Shall I invest in another Vanguard LifeStrategy in a GIA or are the tax complexities too great?
07 July 2021
Question by Richard
I’m 65 and have recently inherited a significant amount of money, some of which I have transferred to cash savings accounts. I have also been saving into a Vanguard LifeStrategy 60 ISA and have used up my £20k allowance for this year.I am now trying to decide whether to invest some of my cash savings in another Vanguard LifeStrategy fund within a General Investment Account. However I’m concerned about the future payment of income, dividend and capital gains taxes. Am I right to be cautious about the tax complexities, or is this not a good reason to avoid this type of investment?
Answered by Rachel Efetha
Thanks for your question. Unless you have a plan to spend the money in the next five years, I would normally recommend that you invest it (as I don't know your full circumstances, I've used the word 'normally' rather than 'definitely'). Isn't it better to have a profit and pay some tax on it, than have a paltry 0.25% return from cash that doesn't attract tax?
However, there are other implications to look at when deciding whether a GIA is the right vehicle for you. Are you still working? If so, you can maximise your pension allowance and pay a lump sum to receive tax relief and shelter from income tax and capital gains tax (CGT). If you're not working, you can still invest £3,600 (£2,880 before tax relief) into a pension. Whilst it might not seem much for one year, over the next 10 years you'll build up quite a sum.
If you opt for a GIA, you can do a 'Bed & ISA' each year to use subsequent years ISA allowances and also use the GIA to feed your pension if you decide to go that route. However, if your Inheritance is over five years worth of ISA/ Pension allowances you might want to consider an Investment Bond for the excess as these are generally more tax efficient than a GIA as the fund pays 16% tax, rather than you paying your marginal rate.
What is your Inheritance Tax (IHT) position and do you think that you will spend your entire Inheritance in your lifetime? If you have an IHT problem yourself and you're unlikely to spend all the money, you could look at executing a Deed of Variation which will rewrite the Will as if the person themselves had written it in a different way to place some or all of the money in a discretionary trust for the benefit of yourself and others, so that you have access to it if you need it, but it never forms part of your estate and therefore IHT isn't due on your death.
As you can see, it's not a simple question as there are so many issues to consider. Please do contact me, or any of the other advisers on this website for some further advice.
Chartered Financial Designer
Rachel has nearly 30 years’ experience in Financial Services, with the last 21 years advising clients. She advises on a holistic basis but particularly enjoys Cashflow Planning to see when her clients can afford to retire, and has reduced grown men to tears twice by telling them they could afford to resign right now. As a divorcee herself, Rachel loves coaching women going through divorce to take financial control, and has successfully argued with solicitors to gain her clients a much bigger slice of the pension pie.