ISA and Tax newbie questions

[wmwmwm]

Hi, I’m a complete and utter newbie when it comes to investing and have a few questions most will find completely stupid and probably convince you I have no business here, but I’d really appreciate the help.

Firstly, if I open an ISA with Freetrade but already own some shares prior, is it too late to benefit from the ISA with them? That is, do they need to be bought from money in the Freetrade ISA, assuming that’s possible, to have any profits from selling return there and become tax free up the stated amount or can the money be moved from my account with Freetrade generally after the fact?

Secondly, do I still need to declare the money in that account assuming it exceeds the capital gains tax free allowance? Does it still become taxable in the event that I withdraw it from the ISA to actually use the money elsewhere?

Thirdly, if I make a profit at any point of a few thousand say but I reinvest it all back in, to the point I have less cash than I started with but some additional stocks, am I still expected to declare that extra money I pulled out despite it all going back in and I’m not at all materially any richer? I could lose it all on the next trade after all.

Finally, how do I pay tax on any gains made from US stocks? Do I need to find or order a specific form to do so or is there a section on the regular tax forms I should look for? Does capital gains tax free allowance apply here too assuming all money is made from US stocks alone?

Sorry for the extremely dumb questions I’ve just never dealt with anything like this before. Tax was basically automatically deducted from all previous jobs. Thanks in advanced to any who read this and might clear it up for me.

[AdamL (Adam)]

The totally NOT complicated investment tax post

[image] Last update: 10th April 2019 “Tax doesn’t have to be taxing.” So says everyone’s favourite advert from HMRC. Well, it doesn’t have to be, but they’re making a good go of ensuring that it is. Contrary to their claim, tax is a complex subject. However, there are a number of factors that make tax on stock market investments a bit more simple and much less burdensome than other types of tax. This is great: we generally like to simplify and clear up information asymmetry as…

[FailedTuringTest]

Shares within the ISA have to be bought with cash money that has been deposited into the ISA. So you can’t directly move your current shares into your new ISA, but you can sell your shares, deposit money into the ISA, and then buy shares within the ISA.

Once money has entered the ISA, whatever you do with it, and whatever profits you make from the investments inside the ISA, it’s all tax-free and you do not have to report anything about it. You also do not pay any tax on money that you withdraw from the ISA.

For US stocks, if you’re not a US citizen and not resident for tax purposes in the USA (i.e. if you’re not already required to file a tax return in the USA), then there’s nothing you need to do. You will only pay tax to the country where you are resident for tax purposes, which I’ll assume is only the UK. The US government does take a bite out of dividends paid by a US company, but they deduct that before the dividends ever reach you, and you won’t even notice anything is missing. On your UK tax return there are boxes for UK source and foreign source income, and you have to declare income in the right places, but not if it’s all sheltered within your ISA.

Try this MoneySavingExpert guide to ISAs for a relatively painless introduction:

What type of ISA should I get?

[Vlad (Vladislav Kozub)]

@wmwmwm

Secondly, do I still need to declare the money in that account assuming it exceeds the capital gains tax free allowance?

Money itself cannot exceed the allowance. If you, say, acquired shares for £100,000 and sold for £152,300, you will have a capital gain of £52,300. Deduct your allowance and you end up with a gain of £40,000 chargeable to tax. It does not matter if the cash is still held in your account, the chargeable event is the disposal itself. Once disposed of, you have until 31 January following the end of the tax year to report the gain and pay the tax. If the disposal was between 6 April 2020 and 5 April 2021, the deadline to file is therefore 31 January 2022.

If however, the question refers to “money” in an ISA, then forget the above, there is no tax consideration whatsoever.

@wmwmwm

Does it still become taxable in the event that I withdraw it from the ISA to actually use the money elsewhere?

If you sell at a profit and withdraw cash from your ISA - there is no tax due. If you then make other acquisitions outside ISA and make a profit on those - then this profit is taxable.

@wmwmwm

Thirdly, if I make a profit at any point of a few thousand say but I reinvest it all back in, to the point I have less cash than I started with but some additional stocks, am I still expected to declare that extra money I pulled out despite it all going back in and I’m not at all materially any richer?

Shares are assets as good as cash and therefore you are materially richer if you make a profit. If by “money pulled out” you mean gains (proceeds less cost of acquisition) on non-ISA securities in excess of the annual exempt amount of £12,300, then yes, this will be taxable, and therefore reportable.

@wmwmwm

I could lose it all on the next trade after all.

You could, and if you do, you can report your losses to HMRC. These will be carried forward indefinitely and you could reduce future gains by these losses so that the overall position is neutral.

@wmwmwm

Finally, how do I pay tax on any gains made from US stocks? Do I need to find or order a specific form to do so or is there a section on the regular tax forms I should look for? Does capital gains tax free allowance apply here too assuming all money is made from US stocks alone?

@FailedTuringTest covered the income point, but in terms of gains, the treatment is identical to UK stocks - if these disposals are outside of ISA and are in excess of AEA, these must be reported on capital gains pages of your tax return.

[rohitys]

@Vlad great detailed explanation. I have a different question

I currently have a S&S isa with T212 for the tax year 20/21 but I don’t intend to continue with them. I want to open a new S&S isa with Freetrade for tax year 21/22 my question is can I still actively manage the stocks I have with T212 i.e. sell any of the existing shares I have and if I made profits from the sale buy new shares of a different company. I won’t be making any fresh deposits into my T212 and the only money I will be depositing for the tax year 21/22 is into my Freetrade S&S isa

Is this allowed?

[FailedTuringTest]

Yes, that is allowed. You can operate as many stocks and shares ISAs as you want (trade stocks within them and withdraw money from them), but you can only contribute new cash to one in any tax year.

[rohitys]

Thanks for clarifying, appreciate it