax eventually, niche scenarios aside.)
- Those with large sums invested outside of ISAs or SIPPs should read my articles on defusing capital gains and offsetting gains with losses to lessen the pain.
- Big into your cash hoard? At the time of writing gilts can be more tax-efficient investments for higher-rate taxpayers, as opposed to relying on cash ISAs. Switching up could free more ISA space up for assets such as equities or higher-yielding bonds.
- Think about the return on paying off your mortgage from a post-tax perspective. The ‘return’ of even cheap debt reduction may be higher than the taxed return from unsheltered cash.
- Are you maxing out your ISA allowance and yet you can’t or don’t want to put more into a pension? Then think hard about which assets you should really must shelter, versus those better able to withstand taxation. Capital gains tax, for example, isn’t due until you sell an asset and book the gain. You might be able to buy and hold some kinds of investments – properties, companies, investment trusts – and defer capital gains for decades. (Note that accumulation funds are liable for tax on their income though).
Pensions are more tax-efficient investment wrappers than ISAs
The core tax benefits of ISAs and pensions are theoretically the same. But pensions do have a few perks that make them slightly more attractive from a tax perspective – crucially the tax-free lump sum, and for higher-earners the likelihood of paying a lower tax rate in retirement – at the cost of restrictions on accessing your money.
For my part, I use a mix of ISAs and pensions. But I’ve begun to favour the latter with new money as I’ve inched closer to the age when you can access a private pension, and also as the old pension constraints were loosened.
A tax-efficient investment strategy is not too taxing
Hopefully you think this is all perfectly obvious and you already use ISAs and pensions yourself.
Subscribe to Monevator if you’ve not yet done so. You clearly belong here!
However I do sometimes still hear people saying they don’t need a tax shelter – often flagging small initial sums or extra admin hassle as justification.
This is wrong-headed. If you’re going to be a successful investor, you need a tax-efficient investment strategy from day one. It will benefit you many decades down the line!
Note: I’ve updated this article from 2012 to reflect our shining modernity in 2024. But the reader comments on Monevator have been retained, and may reflect out-of-date tax law. Check the comment dates if you’re confused.
An excellent post – it’s frightening how much the taxman can eat up over time (although it would be a challenge to earn a consistent 10% pre-tax yield in the first place!!).
The other thought entered my head upon reading the article was the important contribution that re-invested dividends and compound interest make to capital growth. Without yield, your capital growth is constrained.
A strange and annoying phenomenon has occurred online, whereby some bloggers have decided that dividends and interest are “passive income”. Nope. It’s likely that any yield is partly needed to offset the erosion of value through inflation, partly a payment for taking on investment risk (a risk premium) and partly compensation for not spending your money immediately (taking into account the ‘time value of money’).
If you treat yield as “passive income” and spend it, all you are doing is depleting your capital base.
Great post. Baked into the cake taxes, which aren’t sensible to crystalise, on some of my longer term investments are exactly the reason it’s taken me a while to get my average expenses down to 0.36%. I’m going to continue to chip away at it. My method is to harvest the dividends from those higher fee investments and reinvest into my low TER variants.
Great time to be talking about compounding also. On the weekend I was also looking at compounding by talking about my 2007 example of having to make a choice between DIY Monevator Style Investing vs Financial Planner Investing. I still feel I made the right decision.
Cheers as always
RIT
BTW. Love the “Canny Christine and Flamboyant Freddie”. A lot better than my Average Joe…
@Ethan — Thanks for your comments. The 10% compounded per year is just an illustrative figure chosen for simplicity, but I don’t think it’s utterly far-fetched. For many years 10% was considered the ballpark nominal return from UK equities, although the past dozen rough years has knocked it down a couple of percent.
I agree that dividends can be a powerful element of investing — you won’t get rich spending instead of reinvesting them, certainly 🙂 — but it is perfectly possibly to compound your wealth without them. There are plenty of shares, trusts, and even ETFs that have gone up many times over without ever paying out a penny.
