ISA's

[Incognito]

I know this isn't a financial advice forum, but how do ISA's work? I've got a hell of a lot of shares and I'm just trying to work out if it's worth my while wrapping them in an ISA.

I'm assuming a Shares ISA means I don't pay income tax on my dividends on the £7200 worth of shares I've wrapped, but what happens the next year. So say I've already got £7,200 worth of shares in an ISA and I wrap another £7,200 in a new ISA the next year, do I not pay tax on both lumps of shares? Or is an ISA only tax beneficial per tax year.

And what happens if my portfolio increases in value? Does that wipe the whole thing out or only the value about the £7200.

[Gonzo]

I know this isn't a financial advice forum, but how do ISA's work? I've got a hell of a lot of shares and I'm just trying to work out if it's worth my while wrapping them in an ISA.

I'm assuming a Shares ISA means I don't pay income tax on my dividends on the £7200 worth of shares I've wrapped, but what happens the next year. So say I've already got £7,200 worth of shares in an ISA and I wrap another £7,200 in a new ISA the next year, do I not pay tax on both lumps of shares? Or is an ISA only tax beneficial per tax year.

And what happens if my portfolio increases in value? Does that wipe the whole thing out or only the value about the £7200.

An ISA is a tax free wrapper into which you can buy / put shares.

1. You don't pay more (i.e. higher-rate) income tax on any dividends.
2. You don't pay any capital gains tax if your shares gain in value between the date they go into the ISA and the date that they are sold.

The £7,200 is a contribution limit each tax year, but the tax benefits remain on that ISA until you close it.

It was a great scheme under the old Personal Equity Plan rules. Not so good these days.


*I am not a Financial Adviser, I am not allowed to charge for giving Financial Advice. The value of your investment and the income from it can go down as well as up. etc etc

[JoJoGabor]

I think any capital gains is tax free up to £8k per year but anythign more than that you will pay CG tax on whether its in an ISA or not.

But yes you can put £7200 worth of shares into a Stocks and Shares ISA each year

[Incognito]

Merci

[Gonzo]

I think any capital gains is tax free up to £8k per year but anythign more than that you will pay CG tax on whether its in an ISA or not.

But yes you can put £7200 worth of shares into a Stocks and Shares ISA each year

There is no Capital Gains Tax to pay on any increase in value of the stuff in the ISA, full stop. That's is probably the main benefit these days.

There is also an annual threshold of £9600 (I think) of gains before you have to pay Capital Gains Tax. That applies to anything outside the ISA.

[Cheshire Cat]

how about this scenario?
Bob bought about £7k worth of bank shares at the start of March, which have now tripled in value to £21k.
Bob doesn't receive a dividend from these shares and instead decides to sell to liquidise the capital appreciation.
After minor trading costs he makes about 14k clear profit.
Does he pay any tax on this? income tax? CG tax?

My guess is that he pays £0 income tax but has to pay X% of CG tax on £6k of this (£14k minus his 2009-10 CG alllowance of £8k).
Is that about right?

[expat]

I think any capital gains is tax free up to £8k per year but anythign more than that you will pay CG tax on whether its in an ISA or not.

I'm sorry, but that is complete rubbish. Why do you bother answering with "I think" followed by an utter and incorrect guess? Seriously: I'm not trying to be rude but I completely fail to understand why you give an answer when you must know that you simply do not know.


To answer the original question:
1. once you put money into an ISA, it is free of all further tax as long as you keep it in the ISA. Interest, dividends, capital gains, whatever, it doesn't matter: it's free of tax on any sort of gain.
2. There is a limit to the amount that you can put into a shares ISA in any year: currently £7200 of you do not also have a cash ISA.
3. You can take money out of an ISA any time. It then becomes "normal" money. You can't put it back in. Example, with £7200 limit: thia year you have put in £6000: you have used up £6000 of this year's allowance. Then you take out £5000: you have still used up £6000 of this year's allowance. You want to put more in: you can put in a further £1200 this year (= £7200 - £6000).
4. There are no calculations and no declarations to do, except for keeping track of the remaining available amount for deposit, by starting with your annual allowance and reducing the available by the actual deposits.

[DieScum]

What if I buy 1k of shares in the ISA wrapper. Ten years later they are worth 10k. If I then sell the shares and buy some others shares. is that all still within the tax free ISA wrapper? The re-invested 10k doesn't take up the 7.2k for that year?

[Incognito]

I'm sorry, but that is complete rubbish. Why do you bother answering with "I think" followed by an utter and incorrect guess? Seriously: I'm not trying to be rude but I completely fail to understand why you give an answer when you must know that you simply do not know.


To answer the original question:
1. once you put money into an ISA, it is free of all further tax as long as you keep it in the ISA. Interest, dividends, capital gains, whatever, it doesn't matter: it's free of tax on any sort of gain.
2. There is a limit to the amount that you can put into a shares ISA in any year: currently £7200 of you do not also have a cash ISA.
3. You can take money out of an ISA any time. It then becomes "normal" money. You can't put it back in. Example, with £7200 limit: thia year you have put in £6000: you have used up £6000 of this year's allowance. Then you take out £5000: you have still used up £6000 of this year's allowance. You want to put more in: you can put in a further £1200 this year (= £7200 - £6000).
4. There are no calculations and no declarations to do, except for keeping track of the remaining available amount for deposit, by starting with your annual allowance and reducing the available by the actual deposits.

Good answer, cheers

[expat]

What if I buy 1k of shares in the ISA wrapper. Ten years later they are worth 10k. If I then sell the shares and buy some others shares. is that all still within the tax free ISA wrapper? The re-invested 10k doesn't take up the 7.2k for that year?

It's a turnstile going in. All it counts is money going in that year. It doesn't care what gains, losses, or withdrawals you made, nor does it care what sales and purchases you make inside the ISA (you can buy and sell inside the ISA). All it counts is money on its way in in the current year.