How does ISA work? Let’s say I invest some money under ISA wrapper part, or even let’s say for the sake of argument max allowed contribution. What happens when I sell the shares- is the money still in ISA? Can I use proceeds to buy other shares (and they will be in ISA), or the new shares will be taxed after sale? Do I have to pay taxes if the profit exceeds max allowed contribution? Or is ISA more like buy and hold thing- buy company ABC and hold forever? In another words can you trade shares in ISA? Day trade it? Is it possible then to have in ISA more than allowed annual contribution(capital gains from selling shares and dividends)?
This thread might help answer some of what you’re asking
Shares in an ISA are tax-free - capital gains does not apply.
You can buy and sell shares in an ISA as much as you want without incurring any taxes and you can invest up to £20k a tax year as long as you don’t transfer the money out of the ISA (i.e. back into your bank)
I think you can open a stocks and shares ISA and a Cash ISA in the same tax year (check this) but you can’t exceed £20k in total in a tax year
The £20,000 yearly ISA contribution limit is across all ISA types. But, once you have deposited the money it is free to grow. You can buy and sell as much as you wish and will not pay Capital Gains Tax on proceeds. Your CGT tax allowance is also separate. Though, you will still pay Stamp Duty and US dividends will still be taxed at source (both are done automatically).
As @GoodA said, you can open multiple ISA types (S&S ISA, cash ISA, LISA, Innovative Finance ISA) in the same tax year, as long as your total contributions don’t go over £20,000. You can also have multiple of the same type of ISA as long as you only contribute to one per tax year.
On your last sentence re multiples of the same ISA type but only contributing to one per tax year.
For simplicity let’s call my current Freetrade ISA, ISA 20/21. Next April I open ISA 21/22 and start paying into that monthly in place in place of ISA 20/21 - I now have two ISAs with shares, ETFs etc in them. I can still deal within ISA 20/21 after I open 21/22 as long as I don’t deposit more cash into it. If I want to re-balance my portfolio from time to time, do I need to “log into” (and out of), for want of a better term, both ISAs in order to carry out the re-balancing?
In this example it’s obviously not such a big undertaking, but if one invests for 30 years and opens an ISA each tax year, do you then need to keep track of 30 separate portfolios? I can’t envisage how the separate ISAs could be combined without blurring the lines, but surely somebody cleverer than me has thought of this before and tried to come up with a solution!
If the ISAs for each year are invested with Freetrade they will be deposited into the original single account.
( Open up a ISA with a different provider each year and you will have multiple accounts in that scenario )
As I understand with regular account (not necessary Freetrade, but any trading account) capital gains can be offset with capital losses- for example gain of let’s say £1000 by selling ABC can be offset by loss from selling XYZ let’s say if it was also £1000 loss. What about ISA? If gains are not taxed, can you deduct loses?
Not every investment turns out great, sometimes there are loses too…
Thanks for clarifying.
No you are not able to offset losses as there is no tax applicable on ISAs.
As I understand the first £12300 of capital gains is tax free for tax year 2020/21 for non ISA gains? So is this on top of standard Personal Allowance of £12500 from employment?
If I understand correctly, in hypothetical example scenario when someone makes £12500 per year in employment and £12300 capital gains on selling stock the person will not pay taxes? Or the person will have to pay capital gains from £12300?
Sorry, newbie here…
No you are spot on.
So carrying forward the hypothetical example- on top of that if someone would earn £2000 dividends, the person would pay no tax?
Well at this point it seems ISA is not necessary for my personal circumstances…
Unless of course there will be some sort of unicorns like TSLA in my portfolio or some sort of lucky bet on biotech that would go from penny stock to triple digit stock… But in this case I would gladly share with the tax man…
Thanks, for clarifying!
This topic was automatically closed 91 days after the last reply. New replies are no longer allowed.