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Tax Benefits -
Of general investment accounts

Following the change in dividend Tax rules General Investment Accounts [GIA] can now receive up to  £5000 in dividends free from income tax per year, however many people forget about the annual Capital Gains Tax [CGT] allowance. The CGT allowance for the 2016/17 tax year is £11,100 (for individuals).

We have found that many people fail to use this on an annual basis. It means that every year you can sell assets with an increase in value of £11,000 without incurring a chargeable gain and so pay no tax. This is very useful for an investor seeking to generate income from growth investments as the first £11,000 of profit would be free of tax creating further tax efficient income.

Calculation 1 Taking the gain

  Single account Joint account
Initial investment £100,000 £200,000
Sale Value £111,100 £222,200
The Gain £11,100 £22,200
Capital Gains Allowance £11,100 £22,200
(£11,100 x 2)
Tax Liability £Zero £Zero
By using annual Capital Gain Tax [CGT] allowance, large amounts of capital can often be released quickly and it is often over looked by investors considering Investment Bonds where the focus is often on the 5% tax deferred withdrawals and less on the effects at maturity or access to the capital in an emergency.

One of the advantages of a General Investment Account over the ISA is that it can also be held in joint names, for instance between spouses. Assets can be passed between spouse are not considered disposals and therefore are not subject to CGT. As seen above, this means that both CGT allowances can be used to mitigate any gains, even when rebasing. It also has the additional benefit that should one of the owners die, the account can remain accessible to their spouse.


Investors that don't wish to spend their gains should also consider using their allowance each year to rebase the value of their investments. An example of how this might work is shown in calculation 2.

Naturally you could use a number of investments with a total gain not exceeding the annual CGT allowance. Then if HMRC increases the CGT annual allowance in the future, larger gains could be further rebased. CGT is an annual allowance and therefore investors need to wait for a new tax year before repeating this exercise, please note you are not able to carry any unused allowance forward to the next tax year.

However, it is also important to understand that rebasing would require you to purchase a similar rather than the same investment due to the amendment in the 'bed and breakfasting' rules. The changes introduced in the simplest form would mean that if you repurchased the same investment within 30 days of the sale, that the original purchase price would still be classed as the base book price instead of the new higher book price.

It is possible to sell assets from your General Investment Account to utilise your CGT allowance and then reinvest into the same stock within an ISA account; and this is known as 'Bed & ISA'. This works as the new investment is protected from tax by being purchased in an ISA wrapper.

Calculation 2 Rebasing the value of your investment:

  Joint account
Initial investment £100,000.00
Value at the first rebase £111,100.00
The first gain £ 11,100.00
Annual CGT allowance £ 11,100.00
Tax Liability £ Zero
Reinvest £111,100.00
Value at Second rebase £122,200.00
Second gain £ 11,100.00
Annual CGT allowance £ 11,100.00
Tax liability £ Zero

The example has only been carried forward two years. Hopefully you can see that if some or all of the gains are rebased each year that you will avoid having an unavoidable tax charge in the future.

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