Apologies to any Sound of Music fans for the cheesy misquote in the article title!
This article is about how to manage a General Investment Account. Lots of people are a bit scared of them, as they're Taxable. But the tax is pretty straightforward, and usually quite low, so let's dive in and look at how it all works.
A “General Investment Account” is an account in which you can buy, own, and sell shares or funds. There’s no limit to how much you can add or withdraw, but your activity in them is subject to tax in a couple of ways.
You would normally use an ISA first, as they are free of all taxes. Also consider using a SIPP before a GIA, unless you need the money before the age of about 60.
Even GIAs get a couple of tax breaks!
· You are allowed to earn £500 in dividends per tax year before they are taxed. Any dividends above that figure are taxed at 8.75% (for basic rate taxpayers).
· You are allowed to earn £3,000 in capital gains per tax year before you pay Capital Gains Tax. You can control when you make these gains, as it is counted as the date upon which you sell the shares or funds. Any gains above that figure are taxed at 18% (for basic rate taxpayers). Note that this is on gains. If you have a fund which has doubled in price, when you sell £2000 that is only £1000 of gain.
It is your responsibility to keep track of these earnings and report them for tax purposes if any tax becomes due.
Note that the taxable event is when you sell assets, not when you withdraw any cash from the account. So if you sell some of one fund and use the money to buy a different fund, there was still a taxable event. (Some people use this to “harvest” capital gains, using up their CGT allowance and getting rid of some CGT liability.) If you sell a fund and then rebuy the same fund soon after, there are rules on what counts as a disposal, so do check.
To make keeping track of dividends much easier, it is suggested that you hold the “income” and not the “accumulation” versions of any funds. (In Accumulation funds, dividends from the companies still pay out into the fund, but they are used to buy more shares, and the fund unit price goes up accordingly. The taxman still considers you to have benefited from these dividends, and dividend tax is due. But you can’t easily see how much you have had.)
· Note that dividends and capital gains count toward your earnings total for calculation of which tax band you are in. If you are a basic rate taxpayer close to the higher rate limit of £50,270, some of your capital gains and dividends may cross over the line and be taxed at higher rates.
· A sale which results in a loss also counts, and you can use this loss to subtract from your overall CGT bill for the year.
Reporting the tax
You only need to report and pay CGT and dividends on a yearly basis.
Gains made in the 2024-2025 tax year (ie ending 5th April 2025) need to be reported by 31st December 2025 and paid by 31st January 2026.
You can report gains either by filling in a Self Assessment (tax return), or by using HMRC’s Capital Gains Tax service. Or in the first instance you could just phone them for guidance.
Reporting for dividends is similar. If you don’t already fill in a Self Assessment, you must report for the year ended by the following 5th October. If your dividends are up to £10,000, you can either have your tax code amended so that the tax is taken from your wages or pension, or you can talk to HMRC by phone. If your dividends are over £10k then you need to fill in a Self Assessment.
Example
You buy £40,000 of the Vanguard FTSE Global All-Cap Inc fund.
It goes up in price to be worth £50,000.
You want to sell some of it. You sell £25,000. You’re going to use £20k of it to use up this year’s ISA allowance, and the balance after any tax will buy a holiday.
80% of your fund is original capital and 20% is profit.
This means that 20% of your £25,000 sale is gains, or £5,000. The first £3,000 is covered by your taxfree allowance, so £2,000 gets taxed at 18% - there’s £360 in CGT to pay.
In terms of dividends, this fund has been paying out about 1.47% in dividends. In the above example, your £50,000 fund may be paying £735 in dividends.
The first £500 uses up your dividend allowance, and the remaining £235 is taxed at 8.75%, so there’s £20.56 tax to pay.
You’ve pulled £25,735 from your GIA with £380.56 in tax. That’s a tax rate of 1.5% on everything you’ve taken from the GIA, or 6.6% on your gains from using the GIA.
Are GIAs better than a high interest account or premium bonds?
Yes!
Many people fill their ISAs and SIPPs, and then sit holding cash waiting for new allowances to come along in April. If this is money you want to invest, and are just held up by allowances, invest it now using a GIA.
You can hold over £30k in a GIA using a typical global index fund before the dividends get taxed.
The same goes for CGT - if your fund hasn’t risen by more than 15% whilst it was parked in the GIA, you could pull £20k out to fill your ISA without having more than £3,000 in gains.
And you are in control of when you sell, so you can go more slowly to stay within CGT taxfree limits if you want to.
How much did we win by?
At the time of writing, the best cash savings rates are about 5%. Typical returns on shares are about 10%.
Even paying tax on investing in shares, we keep about 93% of their earnings in the above example. So we’re on 9.3% from shares versus 5% on cash.
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