As I wrote in my recent article on earnings yield, it’s how your underlying investment performs that really matters. If the company can’t re-invest excess profits better than you, it should return it via a dividend. (In contrast it can get a higher return than you can, for the same risk, it should do — the classic no-yielding growth share example of the past 10 years would be Apple that has made many investors wealthy, although it’s finally started paying a dividend now its got more cash than California…)
@RIT — Yes, rolling up capital gains for as long as possible is definitely another tax-avoiding strategy, as I’ll address in my next post. As you imply, it does make changing positions fiddly, as well as much else, however, so anyone who can use ISAs or pensions instead should do so, in my view. Thanks for your generous review!
If you don’t want to pay tax in the UK you simply buy a house for cash and live in it
No income tax on the rent saved, no CGT
Council tax you would be paying anyway if you were renting it
Of course, first of all you have to have enough money to buy a house for cash….
@Neverland — Agreed, house buying in the UK is very tax efficient, even though explicit mortgage interest relief etc was scrapped years ago for home owners. (They still have it in the US and Australia…)
Good article which really spoke to me.
I’ve just got back on the investing horse after liquidating just about everything when my wife and I bought our home in March and I can’t see the reason why anyone paying basic rate tax *wouldn’t* make use of either an ISA or pension to reduce tax.
The affect of fees on my tiny initial investment of £50/mth into the Vanguard LifeStrategy 100 fund at this point is already pretty savage at this point – why compound it further by leaving myself exposed to more tax?
It might be a small amount now, but it won’t always be and it’s important to start as you mean to go on.
Neverland, don’t forget stamp duty – they get you one way or another, especially on anything over 250k as it leaps from 1% to 3%.
But agreed its a good thing there is no capital gains tax on a primary residence. And as long as the LibDems don’t win the next election council tax is not as bad as property taxes in some other countries that are directly related to the current value.
I have zero taxable assets, primary residence with an offset mortgage (tax free cash savings) and everything else in ISA and SIPP wrappers. Makes tax returns a lot simpler on top of everything else.
Interesting article, Cash ISA’s fine for rainy day money, but Equity ISA’s? yes you can save some tax but sometimes the cut/commission the ISA provider wants almost eats up the tax saved in the first place, plus it lacks flexibility.
Anyway 10% tax on dividends is better then 20% on % from cash savings plus CGT on shares is tax free up to the current government threshold, which i don’t exceed as i just invest as a hobby not for need.
Three aims, beat the FTSE, done it. Beat what i can get from a cash ISA , done it. Beat RPI + 1%, done it. So i am happy with my lot, i don’t invest enough to lose sleep over if it falls in value and never invest more then 5% in any one stock.
I rely on the Rothchild and JP Morgan school. Regular dividends [if a Company does not have the discipline to pay a reasonable, well covered dividend, i ignore it] JP Morgan on being asked what will the stock market do tomorrow? I answer was fluctuate.
Keep up the good work.
@semi
Stamp duty is 5% on a million pound house
Income tax top would be 20/40% on the annual income you might buy instead to pay the rent
Not really a contest is it? 🙂
One other benefit I love about ISA is the lack of paperwork when it comes to the tax return, especially if working out CGT on DRIPs, rights issues, etc.
@Ric — You’re a man (or woman!) after my own heart — fully agree ISAs are a lifesaver from a paperwork perspective.
@Lupulco — I don’t agree I’m afraid. I use self-select ISAs as they used to be called (i.e. I buy shares, bonds, ETFs, funds etc within an ISA wrapper) and the fees vary from cheap to free (provided you trade 4x a year in the latter case).
Mine have had flat fees, too, so regardless of how much money you hold you’re still only paying (for example) £40.
It’s extremely easy to pay £40 in tax on a portfolio of shares. Even £10,000 invested passively in a FTSE tracker will generate around £320 a year in dividend income. For a higher-rate taxpayer, they’ll then pay £80 in tax — twice the ISA fees.
And that’s just in the early years. As I show in the table above, it’s the compound impact that really hurts.
