JamesFrance
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Post by JamesFrance on Feb 16, 2014 8:20:45 GMT
I also hold shares in one FT100 company with an IRR of just under 15%, not very sensible I know, but I am reluctant to sell and trigger a large CGT liability and I do have confidence in the direction in which the company is going. If your holding is more than you really want to have, you don't have to sell it all at once. And if you haven't already used up your £10+k tax-free CG allowance you can sell some in the next six weeks to use that and avoid the CG Tax on that sale. I live in France and there is no such arrangement there. There is some reduction for years invested, but the gain is 90% of present value and the French taxes are excessive. I did what you suggested in the past and the holding is only a quarter of what I started with.
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Post by oldnick on Feb 16, 2014 8:53:18 GMT
James, you used the term internal rate of return and its acronym IRR. Can you construct a simplified definition of it for the glossary? Having looked up two sources I'm not sure I'm any the wiser -not being an accountant or student of economics.
Thanks, Nick
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JamesFrance
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Port Grimaud 1974
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Post by JamesFrance on Feb 16, 2014 9:57:24 GMT
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Post by oldnick on Feb 16, 2014 11:13:18 GMT
Thanks James, to me the nitty-gritty of it still reads like the rules of Mornington Crescent.  What I take away from it is that dividends + capital growth per annum = IRR, and the higher the IRR the better?
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JamesFrance
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Post by JamesFrance on Feb 16, 2014 11:30:17 GMT
Yes it seems to give you the average annual return you get from different types of investment, so that a direct comparison with a simple interest paying account is possible.
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oldgrumpy
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Post by oldgrumpy on Feb 20, 2014 9:24:18 GMT
The stock market seems too high to buy an ISA currently. Should I wait (maybe) until the FTSE falls back to about 6500, then is an income ISA which is based on company dividends a good idea (I don't need to rely on capital growth at my antiquity!!)?
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JamesFrance
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Port Grimaud 1974
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Post by JamesFrance on Feb 20, 2014 9:53:07 GMT
One of the greatest advantages of an equity income investment trust for anyone wanting to take the income, is that they tend to increase the dividend each year. The manager is forced to dispose of under performing investments where the dividend in suspect, so I believe the growth potential is also good. Here is a graph showing the dividends for one of my holdings: www.templebarinvestments.co.uk/dividends |
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oldgrumpy
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Post by oldgrumpy on Feb 20, 2014 10:19:29 GMT
Thank you James. That is a good one! I will have the choice of paying slightly higher management costs for an ISA or paying 20% tax on an investment trust income, so it'll have to be the unit trust route. (I'm fully open to advice on all this).
edit: on second thoughts, I could dump all my Zopa and buy some investment trust units too....
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Post by davee39 on Feb 20, 2014 11:18:16 GMT
Thank you James. That is a good one! I will have the choice of paying slightly higher management costs for an ISA or paying 20% tax on an investment trust income, so it'll have to be the unit trust route. (I'm fully open to advice on all this). edit: on second thoughts, I could dump all my Zopa and buy some investment trust units too.... I am open to correction - as I understand it there is a 10% tax charge already paid by unit trusts and investment trusts. There is no income tax saving on this charge for Basic Rate taxpayers through holding an ISA - the only benefit is protection from Capital Gains Tax. Higher Rate taxpayers can claim the tax back (and will probably pay fees to the ISA provider higher than the tax reclaim is worth!). You can hold investment trusts in an ISA (fees will be charged), the fund supermarkets used to push Unit Trusts due to the high commissions rebated. Under new rules Unit Trusts will not be allowed to pay commission so the marketplace will be levelled out. There is a big difference between Unit Trusts and Investment Trusts - Unit trusts will always be valued at the value of the shares they hold. Investment trusts can be valued at a discount or a premium. This discount means you buy more 'underlying value' and potentially more income, but it can vary increasing the risk of capital loss.
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oldgrumpy
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Post by oldgrumpy on Feb 20, 2014 11:44:59 GMT
So, are those income ISAs not worth having as a 20% taxpayer? Should I buy into straightforward investment trusts for this kind of income return? Sorry if I seem dim on the merits of each?
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Post by davee39 on Feb 20, 2014 12:40:39 GMT
A basic rate taxpayer gets no income tax benefit from an ISA, There is Capital Gains tax relief anyway for a large chunk of gains, so I see little benefit in ISA's for most people. I currently hold a spread of Income Unit trusts and Bond funds through a fund supermarket. The shares pay about 3.5%, the high yield bonds about 4.75%. I have previously held Investment Trusts purchased through the providers savings schemes. You need to research the market, and the fund supermarkets, but you may well be better off avoiding the ISA fee. Just to complicate things I believe Bonds held within an ISA can have income tax reclaimed but I have never investigated this.
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jimbo
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Post by jimbo on Feb 20, 2014 12:58:35 GMT
I can't agree. Investment ISAs completely eliminate capital gains tax. They are possibly THE best tax break going in the UK...
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pikestaff
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Post by pikestaff on Feb 20, 2014 15:15:45 GMT
Unless you expect to pay tax on capital gains, or are a higher rate taxpayer, there is no tax advantage to holding stocks and shares in an ISA. Most individuals do not need to worry about tax on capital gains, because of the tax free annual allowance. For 2013/14 this is £10,900. Having said that, using an ISA means you do not have to worry about timing your disposals to make the best use of your allowance. My personal view is it is worthwhile for even a basic rate taxpayer to have a stocks and shares ISA provided you choose one with no fee. I use TD Direct, which is fee free provided you maintain a balance above £5,100. Their dealing fees are pretty reasonable and they are currently offering a £100 cashback for new accounts: www.tddirectinvesting.co.uk/choose-an-account/trading-isa/As to what to hold inside your ISA, I go for investment trusts over unit trusts, because the fees are lower, and also like ETFs because they are cheaper still. I go for income funds / stocks because they tend to be less volatile than growth funds / stocks and have historically shown better long run performance. E&OE, DYOR etc... |
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JamesFrance
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Post by JamesFrance on Feb 20, 2014 16:59:55 GMT
I had several years of peps which came before isas. I bought them as the dividend income was tax free, however Brown changed that when he had to introduce his own isa. Quite unforgiveable to move the goalposts for existing arrangements where the tax relief covered the charges, so never trust a politician. The difference between unit trusts and investment trusts are mainly that investment trust issue shares which will trade at a discount or premium as already mentioned. They normally have much lower charges, are allowed to borrow to increase returns and do not have to liquidate their portfolio if large withdrawals take place during a falling market. They also usually retain some dividend income in good years to maintain their own dividends when times are hard. For these reasons I believe they are a better bet for a long term investor looking for reliable income, rather than unit trusts. You do need to consider the value if they are trading at a premium when you want to buy and maybe choose one not so popular giving a discount but having similar underlying holdings. All this is merely a personal opinion and others may well disagree. I have no professional experience. For isas bond funds have income tax advantages as interest payments are tax free. I find Trustnet newsletters and articles quite helpful. www.trustnet.com/ |
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mikes1531
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Post by mikes1531 on Feb 20, 2014 19:44:10 GMT
A basic rate taxpayer gets no income tax benefit from an ISA... I'm no expert, but I believe the above is true only where the income results from dividends. As jamesfrance has stated in the previous message, if the income is derived from interest then there is a tax benefit.
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