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Diversion of HYP dividends to SIPP portfolio of IT's

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Bena48
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Diversion of HYP dividends to SIPP portfolio of IT's

#363309

Postby Bena48 » December 5th, 2020, 10:41 pm

I run a HYP which has not faired well during this years cross winds. The dividends have reduced to about 60% of what I could have anticipated at the beginning of the year and the capital value has shrunk by approximately 15%. The portfolio is intended to help fund retirement .

I also have a portfolio of IT's held in a SIPP, Whilst not all IT's have performed well ,the over-all result has been very pleasing in terms of total return.It is up by 14% total return.

Consideration is being given to reinvesting all future HYP dividends into the SIPP portfolio , taking advantage of the 20% tax credit .

What are pros and cons of this approach?

Thanks in advance.

tjh290633
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Re: Diversion of HYP dividends to SIPP portfolio of IT's

#363331

Postby tjh290633 » December 5th, 2020, 11:25 pm

Bena48 wrote:I run a HYP which has not faired well during this years cross winds. The dividends have reduced to about 60% of what I could have anticipated at the beginning of the year and the capital value has shrunk by approximately 15%. The portfolio is intended to help fund retirement .

I also have a portfolio of IT's held in a SIPP, Whilst not all IT's have performed well ,the over-all result has been very pleasing in terms of total return.It is up by 14% total return.

Consideration is being given to reinvesting all future HYP dividends into the SIPP portfolio , taking advantage of the 20% tax credit .

What are pros and cons of this approach?

Thanks in advance.

Only that the income you draw from the SIPP is subject to your marginal rate of tax, apart from any tax free element.

TJH

dealtn
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Re: Diversion of HYP dividends to SIPP portfolio of IT's

#363408

Postby dealtn » December 6th, 2020, 10:15 am

Bena48 wrote:What are pros and cons of this approach?



It is hard from the limited information to understand your motive for doing this. If you are dissatisfied with the HYP approach, then the actions you propose represent a marginal way of addressing this, and will take many years. Why are you limiting this adjustment in approach to the dividend income stream only? You can sell and reinvest larger sums too.

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Re: Diversion of HYP dividends to SIPP portfolio of IT's

#363419

Postby Adamski » December 6th, 2020, 11:02 am

Sounds good to me, run the winners, and let profits run.

Arborbridge
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Re: Diversion of HYP dividends to SIPP portfolio of IT's

#363545

Postby Arborbridge » December 6th, 2020, 6:05 pm

dealtn wrote:
Bena48 wrote:What are pros and cons of this approach?



It is hard from the limited information to understand your motive for doing this. If you are dissatisfied with the HYP approach, then the actions you propose represent a marginal way of addressing this, and will take many years. Why are you limiting this adjustment in approach to the dividend income stream only? You can sell and reinvest larger sums too.


Maybe he's being cautious. Because I've had one dull year for HYP (which, by the way, I fully expected at some stage and planned for) doesn't indicate to me that I should sell and run. Indeed that would be a reckless action since no one has much of a clue what will happen in the next year or two. It could be that, having run down their reserves, ITs will peg back increases or even reduce payouts (one has already), whereas the HYP will pay out the restoring dividends at a faster rate of acceleration. HYP may by its nature be quicker to react.

No way would I recommend any drastic action after a drastic market, but making cautious steps in a given direction would be understandable. Wait, observe, and make well considered adjustments over a medium term. Although the effect he is proposing is marginal, should he conclude the course is the right one, he can make larger moves later on.

Arb.

monabri
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Re: Diversion of HYP dividends to SIPP portfolio of IT's

#363567

Postby monabri » December 6th, 2020, 7:37 pm

I wouldn't take assets which are already in an ISA wrapper and re-buy in a SIPP. I'm guessing that the shares are in non-ISA accounts?

Assuming that the shares are indeed held in a non-ISA account, how much could one migrate over to a SIPP?

For someone who is retired the rules are no doubt complicated!

For someone who is working, the rules are no doubt complicated...! ;)

I think Interactive Investor charge £10/month for their SIPP which would need to be factored in.

Why would you not take advantage of a £20k ISA allowance to buy Investment Trusts? Maybe the OP has more than £20k per annum to invest.

I personally would at least use up the ISA allowance !