Fair enough on the Capital Gains Tax issue if it’s above your threshold, but for ambitious young investors who save hard and are reasonably successful they will sooner or later regret not ISA-ing their equities. I have been shoveling money into ISAs as fast as I can since seeing the light in 2003, but I’ve still got as much outside of ISAs as in them, and the tax implications definitely distort my actions (or else I pay more tax).
Still, if you’re strategy works for you, I’m not arguing with that. 🙂 Love your JP Morgan quote, which I’d never come across before:
You can even get a tax refund by investing in a SIPP for a non-working family member, although this is limited to £2880 (giving an immediate 25% return).
When you retire, take your tax-free lump sum from your pension, invest it, then from the income pay into a SIPP for yourself (with the same limit as above) and make another 25% return.
http://www.the-diy-income-investor.com/2011/03/instant-25-return-uk.html
What’s not been said is Canny Christine used her ISA nominee account. Her broker was inept, crooked and incompetent and committed fraud.
Her broker went bust and took her shares with it. But worry not. They were ring-fenced in the nominee account and protected under the FSCS scheme.
However her broker didn’t actually have the number of shares they claimed to have and she was left with nothing.
Flamboyant Freddie, on the other hand, used a certificated broker and ended up on the company’s share register and so couldn’t get a tax free ISA with these.
Canny Christine is destitute and on the street with nothing – but at least she paid no tax.
Flamboyant Freddie has more money left than she does but less than she would have had in theory.
The moral?
Avoid ISAs (as long as it’s nominee based), pay your tax and sleep better at night.
@Ian
Have you also considered closing your bank account, in case your banker is crooked and incompetent and committing fraud? And have you closed your credit card account in case your card provider is crooked and incompetent and committing fraud? What about your Electric company, maybe you will be better off with a slot meter, preferably your own?
I could go on, but my serious point is most modern day living has some minor degree of risk, but careful selection of reputable providers, and diversification between multiple providers for larger sums should provide you with a good compromise between convenience and the safety of dealing only in cash and certificates.
Also certificates are inherently vulnerable to loss & theft.
@Ian — I am all for healthy paranoia, but personally I don’t worry too much about Nominee accounts. They’re the overwhelmingly common method of ownership nowadays, and as has been noted certificates can get mislaid, chewed up by a dog and so on. You can get new ones, but they’re hardly immune to fraud, either.
Spreading my portfolio between multiple reputable brokers is protection enough for me. Possibly I might add a certificate holding of something I’d imagine holding forever just for diversity’s sake at some point, but it’s not a priority.
Thanks for raising the thought though; others may feel differently.
A question for Ian. You mention “avoid ISA’s as long as they are nominee based” as a method of protecting your savings. Is that possible? I have been looking for a broker who will hold my ISA investments in certificate form but they all claim it is impossible as it takes the investment outside the tax wrapper.
Just an update on the footnote: AIM shares can now be held in an ISA too.
However, there’s also a case to be made for delaying the acquisition of an ISA account, until one has fully exploited one’s personal allowances. That’s because ISA accounts for shares have higher annual fees than GIAs do. Saving those fees early on for a couple of years makes a small difference to the outcome. Not much, but for small pots, ISAs do have a negative impact on returns, because of the higher annual fees.
I know, I’m talking about ISAs with fixed fees, not percentage fees, and small investors are often steered towards the latter. However, if one does that, one faces paying fees in the future to transfer to a flat-fee broker.
Great timing – I literally just wrote about this myself! I think it’s amazing that as a couple we can earn over £50k each year entirely legally tax-free. Plus whatever we earn in our ISA’s and SIPP’s.
That’s way more than we spend each year in our post-FIRE lives, even with all the travel we do. So we’re effectively living tax-free here in the UK, which does feel odd at times. It also makes it much harder to consider living anywhere else from a financial perspective.
I’d feel bad about it but then I did spend many years paying out what seemed eye-watering sums at the higher-rate, so I figure me & the UK Government are just equalling up!
Some simple maths on this (in USD because the data is easier to come by)
In the 20 years to May 2024 the S&P 500 turned $1,000 in to $4,735. This is from index/price appreciation alone. Paying 20% capital gains tax at the end of that run would bring you down to $3,988
Annualizing the loss to CGT: (3988/4735)^(1/20) = ~0.85%/yr
Now dividends.
