Shares and ISA

ALL income is of interest to HMRC.

I use a financial advisor to sort these things out for me (pension lump sums invested) and IIRC the first £1k of any profit is tax free if you are a basic rate tax payer. After that you can use an ISA to invest up to whatever the annual limit is (£20k 17/18). Each year you get a new lump so its taken us 2 years to get all our investments protected, but as we’ve not taken any profit it’s moot.

Capital gains and income are in different treatment streams. Shares income I thought could currently be up to £ 2,000, but even that is complicated by other overlays. if your ‘other income’ is less than the allowance then it is outside the income consideration anyway. So my wife holds anything producing an income, be it stocks and shares or a bank or building society deposit account.

Capital gains only arise when you sell something. Whatever the limit is at the time of sale, selling one part in one financial year and the rest the next year can halve the gain. Also if you have a partner, gifting the item or items or part of them to your none tax payer partner can reduce the taxable gain so there are many options. However, get it wrong and the HMRC will not be warm and cuddly! Also remember that they do get records of trades and income so do not try too hard to avoid declarations. Because interest rates are crap and because tax rates are not low, I have not always spent time to chase interest and have some funds,. ‘the rainy day fund’ in a joint account where my share of the interest is just about naff all anyway and certainly bellow the allowed amount. Not earning an income is not (yet) a crime, but tax evasion is a whole different story.

If in doubt get qualified advice.

If you are at all interested in longer term saving ISAs are worth a good hard look, but you cannot transfer current shares/whatever into an ISA. Being tax protected they are bound up with all sorts of rules so take care to get it right.

Ed P wrote:

It will be interesting to hear Dan’s thoughts, but when I had some capital gains which were well below the allowance I was going to include them as a notation, but my accountant said, absolutely not. If you volunteer unnecessary info to HMRC you never know when it will come and bite you in the bum, were his exact words!

I would be highly cautious about using the services of an accountant who offers such advice. That’s exactly the advice that can bite down the road, especially since the current government are so keen on introducing retrospective legislation to defeat tax avoidance.

I hope that he had PI insurance.

EDIT: I should add, for a gain below the threshold, there is absolutely no danger in properly declaring it. The Gvt and HMRC are currently consulting on close to real time reporting of capital gains (and the proposals have their own whole host of problems), but this advice would definitely fall foul of the proposed new rules.

If you have doubts like those you have mentioned then D-Dan’s warning to seek guidance from an IFA should be heeded. He suggested that not all accountants are equal, so heed that advice, this is not to imply any are bent, just that there are a range of specialisations and you need the one tailored to your needs. Without in anyway selling them or any other group short, finance has become very complex these days and with tax laws often conflicting one with another you do need a specialist to map your way through. Having said that, I am not sure why you are concerned about a possible interaction between an ISA and a SIP. They are two different tax wrappers intended to achieve different aims and it is a personal choice as to which you either prefer or select. I have never seen anything to suggest a conflict between the two – though I have heard that you can get the rules wrong with either and then must suffer the results. One gotcha is that pension investments must not breach a certain overall level or you pay a heavy tax penalty. The capital sum includes all the interest and other payments to date, whereas an ISA restricts money going in each year but can continue to roll up as long as ISAs run. For this reason some people either switch completely to paying into just the one type or the other or share annual investments between the two or more options.

In short, money management is a highly complex matter and not really for hat pin in a board players.

I should have said out of the ISA and SIPP some people go for one, some people go for the other and some have opted for both for a range of their personal reasons. This really highlights why you need a good IFA and not one who just deals in simple customers. I was in a company scheme so the question did not arise in that form.