They say you shouldn’t let the tax tail wag the investment dog, but I would beg to differ in the, er, dog days of the £12300 CGT allowance. It’s probably more important in future as this allowance drops to £3k in a couple of years. Why is this?
First, if you are using your ISA, as I am, then no worries in that particular area. If you aren’t, then Monevator would like to know why the bloody hell not? Only hold investements in an ISA on pension? Stand at ease, as you were.
However, I have concluded that as I can live off my pension then it’s a little bit mad to retain the three years equivalent salary in cash-like savings that was there to prevent me becoming a forced seller into a down market when I was living off savings and then SIPP income with some earnings. The emergency didn’t come, and in Covid that savings crept up to about 5 years, what with spending less, earning a little more. Along with some luck and Covid shorting, so I have unwrapped holdings in a GIA as well as wrapped ISA holdings. It is the holdings in the GIA that exercise me here.
I decided to give the gold holdings the order of the boot from the ISA, gradually selling them in the ISA, buying some equities in there with the proceeds, mainly VWRL, but at the same time as I sold gold in the ISA I bought that much and a little more in the GIA with some of the cash savings. Gold has had a decent run of late, sufficient that I sold all my SGLP to crystallise about 6k in CGT, to buy SGLN. Slightly over 30 days later I look at the SGLN and observe there’s another 5k in capital gain up for grabs, so I flog that and buy SGLP back. I also collected a profit of £2.7k in BP, which I have decided to get out of now, and find I have gone somewhat OTT on capital gains for this year. Never mind, I am prepared to eat a £500 loss in SMT and a £1k loss on LGEN. LGEN is softened by the £500 dividend paid, but I did time it wrong, never mind. The trend towards a tax free dividend allowance of £500 shows that having a GIA containing dividend payers is not such a good idea in future, but that’s another story.
I liquidated a few minor gains1 to get as close to the £12300 CGT for this year but just under. Obviously I get to eat the spread in the turn, I am not so sure I can get so excited about the £5 dealing fee in a seven figure total, but the turn is about 10 to 20 pips, and may be wider on actually doing it rather than a soft quote, which is getting on for at least 200 sods, so you don’t want to spin this wheel too often. OTOH the putative CGT saved is 10% of £12300, which is worth getting out of bed for.
Now assuming that the banks really are strong and resilient as they keep telling us, despite SVB, First Republic, Credit Suissethen it’ll all come good. Probably will come good in a couple of years either way. In that scenario I expect that gold to tank, compared to my last purchase price and go down, by about 10k, less some sort of inflation, as equities increase. But in that case, the embodied capital loss is then able to be offset against any gains, so selling it and rebuying now gives me optionality in future. The gold is there as diversification, I don’t want to off it, so the recent gain is purely notional. What the market giveth with one hand, it taketh away with t’other in its own good time. Of course if I knew that ZIRP was going to return again and money would be there for free I would maybe hold off, but you never know. One day the GFC will have to be paid for…
There’s an asymmetry with capital gains, in that losses can be rolled forward for future use, but gains have to be used in the year. This year’s gain was particularly valuable, because it’s more than it will be in future – 6k next year, three after that. A GIA will be much less valuable in future – in a typical scenario of 7% average annual returns (assuming inflation of 2% as it used to be, hahahaha) a £12300 allowance lets you hold £175k before running into CGT on average. In the end scenario of £3k you get to hold about 42k before running into CGT. And, of course, inflation is 10%, though they all say that isn’t going to carry on. We shall see about that.
I will naturally use the £20k ISA allowance coming up, and perhaps the one after that if it’s on offer. After that, well, who knows.
Britain is a poor society with some very rich people in it.
It’s hard to see Keir Starmer weeping too many salty tears about capitalist running-dogs like FI/RE sorts, because as that fellow from the FT said, Britain is a poor society with some very rich people in it. The Atlantic summed it up better in How the UK became One of the poorest Countries in Western Europe
Britain chose finance over industry, austerity over investment, and a closed economy over openness to the world.
There’s a Panorama programme on how the accident happened, although they stop short of asking why it happened 2
the BBC’s Analysis Editor Ros Atkins asks why so many people are feeling so poor.
A: it’s because they are poor, seems to be the conclusion.
And if you think this view is a particularly a lefty wonkery worldview then let’s hear it from the Torygraph – Britain is a poor country pretending to be rich. In particular that fellow wants a word in the shell-like of all you workshy middle aged FI/RE shirkers. So that’ll learn ya.
We have actually seen this movie before, well, those of us of advanced years have. When was that? Way back when, in the early 1970s my German grandmother cam to visit us in London. She was gobsmacked by the number of old bangers on the road then, you could almost see the thought bubble “But I though Britain won the war, what’s up with that”.
I think that sentiment was voiced over a bottle of wine that she had brought with her. Seriously, the 1970s were a terrible time Britain for quality in wine as well as cars, the stuff people drank was revolting. Even Blue Nun is probably better now. My grandmother wouldn’t have tolerated that in the house, never mind brought it over with her own fair hand.
Wonder what else happened around that time, when Britain was known as the sick man of Europe. Ah well, correlation is not causation, so that’s all right then. Like with the banks. Move along now. Nothing to see here at all. Britain is rich enough to laugh off a 4% hit in GDP as a mere trifle.
In particular, since ISAs are a key tool to enable the under 50’s to speed up their retirement then I wonder what the direction of travel will be in a few years’ time?
In the meantime use it or lose it – both your ISA allowance and should you be so fortunate as to have the need and the capability, your CGT allowance!
- I was hoping to have enough GIA investment income to defray the increase in power bill but the Buzzard has shat on this idea somewhat with the upcoming £500 tax-free limit on dividends. Though if you are going to pay tax on income dividend income beats earning it or indeed pension income, as dividends are taxed at 8.75% for the lower orders. I was more generally so wrong with that post in its anticipated effect on me :( ↩
- It seems to be regarded infra dig for the current government to find the BBC asking ‘how did the government fuck this [insert specific aspect of British life] up.’, although asking that specific question used to be the point of the fourth Estate. ↩