Over the same period the S&P 500 total return index (so with dividends reinvested) turned $1,000 in to $6,900. This gives you 20 year historical annualized compound gain from dividends of (6900/4735)^(1/20) = ~1.90%
Paying 40% of tax on your dividends means you’re losing another ~0.75%/yr to tax.
So overall, by investing in a GIA over the last 20 years in the S&P you’d have been losing more than 1.5%/yr of your gains to tax.
It’s clear to see why people will pay huge fees for tax planning.
@Michelle — That’s a nice article, and something I’ve been known to think about too. Brexit has made Europe seem more hassle than its worth now (I love much of Europe but why not move to say Bali 😉 ) but I do wonder if without Brexit I’d be seriously considering my beloved Spain too. Or would I be leaning on the UK tax benefits you highlight? TBH I suspect so. A modest UK home and half the year out of the country doesn’t seem like a terrible compromise. 🙂
@Andrew — Ah, for a second I thought you were going to show it with equations haha. I was going to have a go with this update, but then blanched as my A-Level maths is clearly even rustier than I thought…
Timely reboot of the article. Particularly timely if you are trying to take no regrets decisions about what a likely future government may do with LTAs and TFLSs on SIPPs/DC pensions.
If you believe you will be hitting there or thereabouts on a reintroduced LTA or that the TFLS cap will be reduced basic logic says flatten the SIPP as soon as you can access by extracting at least TFLS (for simplicity let’s say you can take full £268k).
But being a sensible FIRE type you want to reinvest that TFLS. ISA can only take 20k/40k for a couple pa. So you are almost inevitably into GIA and it’s quite conceivable that even only bed and ISAing each year soon exceeds CGT allowance. Hence even tax free cash ends up being taxed in time (albeit at hopefully lower CGT rates).
Alternately you leave the SIPP in place and hope it survives further political meddling.
Because tax is never a fixed playing field but certain wrappers are irreplaceable everything becames a more difficult game. Maybe we just need to accept that putting enough away to be FI means we’re going to be taxed to a degree regardless (and I haven’t even mentioned wealth taxes).
@Michelle do you have the link to your article?
@BBBobbins (22) For the time being I’m team ‘leave the SIPP in place and hope it survives further political meddling’. I already struggle to manage the tax on my unsheltered investments and stay out of HRT. Extracting PCLS from my SIPP would exacerbate this and extracting taxable funds would probably put me straight into HRT. I keep checking the wind direction though and will act as appropriate.
Interesting read – thank you.
I found the link to Michelle’s site by clicking on her name, but the articles are not dated. Very interested to read the latest input where you say you can both earn £50K tax free. Could you please provide the article title. Many thanks.
@BBBobbins (#22):
Try: https://fireandwide.com/home-or-away/
Got it thanks. And the article is £50K pa as a couple (which will come down with reducing CGT allowance)
Gold sovereigns, my good man. No income tax (obvs) and no CGT (because coin of the realm).
The only probs, from my point of view, are (i) how to buy them in a way that potential thieves won’t find out about and (ii) how and where to store them.
In the category “potential thieves” I include His Majesty’s Government.
@ Investor: Shucks, blushing now . Thanks for reading it! Yeah, it’s not exactly a bad compromise position for sure, hence not sure which way we’ll jump as yet. Brexit definitely did not help! But everything is solvable if it’s what we want.
PS We did consider South Africa too as a close runner-up but Spain’s edging it for now. I’ve not made it Bali but Thailand & Vietnam both ticked the ‘amazing paces, love them but don’t want to live here’. Not a big humidity fan .
@ Al-Cam. Thanks for sharing the link. I never like to do that, feels a bit spammy….. so cheers.
@BBBobbins. Sorry, I thought I made it clear it was per couple but apols if misunderstood. And yes, agreed, it’ll come down again next tax year unless anything changes with the election. But I think it’s still pretty generous compared to a lot of countries we’ve investigated. Outside of the obvious tax havens for sure!
