Our Financial Planning Manager Sandra Scott looks at how the flexible Aviva ISA Portfolio can help your clients avoid a capital gains tax liability.
A flexible ISA could offer your client some serious tax benefits - including the ability to avoid a CGT liability. So it's worth knowing that, unlike many other platforms, the Aviva Platform can offer your clients such an ISA.
How does a flexible ISA work?
Quite simply, flexible ISAs let your clients take money out of their ISA and then replace it in the same tax year without it affecting their allowance.
Here's how you can use Aviva's flexible ISA Portfolio to help your clients:
Let’s say Mrs Smith has an investment account, which she’s been using for some time to fund her Aviva ISA Portfolio each year. She has built up a fund of £230,000 in this ISA, and the investment account feeding it has a current balance of £90,000.
Mrs Smith pays into her ISA on 6 April 2019, taking her ISA balance up to £250,000 and her investment account down to £70,000.
But then Mrs Smith’s son asks if he can borrow £50,000 – a short-term loan, for no more than six months. Mrs Smith is happy to do this and asks her adviser to arrange for a withdrawal of £50,000 from her investments.
The issue Mrs Smith has is that if she takes the money from her investment account there will be a part disposal for capital gains tax.
Her investment has been in place for a number of years now with a substantial capital gain building up. This gain is gradually being washed out with the regular transfers to her Aviva ISA Portfolio, but withdrawing £20,000 from it to fund into her ISA used up £8,000 of her capital gains tax allowance for the year (£12,000 in 2019/20). A further withdrawal of £50,000 in the same tax year would result in a capital gains tax liability of around £1,600.
Mrs Smith’s adviser therefore recommends that she takes the £50,000 from her flexible Aviva ISA Portfolio, which will not result in any capital gains tax. The £50,000 can then be repaid into the ISA at any time up to 5 April 2020 without affecting her normal subscription.
Flexibility when your client needs it
Our flexible ISA Portfolio works well where your client wants a lump sum for a particular purpose. They'll be able to take the money without incurring unnecessary CGT charges in an investment account. And if they're aged 55 or over, they'll be able to do so without irreversibly losing the tax benefits of being invested in a pension wrapper.
For more information about the ISA Portfolio, please speak to your usual Aviva consultant or visit our Aviva Platform pages
For free letter and email templates download your tax year end toolkit