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Re: Diversion of HYP dividends to SIPP portfolio of IT's

#363573

Postby dealtn » December 6th, 2020, 8:23 pm

Arborbridge wrote:
dealtn wrote:
Bena48 wrote:What are pros and cons of this approach?



It is hard from the limited information to understand your motive for doing this. If you are dissatisfied with the HYP approach, then the actions you propose represent a marginal way of addressing this, and will take many years. Why are you limiting this adjustment in approach to the dividend income stream only? You can sell and reinvest larger sums too.


Maybe he's being cautious. Because I've had one dull year for HYP (which, by the way, I fully expected at some stage and planned for) doesn't indicate to me that I should sell and run. Indeed that would be a reckless action since no one has much of a clue what will happen in the next year or two. It could be that, having run down their reserves, ITs will peg back increases or even reduce payouts (one has already), whereas the HYP will pay out the restoring dividends at a faster rate of acceleration. HYP may by its nature be quicker to react.

No way would I recommend any drastic action after a drastic market, but making cautious steps in a given direction would be understandable. Wait, observe, and make well considered adjustments over a medium term. Although the effect he is proposing is marginal, should he conclude the course is the right one, he can make larger moves later on.

Arb.


As I said, without an explanation for what is the issue, it is hard to advise. To be clear I didn't suggest "sell and run" either. Making adjustments that reflect perhaps 5% of Capital, or Income, suggest a slow re-adjustment. If the motive is more than marginal, then a more than marginal adjustment might be required. That's all I am saying as a potential "con" to the approach - seeing as that was the question!

88V8
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Re: Diversion of HYP dividends to SIPP portfolio of IT's

#363655

Postby 88V8 » December 7th, 2020, 10:34 am

Bena48 wrote:IWhat are pros and cons of this approach?

If you prefer the smoothness of an IT portfolio to the lumpiness of individual HYP shares, then moving into income ITs makes sense.

I do not run a SIPP, being retired the amount I could put in there is trivial, so I have no thoughts on that aspect.

V8

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Re: Diversion of HYP dividends to SIPP portfolio of IT's

#363902

Postby TUK020 » December 8th, 2020, 7:05 am

Bena48 wrote:I run a HYP which has not faired well during this years cross winds. The dividends have reduced to about 60% of what I could have anticipated at the beginning of the year and the capital value has shrunk by approximately 15%. The portfolio is intended to help fund retirement .

I also have a portfolio of IT's held in a SIPP, Whilst not all IT's have performed well ,the over-all result has been very pleasing in terms of total return.It is up by 14% total return.

Consideration is being given to reinvesting all future HYP dividends into the SIPP portfolio , taking advantage of the 20% tax credit .

What are pros and cons of this approach?

Thanks in advance.


You are conflating two different questions:
- What tax wrapper should you be investing within?
- What are you investing in?

1. The tax wrapper (ISA or SIPP) should be driven by your tax position (now and likely when you take pension funds) and your investment horizon.
I have been putting large sums into my SIPP on the basis that I have been a Higher Rate tax payer (and worse, into personal allowance clawback territory). I will set my pension withdrawals from my SIPP to keep within Basic Rate taxpayer band. The capital value remaining when I die will then also get passed to my kids outside of my estate, bypassing Inheritance Tax.
Now that I have reached the point where I am going to be subject to Lifetime Allowance on pensions, I have stopped contributing to pensions, and focus on building my ISA. The yield on is intended to supplement my income when I retire. The capital value is the 'nursing home insurance pot'.
SIPPs are good when you can arbitrage your tax rates between working/retired. They also have IHT benefits.
The disadvantages of SIPPS are that they lock up you money until a certain age, and they are subject to the government inevitably tinkering with access rules and taxation rates. ISAs you can get at and move at will.

2. Gradual shifting from HYP to ITs.
I am doing this and reinvesting dividend income and any new moneys into ITs. This is happening in my SIPP, ISA and GIA.
In part this is because, as I approach retirement, I am appreciating the smoothness and reliability of IT dividends.
The main driver is to gradually simplify my portfolio management, in case I start losing interest in investing, or losing my mental faculties (aka my "long term gaga plan"). As I move more of my investment pot over to ITs, the need to do anything reduces and you can set everything more to autopilot (probably to the benefit of my HYP investing performance!)