Thanks for the updated article @TI and for the insider’s view of FIRE Espanol @Michelle #19.
So, for 2024/25, the total possible tax free income for a couple reduces from £51,140 in 2023/24 to £44,140.
This assumes that if Labour win on 4 July and hold a budget in September, as they’ve said they will if they win, that they don’t then reduce any of the allowances (the personal allowance, the dividend allowance, the starting rate for savings income, the personal savings allowance and the capital gains tax allowance) for this current tax year.
If the dividend and CGT allowances had been kept at £5,000 & £12,300 respectively annually, as they stood until recently, then it would now be possible for a couple to have annual tax free income and gains (outside an ISA) of up to £72,740, i.e. £28,600 p.a. more than the actual current figure.
If you’ve used up both your ISA allowance and the Annual Allowance Pension Input Amount for your SIPP, then there’s always EIS, VCT, SEIS and SITR; although each carries with it various disadvantages and advantages.
BTW none of use of ISAs, SIPPs, EIS, SEIS, VCT or SITR should be described as being tax avoidance. They’re all just normal tax mitigation.
Tax avoidance is a generally legal but abusive attempt to make use of legislation in a way that either the legislature did not intend or would not have intended. Due to targeted anti avoidance measures and/or the General Anti Avoidance Rule, it will normally fail.
Tax evasion is an illegal attempt to under declare or to conceal tax liabilities on profits, income and/or chargeable gains.
As Denis Healey famously put it when he was Chancellor of the Exchequer, the difference in practice between avoidance and evasion is the thickness of a prison wall.
Tax mitigation, in contrast, is just making use of tax shelters and tax allowances which are provided for by legislation in the way in which Parliament intended them to be used. There’s no avoidance involved.
@Michelle, #19, that is an interesting breakdown of what you can earn. I’ve not realised that until now. It’s picqued my interest for some spreadsheet action!
It feels tricky to configure your investments to be able to achieve all those items but I suppose the point is that you can get that far without paying tax. Be interesting to work out how quickly that drops off as earnings increase “outside of your control” i.e. more interest paid as you’ve accumulated more.
As Michelle has highlighted in her posts above and on her website, the tax-free allowances and tax shelters that are available to UK tax residents are incredibly generous and nobody in the UK should take them for granted. Where I live, there is no ISA and no SIPP. The tax-free allowance is modest and has only been raised once (!) in the last 14 years. If you want to DIY your private pension, you are exposed to the ravages of tax almost straight away and that makes it much more challenging to achieve a decent post-tax, post-inflation real return. You guys in the UK should cherish your privileged position! Many other countries are not so supportive of the DIY approach.
@Delta Hedge (#29):
Re: “If you’ve used up both your ISA allowance and the Annual Allowance Pension Input Amount for your SIPP, then there’s always EIS, VCT, SEIS and SITR; although each carries with it various disadvantages and advantages.”
Do you have a good reference that provides more details on all four options including the pros & cons? I know a bit about EIS and VCT, but, as we all should know, “a little knowledge is a dangerous thing”.
@Al Cam #32:
– The official view from the published and publicly available HMRC venture capital schemes manual (detailed and nerdy, but comprehensive, updated and covering VCT, EIS, SEIS, SITR and CITR – IIRC):
https://www.gov.uk/hmrc-internal-manuals/venture-capital-schemes-manual
– A possibly useful free guide which you can download from one of the product provider intermediary platforms:
https://www.wealthclub.co.uk/free-guides/free-guide-download-tax-efficient-investing-high-earners/
– Monevator’s previous pieces on VCT and EIS respectively:
https://monevator.com/the-risks-of-venture-capital-trusts-vcts/
https://monevator.com/what-are-enterprise-investment-schemes/
My own thoughts (and misgivings) on SEIS are at #22 in the comment thread to the lattermost.
@Delta Hedge (#33):
Thanks.
I will study in a bit more depth later.
My initial reading of some of the links suggests – for our current circumstances, at least – my little knowledge is probably a less dangerous option!
Thanks again.
