If you have used your ISA allowance is a GIA account a good idea?
28 July 2021
Question by Mark
Hi if you have used your ISA allowance is a GIA account a good idea?
Answered by Boring Money
The short answer is “it depends”. The main factors it depends on come down to your age, your goals for whatever you’re trying to save, how much you earn, what other assets you have, how much risk you want to take, as well as what other investments or products you have. If you’re looking to save for retirement a pension might make more sense given the tax relief you get on contributions (up to 45% depending on your earnings). Onshore and offshore bonds are another vehicle that people can use to save and invest in, but there are pros and cons of these, so they’re not an automatic default alternative option.
GIAs do not directly benefit from any special tax reliefs or exemptions, unlike pensions, ISAs and investment bonds. They’re not technically ‘tax wrappers’ for this reason, however they are often referred to in this way because you can still offset your annual Dividend Allowance, Personal Savings Allowance and Capital Gains Tax allowances against any income or gains arising within a GIA, where available, each tax year. The amount of tax that you pay on your investment income and gains depends on how much other income and gains you receive each tax year. Investment income, for example, is added on top of any ‘earned’ income you receive (e.g. from employment or pensions) and taxed at whatever rate of Income Tax applies to that level of income. In addition to your main Personal Allowance (currently £12,570) you can receive up to £2,000 of dividend income each year before you have to pay any Income Tax on it. This is called the Dividend Allowance. You can also receive up to £1,000 of savings interest each year (e.g. from your cash savings or from fixed interest payments arising on corporate bonds and gilts) before you have to pay any Income Tax. This is known as the Personal Savings Allowance. If you are a higher rate (40%) taxpayer, this allowance is reduced to £500. If you’re an additional rate (45%) taxpayer, you don’t receive this allowance at all. Each year you can bank gains on your investments (e.g. when you sell them, in part or in full) of up to £12,300 before you have to pay any Capital Gains Tax.
I hope this has helped, but if you want more information then please do get in touch.