Hope this helps

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Re: Diversion of HYP dividends to SIPP portfolio of IT's

#367351

Postby Charlottesquare » December 18th, 2020, 12:07 pm

I like TUK020 am doing the change from shares to ITs within my SIPP (just three individual shares now left) in anticipation of retiring in circa five years at 66. Hopefully we can live on our state pensions and my wife's occupational pension so I will use the balance of my basic rate band over about nine years to pillage my SIPP, switch the funds out , reinvest them into ISAs and have the SIPP totally emptied by the time I am 75, in the ISAs I likely will repurchase pretty much the ITs sold ,just fewer as 21% tax on the 75% taxable part will reduce the sum available.

Of course planning anything re income tax/kids inheritance etc for effectively a period up to 14 years away is probably pretty foolish but it is all one can really do, plan with the extant legislation to guide and hope nothing changes to make the plan inoperable.

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Re: Diversion of HYP dividends to SIPP portfolio of IT's

#367360

Postby seagles » December 18th, 2020, 12:33 pm

Charlottesquare wrote:I like TUK020 am doing the change from shares to ITs within my SIPP (just three individual shares now left) in anticipation of retiring in circa five years at 66. Hopefully we can live on our state pensions and my wife's occupational pension so I will use the balance of my basic rate band over about nine years to pillage my SIPP, switch the funds out , reinvest them into ISAs and have the SIPP totally emptied by the time I am 75, in the ISAs I likely will repurchase pretty much the ITs sold ,just fewer as 21% tax on the 75% taxable part will reduce the sum available.

Of course planning anything re income tax/kids inheritance etc for effectively a period up to 14 years away is probably pretty foolish but it is all one can really do, plan with the extant legislation to guide and hope nothing changes to make the plan inoperable.


I started that couple of years ago switching my SIPP from mix of shares/ITs into a portfolio of ITs. Just have SSE left and waiting for the SP to improve a bit more (watch it drop like a stone now). Up to now have invested the SIPP in Income ITs, but after this strange year have realised that I can (at the moment) live comfortably on state and private pension plus divis from my HYP shares. So have just started investing in Growth ITs with first small punt into SMT. Have not thought to move them out of the SIPP though as fully intend to pass that on to my Daughter and Granddaughter.

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Re: Diversion of HYP dividends to SIPP portfolio of IT's

#367393

Postby Charlottesquare » December 18th, 2020, 1:52 pm

seagles wrote:
Charlottesquare wrote:I like TUK020 am doing the change from shares to ITs within my SIPP (just three individual shares now left) in anticipation of retiring in circa five years at 66. Hopefully we can live on our state pensions and my wife's occupational pension so I will use the balance of my basic rate band over about nine years to pillage my SIPP, switch the funds out , reinvest them into ISAs and have the SIPP totally emptied by the time I am 75, in the ISAs I likely will repurchase pretty much the ITs sold ,just fewer as 21% tax on the 75% taxable part will reduce the sum available.

Of course planning anything re income tax/kids inheritance etc for effectively a period up to 14 years away is probably pretty foolish but it is all one can really do, plan with the extant legislation to guide and hope nothing changes to make the plan inoperable.


I started that couple of years ago switching my SIPP from mix of shares/ITs into a portfolio of ITs. Just have SSE left and waiting for the SP to improve a bit more (watch it drop like a stone now). Up to now have invested the SIPP in Income ITs, but after this strange year have realised that I can (at the moment) live comfortably on state and private pension plus divis from my HYP shares. So have just started investing in Growth ITs with first small punt into SMT. Have not thought to move them out of the SIPP though as fully intend to pass that on to my Daughter and Granddaughter.


Getting somewhat off topic , and I could well be wrong ,but is there not a charge after age 75?

https://www.onlinemoneyadvisor.co.uk/pe ... ath/#sipde

Dod101
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Re: Diversion of HYP dividends to SIPP portfolio of IT's

#367411

Postby Dod101 » December 18th, 2020, 2:28 pm

There is not so much a charge if the owner of the SIPP dies after attaining the age of 75 but the beneficiary(ies) pay income tax at their marginal rate on any withdrawals either regular ones or the full lump sum. If death occurs before age 75, the assets can be withdrawn free of tax.

The SIPP will not normally be counted as part of the estate for IHT purposes.

Dod


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