@ Michelle, many thanks for this, too late for me, but it’s enlightening and will encourage others. Paramount, look after your long term health.
@ TI, a great read, a great website, greatly appreciated.
Which UK investment platforms produce the best Capital Gains Tax Reports?
I would do all my taxable investing on one platform and would have no CGT chargeable events outside of the investment platform.
I want to make the admin process as simple as possible.
Are there other useful third-party CGT reporting tools available outside of investment platforms?
@Index
That is a great question – listing the UK investment platforms that produce helpful Capital Gains Tax Reports would make a good article.
@Index @Ben Ber — It is an interesting point of difference among the platforms, though personally I wouldn’t keep all my money on one platform (subjecting myself to a single point of failure risk) just for the paperwork 😉
However it’d be very difficult to judge/test/collage/maintain.
Realistically a hands-on survey would have to involve putting substantial amounts of money on all platforms, unsheltered, to generate Capital Gains Tax reports, and really to do some trading etc on each to generate gains and losses.
I guess it’s a bit easier now the CGT limit has been reduced so much! But you’d still be talking of a chunky six-figure sum across all platforms, not to mention personal tax liabilities for those doing them.
Other options?
I guess we could ask each platform for a sample of its CGT report. A demo report. I wonder if they’d be forthcoming.
Or we could try to crowdsource them from the Monevator readership?
The snag is a big chunk of even quite wealthy people don’t generate CGT, as everything is kept in ISAs or SIPPs. Or if they do then it’s a once-a-decade type thing. So might be hard to get complete coverage.
All told a nice project, but don’t think Monevator has the resources to do it, especially when the outcome would be useful for a very small % of readers I suppose. But never say never! 🙂
@The Investor
Thanks for the detailed reply.
For the resons you outlined a full comparison by one person using the different brokers would seem impractical. But asking for a sample of their CGT report might work well.
@The Investor
Thanks for the reply.
To clarify, I would not put all my investments on one platform, rather use one platform exclusively for the taxable investments, specifically to simplify the CGT reporting.
I think your idea of getting feedback from the Monevator readership is a good one and I presume would not require significant Monevator resources.
Perhaps a short article (couple of paragraphs) at some point in the future requesting feedback about the best platforms for CGT reporting or third party tools used would elicit a response in the Comments section.
For investors less sophisticated than yourself, the admin involved re CGT is a bit daunting.
@Ben Ber @Index — I’ll suggest the idea to @TA, as it’s more his bailiwick. Fully agree reporting CGT can be a pain, see this old post for some of the tedious paperwork I had to do:
https://monevator.com/get-an-isa-life/
On the other hand when I sold my unsheltered Amazon shares for six-figure sum in 2021 that was very straightforward, because it was all just one holding bought and sold at the same time.
I hear the point about keeping all the unsheltered stuff on one platform, and can see the logic yes!
A timely article. If you have significant investments outside of ISA’s and pensions, the combined effect of government freezing income tax allowances, reducing the dividend allowance, and freezing the savings allowance (not to mention reducing the capital gains allowance), can get you into hostile tax waters alarmingly quickly. And if a person is not there now, then probably they will be in the coming years since there is no sign of a thaw in the freezes – while taxable incomes are inflated and interest rates on savings have gone up a lot.
The question then is what to do now. (I only get involved in tax mitigation).
People often emphasise using your ISA allowance each year. Clearly right. But an important step in my view is also to park (if necessary repark) assets yielding income inside ISA’s and try to leave only low or zero yielding stuff outside ISA’s. This can really help with all of the dividend allowance, the personal savings (ie interest allowance), and your total taxable income level.
Beyond that, low coupon gilts (which if purchased individually have no CGT) can help on the interest income side.
@ The Investor
FYI. I have never used this tool but below are links to info from the Fidelity website which says their CGT Tool shows realised and unrealised gains:
https://www.fidelity.co.uk/markets-insights/ask-the-experts/how-can-you-know-how-much-capital-gains-you-will-make/
More detail here:
https://www.fidelity.co.uk/media/PI%20UK/pdf/guides/CGT_User_Guide.pdf
I don’t know about other platforms.