Best way to utilise annual CGT allowance?
Discussion
Potentially a bit of a noob question - are there any investments where the annual yield is taxed as Capital gains rather than income?
I have a significant amount in savings where the interest is being taxed. My annual dividend allowance is fully utilised. Are there any investments (ideally in the shape of ETFs) where the yield is taxed as capital gain rather than income?
I hope that makes sense
I have a significant amount in savings where the interest is being taxed. My annual dividend allowance is fully utilised. Are there any investments (ideally in the shape of ETFs) where the yield is taxed as capital gain rather than income?
I hope that makes sense
eyebeebe said:
Aren’t you just looking for an accumulating ETF rather than a distributing one?
I did wonder that - so an accumulating ETF doesnt get taxed as income? For some reason in the back of my head I thought you still had to declare the profits an accumulating ETF made.https://www.vanguardinvestor.co.uk/articles/latest...
Accumulation shares, which do not pay out a regular income, nevertheless are taxed on the ‘accumulated income' at your regular income tax rate and the income needs to be disclosed on your tax return. Any capital growth is also subject to CGT.
Countdown said:
I did wonder that - so an accumulating ETF doesnt get taxed as income? For some reason in the back of my head I thought you still had to declare the profits an accumulating ETF made.
https://www.vanguardinvestor.co.uk/articles/latest...
Accumulation shares, which do not pay out a regular income, nevertheless are taxed on the ‘accumulated income' at your regular income tax rate and the income needs to be disclosed on your tax return. Any capital growth is also subject to CGT.
Seems like you do. Sorry for the red herring. I had in mind that this was the key benefit. Maybe it’s only in the US? Here in Switzerland it’s sadly the same as the U.K., but I rather thought that was because the tax authorities here are smarter than the U.K. https://www.vanguardinvestor.co.uk/articles/latest...
Accumulation shares, which do not pay out a regular income, nevertheless are taxed on the ‘accumulated income' at your regular income tax rate and the income needs to be disclosed on your tax return. Any capital growth is also subject to CGT.
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hstewie said:
hstewie said: Pretty sure ACC units are seen as the "messy" way to invest outside of a tax wrapper precisely because you have to try to work out how much of the gain is actually from dividend income.
Wouldn't the provider send you that information in an annual statement of some sort?The CGT allowance is now ‘so small’, it’s increasingly ‘not worth’ trying to optimise it.
You could buy some short-dated Gilts as your modest return will be mostly capital in nature (if you hold to maturity), but you might regret missing out on alternative, potentially higher yielding investments that could deliver a higher post tax return…
You could buy some short-dated Gilts as your modest return will be mostly capital in nature (if you hold to maturity), but you might regret missing out on alternative, potentially higher yielding investments that could deliver a higher post tax return…
mikey_b said:
Wouldn't the provider send you that information in an annual statement of some sort?
Not that I've ever seen and if you're doing a monthly buy of ACC units in an unwrapped account good luck working out how much dividend income you've received bundled in those ACC units - it's a nightmare 
Mogul said:
You could buy some short-dated Gilts as your modest return will be mostly capital in nature (if you hold to maturity), but you might regret missing out on alternative, potentially higher yielding investments that could deliver a higher post tax return…
Yes, that's the only option I could come up with, apart from maybe putting the money into an ISA for my wifebhstewie said:
hstewie said:mikey_b said:
Wouldn't the provider send you that information in an annual statement of some sort?
Not that I've ever seen and if you're doing a monthly buy of ACC units in an unwrapped account good luck working out how much dividend income you've received bundled in those ACC units - it's a nightmare mikey_b said:
Yeah, that must be annoying if they can’t/won’t tell you. ‘Thankfully’ I don’t have enough spare cash to need to do these things outside an ISA or pension wrapper.
First world problem I know but yeah it's painful. You end up either using INC units and trying to either minimise dividend income or just deal with it and also ideally buy something you intend to hold onto for a very long time so you're delaying any CGT related shenanigans.Of course some people will advocate trying to use your annual allowance - I'm probably a bit lazy on that front especially now it's so low
Mogul said:
You could buy some short-dated Gilts as your modest return will be mostly capital in nature (if you hold to maturity)…
Gilts are CGT-exempt, although the interest ypu receive from the coupon is taxable like any other interest income.Short-dated, low coupon gilts (e.g. TN25, TG25) are a key element of my “Let’s f
k Labour by avoiding as much tax as possible” strategy.xeny said:
Mogul said:
The CGT allowance is now ‘so small’, it’s increasingly ‘not worth’ trying to optimise it.
Isn't the counter argument that the CGT rate is now high enough it is worth doing everything possible to optimise it?bhstewie said:
hstewie said: I don't get why more people don't use low coupon gilts where the date to maturity meets their needs.
Seems an absolute no-brainer.
Reason 1: Ignorance. I bet at least 8 out of ten cats don’t know about the Gilts CGT exemption.Seems an absolute no-brainer.
Reason 2: Inertia and/or laziness. I’ve known about the exemption for years but I was always too lazy to move my savings out of regular fixed term deposits into a broker where I could buy Gilts.
However, the urge to f
k Labour by reducing the amount of tax I pay to as little as (legally) possible is a strong motivation. 
Puzzles said:
The problem is the allowance is so small it would take decades, it’s not practical.
CGT allowance is £3K. CGT is 24%. I can manage an annual sell order and subsequent buy order in perhaps 10 minutes including logging in and MFA. That's an effective hourly rate of £4320. Seems crazy not to do it, especially if you do any form of annual portfolio rebalancing already.
mikey_b said:
Wouldn't the provider send you that information in an annual statement of some sort?
Yes, they would.The manager of a "growth" fund is likely to have a strategy that suppresses income on favour of capital gains so I see those funds as particularly suitable for Acc investment.
Where you are invested in something that receives and reinvests dividends internally you receive no cash but will find income that's liable to Income Tax reported on your annual statement. (Until relatively recently there would have been a tax credit as well.)
How does this differ from being in an income fund with dividends automatically reinvested? In the Acc fund the number of units you hold won't change, but the number you hold will change in an income fund with dividends reinvested.
Switching from Inc to Acc units (or vice versa) of the same fund may involve sale of one and purchase of the other but that does NOT count as a "Disposal" for CGT purposes. Your previous base cost just transfers over. The same applies where funds are merged or where you switch to a different "class" with, say, lower charges.
None of this matters if the investment is inside a wrapper such as ISA or SIPP.
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