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Balancing ISA, SIPP, and Taxable accounts

Including Financial Independence and Retiring Early (FIRE)
Indig0
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Balancing ISA, SIPP, and Taxable accounts

#139961

Postby Indig0 » May 19th, 2018, 9:45 am

Having started taking a more structured approach to saving and investing a few years ago, I'm now at the point where I have identified a path to FI and am now just executing this plan.

I was hoping to get any feedback from this group on the below approach, as I have enjoyed reading a number of other practical and informative posts on the site.

- As a contractor with my own Ltd Co., I am currently taking a mix of low salary and dividends
- I am contributing £40k to my SIPP directly from the Company
- I'm maxing out my ISA, with any additional available funds going into a general investment account (taxable), as well as some investments in VCTs
- The company bank account increases each year as I do not withdraw all earnings

My aim is to reach a level of FI in my early/ mid 40's whereby I have the necessary funds available to support me until my SIPP becomes available around 58. I'm currently mid 30's so have between 8 - 10 years to continue to grow my savings.

I appreciate that tax rules and dates for accessing pensions may very well change in the future, however working off what we know today -

- In the first stage of FI, I was planning on taking funds out of the company each year as a salary and dividends until this pot was depleted. The logic behind this is that it is just sitting in cash and losing buying power due to inflation so best to wipe it out sooner rather than later. At the same time, it will let my invested funds (in ISA etc.) continue to grow
- In the second stage of FI, I was going to take funds from the taxable account until this pot was depleted, again, allowing the ISA funds a few more years to continue to grow tax-free
- In the third stage of FI, release cash from the ISA, both through dividend income as well as selling units as required to meet withdrawal needs. This stage will need to last until my SIPP becomes available
- In the fourth and final stage of FI, my SIPP would be available and this could be used alongside any remaining funds from any of the above accounts

Is there anything missing from the above approach, or that requires amendment?

One final point to note is that I still plan on doing something productive with my time once FI that will probably generate income, however, this will be unrelated to my current career and must be considered 'nice to have' rather than fundamental in making the numbers for FI work.

xxd09
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Re: Balancing ISA, SIPP, and Taxable accounts

#139963

Postby xxd09 » May 19th, 2018, 10:15 am

If you are wealthy -where to legally put the money is a problem tax wise
Fill the Pension-severe limits here -Life Time Allowance low -£1.03 millon only the last time I looked-then 55% tax!
Fill the ISA -limits here -£20000 pa only
Having done the above and you still have more money to park-
Buy property-currently grows tax free so get capital appreciation
Anything else is dodgy and Tax man may nail you and make it retrospective!
Of course if you have a wife you can repeat all the above-Pension and ISA anyway -employ her and pension her!
xxd09

ursaminortaur
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Re: Balancing ISA, SIPP, and Taxable accounts

#139994

Postby ursaminortaur » May 19th, 2018, 1:31 pm

xxd09 wrote:If you are wealthy -where to legally put the money is a problem tax wise
Fill the Pension-severe limits here -Life Time Allowance low -£1.03 millon only the last time I looked-then 55% tax!
Fill the ISA -limits here -£20000 pa only
Having done the above and you still have more money to park-
Buy property-currently grows tax free so get capital appreciation


Just to be clear that is only for your main residence. CGT is charged on gains made on other property.

https://www.which.co.uk/money/tax/capital-gains-tax/capital-gains-tax-on-property-avuq96u1500f

Wmnr
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Re: Balancing ISA, SIPP, and Taxable accounts

#139999

Postby Wmnr » May 19th, 2018, 2:05 pm

Have you considered your state pension and how many years contributions you have towards it. You might want the stretch out phase one to get more qualifying years and overlap it with phase 2 to to cover the reduced income from your company.

PinkDalek
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Re: Balancing ISA, SIPP, and Taxable accounts

#140001

Postby PinkDalek » May 19th, 2018, 2:11 pm

ursaminortaur wrote:
xxd09 wrote:… Buy property-currently grows tax free so get capital appreciation ...


Just to be clear that is only for your main residence. CGT is charged on gains made on other property. …


I wasn't sure xxd09 was talking about CGT. At the moment, any growth is not subjected to tax until disposal. IHT on death is another matter.

runnygum
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Re: Balancing ISA, SIPP, and Taxable accounts

#140015

Postby runnygum » May 19th, 2018, 3:03 pm

I was in the same position and maxed out my VCT at least once. Thats worth a £60k tax credit.
I was also starting to look at EIS investments. My VCT's have been good, but that is less certain going forward.

