The introduction of the personal savings and dividend allowance was welcome relief following the announcement that dividend income within the basic rate band would attract a 7.5% income tax charge. However, ISAs still remain a useful tool for mitigating your personal tax exposure.
The interest or dividends received within your ISA wrapper are free from income tax and do not need to be reported to HMRC. In addition, any growth in the value of stocks and shares held within an ISA, are not subject to capital gains tax.
Since you are unable to transfer existing shareholdings into a stocks and shares ISA, careful planning is required. Bed & ISA refers to the situation where individuals sell their existing holdings, moving the cash proceeds into the ISA wrapper, to repurchase the shareholdings they have just sold. On disposal of the original shareholdings, a capital gain can arise.
Individuals are entitled to an annual exemption, currently £11,300, with any gains falling below this value being free from capital gains tax. The ISA limit for 2017/18 is £20,000, therefore if you have large unrealised gains on your existing shareholdings, or if you make other disposals during the year, you could exceed your annual exemption resulting in unexpected tax liabilities.
If you are thinking of transferring existing shares into an ISA or would like to talk to us generally about capital gains tax, please get in touch.
For information of users: This material is published for the information of clients. It provides only an overview of the regulations in force at the date of publication, and no action should be taken without consulting the detailed legislation or seeking professional advice. Therefore no responsibility for loss occasioned by any person acting or refraining from action as a result of the material can be accepted by the authors or the firm