Will I be taxed as dividend income in a GIA?

28 July 2021

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Question by Charlotte

I'm considering a GIA - I can find information to indicate there is a tax liability on income, which I think will be classed as a divided income on the basis of the ratio of equities. I can find info in a fund sheet detailing dividends but then what would the calculation be to work out what tax I would owe - I'm assuming this is used instead of fund value on the basis this is volatile??

There is a £2K Allowance every year for dividends and then slightly lower tax rates on 'income' above this (vs. income tax rates) but I'm also unclear if the tax is liable if I don't make a withdrawal? You'd think this would be easy to find but HMRC and all other sites are really vague!! Also, if you move funds as a transfer (rather than a new contribution) what tax liabilities are there if you've accounted for a dividend income on that pot previously?


Answered by James Mallinson

Hi Charlotte,

Historically, investors would have bought collective investment funds from a variety of different investment houses, each with its own set of paperwork, different fund ranges to choose from and valuation dates. This makes it quite hard to get an overall view of your investments in one place and at one point in time. In recent years, some investment houses and investment administration companies have launched platforms, also known as wrap accounts. These are like a fund ‘supermarket’ whereby you can invest in a wide range of collective funds (and often direct stocks and shares) through a single, online, investment account. Through these platforms, any investments that are bought either directly or through a collective investment fund are held in a General Investment Account (GIA). This makes it easy to monitor and review your investments, buy, sell and rebalance them and obtain instant valuations of your entire portfolio in one place.

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.

The companies who provide you with the GIA account will be able to send you consolidated tax statements each year showing what dividends and capital gains you have made, and some will also have online tools to help show you and work out what your gains/losses are at any point. Many people can come unstuck with GIAs as even if they do not withdraw money out, there could still be a tax liability for income or dividends received by the fund. The same applies with gains, especially if funds are swapped either due to performance, or from changing risk. Selling out of one fund and buying into another one may trigger a capital gain which could mean tax is due, even if you do not withdraw the money. We work closely with clients on accounts such as these to keep tax liabilities to a minimum, but for the inexperienced investor it can be tricky.

I hope this helps.

Answered by

James Mallinson

Chartered Wealth Manager

I’m James, a married dad with 2 children and 2 dogs. I’m unusual in the industry as I didn’t go to University, am under 40, but still rose in my career to be a Director at a FTSE listed discretionary fund management business.