Next thing is to basically avoid Bonds and similar in untaxed accounts as they attract tax at marginal tax rate (after tax free allowance)
This also applies to dividend income. So Untaxed accounts you should be looking into growth stocks where you can use the capital gains allowances etc (small caps etc).

There is also some investments called offshore investment bonds. Kind of an insurance product from memory where tax is deferred. You could look into them as well, but I couldnt find any that were low cost and as I hadnt fully thrashed out the VCT/EIS Growth options I left the offshore stuff alone. I dont know enough about these to make any other comment than DYOR :)

Paying off your main residence is also a good idea. NS and I have some good accounts for Cash.

But good luck on your progress.

ursaminortaur
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Re: Balancing ISA, SIPP, and Taxable accounts

#140017

Postby ursaminortaur » May 19th, 2018, 3:16 pm

PinkDalek wrote:
ursaminortaur wrote:
xxd09 wrote:… Buy property-currently grows tax free so get capital appreciation ...


Just to be clear that is only for your main residence. CGT is charged on gains made on other property. …


I wasn't sure xxd09 was talking about CGT. At the moment, any growth is not subjected to tax until disposal. IHT on death is another matter.


Until disposal it is just a paper gain which is as much use as a paper loss.

PinkDalek
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Re: Balancing ISA, SIPP, and Taxable accounts

#140028

Postby PinkDalek » May 19th, 2018, 4:04 pm

Curious reply. Never heard of remortgaging nor equity release schemes?

Indig0
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Re: Balancing ISA, SIPP, and Taxable accounts

#140060

Postby Indig0 » May 19th, 2018, 6:53 pm

Thanks all, great info. as always.

ursaminortaur
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Re: Balancing ISA, SIPP, and Taxable accounts

#140061

Postby ursaminortaur » May 19th, 2018, 6:59 pm

PinkDalek wrote:Curious reply. Never heard of remortgaging nor equity release schemes?


When you will then have to pay arrangement fees and either pay interest on your borrowings or let that roll-up further eating into your share of the equity in the property.

PinkDalek
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Re: Balancing ISA, SIPP, and Taxable accounts

#140063

Postby PinkDalek » May 19th, 2018, 7:05 pm

ursaminortaur wrote:
PinkDalek wrote:Curious reply. Never heard of remortgaging nor equity release schemes?


When you will then have to pay arrangement fees and either pay interest on your borrowings or let that roll-up further eating into your share of the equity in the property.


Yup but your point was about not being able to take any advantage of what you termed paper gains. Feel free to accept that your statement was inaccurate, albeit that other options don’t come free.

ursaminortaur
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Re: Balancing ISA, SIPP, and Taxable accounts

#140066

Postby ursaminortaur » May 19th, 2018, 7:18 pm

PinkDalek wrote:
ursaminortaur wrote:
PinkDalek wrote:Curious reply. Never heard of remortgaging nor equity release schemes?


When you will then have to pay arrangement fees and either pay interest on your borrowings or let that roll-up further eating into your share of the equity in the property.


Yup but your point was about not being able to take any advantage of what you termed paper gains. Feel free to accept that your statement was inaccurate, albeit that other options don’t come free.


Ok saying it was as useless aas a paper loss was probably going too far. However I'd maintain that disposing of the property and suffering CGT was generally much more preferable than remortgaging or equity release.

hiriskpaul
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Re: Balancing ISA, SIPP, and Taxable accounts

#140340

Postby hiriskpaul » May 21st, 2018, 12:55 pm

Another possibility is to build up reserves in your Ltd co then spend a few years drawing this down after you stop work. This may save you some higher rate tax and allow you to build up more NI credits. You should be able to make investments within your Ltd co. There will be no corporation tax to pay on dividends, but you will have to pay to pay CT on capital gains. Unfortunately indexation has now stopped, so gains can no longer be inflated away. Due to the nature of the taxation, it is best to invest for high dividends. Preference shares are ideal.

royalflush
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Re: Balancing ISA, SIPP, and Taxable accounts

#140378

Postby royalflush » May 21st, 2018, 3:28 pm

Indig0 - I am planning on doing pretty much the exact same thing you are proposing. So either we're both deluded or the logic is reasonably OK!

I'm 18-24 months away from pulling the trigger (I turn 41 in a few days' time). I plan to use the retained profit in my ltd company as the cash portion of my portfolio and will use that to fund the first 4-ish years away from full-time contract work. I have some monthly income from other sources outside contracting that I am intending to grow over the next few months that will hopefully provide a bit of fun money.

Good luck!


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