GIA or ISA

First Time Investing šŸ£
1

Hello to anyone that decides to read this page.

Iā€™ve got a pretty basic question and wanted to know what your thoughts were.

Iā€™ve just started investing with FT (back in the end of December 2020) and opened a GIA accountā€¦Iā€™ve currently only put in around Ā£350.

My question to you is, should I look at taking out an ISA account? My investing plan is very much long-term (30+ years) as I want to look at having another pot for when I eventually retire (Iā€™m 25 currently for a reference point). After looking into the tax side of it more and more, Iā€™m thinking that opening an ISA will be better and easier for me in the long-run.

Any help on this would be great, thanks!

2

For long-term ease and simplicity with tax yea an ISA is the best option imo. I originally started a GIA but realised it would just be easier to have everything in an ISA collectively rather than worrying about capital gains tax down the road as my investments and portfolio grew.

You might not have much in there now but long-term your portfolio will grow and you donā€™t really want to have to worry about CGT and moving investments from GIA to the ISA can be a bit of a pain.

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3

Presuming you donā€™t have any other capital gains outside of shares, there is no need to open an ISA.

Keep topping up your GIA and look at it again in a few years, or when your capital gains are in the Ā£1000s.

Good luck :+1:

4

PLEASE get an ISA. My god, do I regret starting out with a GIA.

Iā€™m having to selling all of my shares (60+ different types) then wait for the cash to settle, then withdraw the funds and then buy everything again in my ISA. Itā€™s a HUGE hassle.

If youā€™re investing long term, you will inevitably be adding funds every so often and diversifying your portfolio. If thereā€™s one thing Iā€™ve learnt from the past couple of weeks is that anything can happen. Better to be prepared than have the tax man chase you later on.

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5

With a portfolio of Ā£350, Ā£36 a year is 10%.

So if Josh makes 9% a year, which is a good return for most people, heā€™s lost money.

Just let your portfolio grow for a bit first. An ISA is definitely a must in the future, but itā€™s too early now.

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6

Thanks for your tips guys. Iā€™m going to keep adding in Ā£150-Ā£250pm into an account each month for the foreseeable future (with aims to increase that as my income improves) so I think I will look into an ISA.

Another questions I have, as FT charge Ā£3pm for an ISA account, how do they charge this amount? Is it like a direct debit? Or is it taken out from the money youā€™ve deposited into the ISA?

7

Itā€™s taken from your debit card.

Since everyone is entitled to over Ā£10k capital gains tax, not knowing your personal circumstances I wouldnā€™t think an ISA would make a whole lot of sense just yet (given the amount and monthly cost)

Iā€™d probably wait until Iā€™ve built up close to my capital gains tax allowance, then make the switch over, but that depends if you wanted to use your CGT allowance for something else (as switching over to ISA I think youā€™d have to sell to transfer).

8

Ok and apologies for this next question as Iā€™m still very much new to this whole investing thing.

When you say everyone is allowed up to Ā£10k capital gains, does that mean that you are allowed up to Ā£10k profit on your account before you pay tax? e.g. if I have an account with Ā£100k in it and it makes Ā£11k profit, would I then have to pay tax on the Ā£1k thatā€™s over the Ā£10k limit?

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9

Yeah in theory. Although the capital gains tax allowance is actually Ā£12,300 (Capital Gains Tax: what you pay it on, rates and allowances: Capital Gains Tax allowances - GOV.UK).

My understanding is itā€™s only a taxable event when you sell/realise profit. Others may be able to help more, short of getting proper financial advice.

After youā€™ve made more than your capital gains tax allowance in a tax year, the tax will depend on your status and what it is youā€™re selling, but for shares itā€™ll be roughly 20% (Capital Gains Tax: what you pay it on, rates and allowances: Capital Gains Tax rates - GOV.UK).

This is obviously for informational purposes/my understanding. Iā€™m no expert.

10

Just to clarify, itā€™s not profit on your Freetrade account per se. Itā€™s any gains you make on any assets, anywhere.

"Capital Gains Tax is a tax on the profit when you sell (or ā€˜dispose ofā€™) something (an ā€˜assetā€™) thatā€™s increased in value.

Itā€™s the gain you make thatā€™s taxed, not the amount of money you receive."

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11

Ok, great. Thanks for clarifying that for me! :grinning:

12

No right or wrong answer here but bear in mind:

Ā£200/month over 3 years = Ā£7200
( conservative ) growth of 10% overall = Ā£8000

To sell / buy in ISA at approx 0.5% spread = Ā£40
For this example say 50% of portfolio non UK so FX sell / buy at 0.9% on Ā£4000 = Ā£36

So Ā£76 total against ISA charges in that period of Ā£108.

( as ever tax rules can change so the CGT / ISA landscape could differ by 2024 )

13

Also might be worth bearing in mind that when you come to convert from GIA to ISA, you will not be able to transfer your investments over, you will need to sell them all, transfer the cash and then buy up all your investments again.

So you might have to consider if you can be bothered doing that in X yearsā€™ time when you might have many stocks in your portfolio.

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15

ISA is the main one because of the tax breaks and wrapper it is in anything you make or gain is safe and protected no matter what !!!
There is a limit though for each year the amount you can put inā€¦

GIA account for back up and if you do get an ISA Buy the same shares as in you GIA account so you donā€™t have to sell them off in the end after all the profit it may make.

SIPP is next on my radar with Freetrade :ok_hand: :ok_hand: