Yippee! Share prices have slid more than about 10% from their peak at the end of May. On the surface, that doesn’t sound like good news. But for canny skinted and minted mums, it’s an opportunity to max out your tax-perk savings schemes eg Isas and pensions.
I haven’t got any new money to put into my Isa this year. It’s a £20,000 allowance (must be used by April 2019) which is a shame to pass on. I do however have some shares outside of any tax shelter. I’ve decided to shove them into my Isa for this year. They are worth less than they were in May but that’s no bad thing. It means I can get more of them into this year’s allowance than I could when they were valued more highly.
There’s always a cloud in every silver lining and here’s the downside. Annoyingly, a simple transfer into the Isa is not allowed. I have to sell the shares and then immediately buy them back, a process called ‘Bed & Isa’. This unfortunately triggers capital gains tax if you’ve make more money on them than the annual allowance (this year £11,700).
I got caught in this trap – nice problem to have – and have had to split the process over two years to avoid paying CGT. But then if you’re selling when your holdings are worth less, your gains will be less and there will be less tax to pay.
Now all I need to do is wait for the market to go back up. When it (normally) does, all my lovely gains will be free of further income or capital gains tax. That’s why it’s so important to use your tax-free allowances every year. Over time, those investments, which may be small when you start, can really add up. Even if you’re nervous about shares, at least get as much cash into the Isa as you can to fulfil your allowance. You're allowed to shift cash into shares within the Isa later, or of course the other way around.
As a non-taxpayer, I’ve also got a limit of up to £2,880 which I can tuck into a self-invested personal pension (Sipp). The government will top it up to £3,600. I’ve got some other bits of investment funds washing around so I’ve tidied them into my Sipp allowance via a Bed & Sipp deal – similar to Bed & Isa outlined above. I’m feeling like this photo: a free £720 from the government and getting more of my money under a tax umbrella than I could in May.
I used the online Bed & Isa and Bed & Sipp schemes at Hargreaves Lansdown but many others have a similar service such as Bestinvest and Fidelity*.
See our SMM guide to Isas for beginners here.