Summary
Timeline's "Other" account tax category allows for manual account setup.
Account Tax is applied only on positive portfolio returns.
Example: 20% tax on £10,000 growth results in £2,000 deducted.
Income Tax is a fixed percentage deducted from any withdrawal.
Example: 20% tax on a £10,000 withdrawal results in £2,000 deducted.
Description
Financial planning often involves various account types, each with its own rules and tax implications. While Timeline offers a range of predefined account types, we understand that sometimes you might need a more customized approach. Enter the "Other" investment type, a flexible option that allows you to set up an account manually. This article will explain how the "Other" investment type works, focusing on its unique tax configurations.
The 'Other' Investment Type Explained
Timeline's "Other" investment type is designed for instances where a standard account type won't do. To set up an "Other" account, you'll need to input three key pieces of information:
Account Balance: The current value of the account.
Income Tax: The tax rate on any income generated by the account.
Account Tax: The tax rate on the account's overall return.
How Account Tax and Income Tax Work
Understanding the tax implications is crucial for effective financial planning. Here's how the two types of taxes work in the "Other" account type:
Account Tax: This tax is calculated based on the positive return of the portfolio. For example, if your investment grows by £10,000 within a year and you've set an account tax rate of 20%, then £2,000 will be deducted from the portfolio for that year. Whether you've cashed out any of that £10,000 or not, this deduction occurs.
Income Tax: This is a fixed percentage of any withdrawal made from the account. If you've set an income tax rate of 20% and make an inflation-adjusted withdrawal of £8,000 in a given year, then £2,000 will be deducted from the portfolio.
Example
Let's consider Jane Smith. She sets up an "Other" account with a balance of £100,000, an income tax rate of 20%, and an account tax rate of 20%.
In Year 1, her investment grows by £10,000. With an account tax rate of 20%, £2,000 is deducted, leaving her with a growth of £8,000.
In the same year, she decides to withdraw £10,000. With an income tax rate of 20%, another £2,000 is deducted from her portfolio.
In this example, Jane would see a total of £4,000 deducted from her portfolio due to account and income taxes.
Conclusion
Timeline's "Other" investment type offers a flexible way to manually set up an account, complete with customizable tax settings. Understanding how accounting and income tax work within this account type allows you to make more informed decisions and optimize your financial planning.