Investment indecision

[Lemoe]

Hello!

I am new to the community and was told this was the right place to seek advice on Personal Finance. Hence I would be grateful if you could share your thoughts with me regarding my situation.

I have just started taking control of my Personal Finance (in June) and recently opened an ISA stock&shares and a SIPP which I both maxed-out. Having never really made investments, except for 5-year long government bonds which just reached maturity and a few not very successful bank obligations, I have another lump sum of money which I would like to invest. It is a bit more than 100K, which is the result of just letting money sitting on the bank for a decade. Roughly half of it is in £ and the other half in €, in a bank account outside the UK. I see a couple of major options for that money but I am not sure what the best choice would be.

A) invest the full amount in a non tax-sheltered dealing account - but having preference for index funds I dread all the paperwork around income tax calculation on dividends on accumulation units and potential CGT when selling.
A*) invest the € outside the UK also in a brokerage account. But the 27% CGT, plus starting paying taxes in two countries tells me it might not be the best choice.
B) invest in buy-to-let property (note: I have no property on my own, but I'm not paying rent at the minute). This would be done through a SPV limited company and achieved without resorting to a mortgage. The aim would be to build a portfolio to be an important source of passive income once I retire.
C) put the full lump sum into the SIPP and pay tax as it would be over the annual allowance.
D) do nothing with the money for the time being, which would allow me to max-out my SIPP and ISA for the next few years.

Thank you for taking the time to read
Regards
Lm

[tjh290633]

If you have another half, you can always make use of both ISA allowances each year, which would use up three years allowances.

It does save a lot of trouble in the future.

TJH

[Alaric]

A) invest the full amount in a non tax-sheltered dealing account - but having preference for index funds I dread all the paperwork around income tax calculation on dividends on accumulation units and potential CGT when selling.

If you use ETFs, they are usually Income shares. Regarding dividends, you get a statement from your Broker, so not much to do. Regarding CGT, you just keep the gain below the annual limit.

[Muddywaters]

...d....

[YeeWo]

B) invest in buy-to-let property (note: I have no property on my own, but I'm not paying rent at the minute). This would be done through a SPV limited company and achieved without resorting to a mortgage. The aim would be to build a portfolio to be an important source of passive income once I retire.

I'm not into BTL myself, but I have a friend who has two properties. Please can somebody kindly advise how easy and where you can set-up a SPV/Limited Company for BTL? Also where can one find a Specialist Lender for said 'SPV/Limited Company'? Thanks!

[Lemoe]

Hello!

Thank you all for your inputs. It's much appreciated.

@TJH, this would be a smart move but unfortunately this is not an option at the minute.

@Alaric, will I have to keep track of all dividends to then deduct them from CGT when selling? Do you have ETFs outside tax-sheltered accounts?

D) sounds like a good option. Just thinking about it, I could also use a mix of A) and D) where I would invest via a brokerage account and sale some capital every tax year to help me max-out my ISA/SIPP.

On the other hand I would love to read the thoughts of someone who has used a limited company to invest in BLT.

Thanks for your advice. It helps me to see a bit clearer.

Looking forward to reading more opinions.

Lm

[Alaric]

will I have to keep track of all dividends to then deduct them from CGT when selling?

If you use income paying ETFs then it's the same for taxation as holding shares. You declare the dividends ( or interest if a bond ETF) and these count towards the tax free limits in personal taxation. You can see the amounts arriving in your Broker account, but you would get an annual statement anyway as it's required by law. For CGT it's just proceeds of sale v cost of buying in the normal manner.

Accumulation units/shares, as you suggest, have the record keeping aggravation that you need to keep a long term history of the distributions unless you don't mind overstating the eventual CGT liability. If you are within the limits, you don't have to disclose the individual calculations anyway.

[kiloran]

I'm not into BTL myself, but I have a friend who has two properties. Please can somebody kindly advise how easy and where you can set-up a SPV/Limited Company for BTL? Also where can one find a Specialist Lender for said 'SPV/Limited Company'? Thanks!

You would probably be better posting here: viewforum.php?f=13
or maybe here: viewforum.php?f=45

--kiloran

[JohnB]

Have you maxed out the last 3 years of your SIPP allowance, if not you can carry it forward allowances for contributions this year (you will need income this year to cover it though)

To avoid buyers' remorse, invest in 2 50k chunks a month apart, so you don't feel so bad if the market moves as soon as you commit. Its not worth dripping it in over years though.

[Lemoe]

Thank you all. I'm not sure how to thank you individually to increase your 'have been thanked' counter but thank you.

This information on income ETFs it's very good to know. It might just be the solution. I will still post on the appropriate propriety investment discussion area to hear a few more opinions.
I did use the carry forward which was not much anyway because it is capped by my annual salary.

Cheers
Lm

[fca2019]

I did use the carry forward which was not much anyway because it is capped by my annual salary.

That's helpful. i thought that was the case.

[BusyBumbleBee]

Good Evening, Lemoe, I have been trying to reply to your first post but keep running out of time.
First : welcome : I see that was your first post on your first day as a member of the Lemon Fool - welcome. This place is full of very knowledgeable folk with lots of differing views but you will - as we all have - learn a lot from others. I have attempted to answer some of your questions in the text of your post thus {-- --} but do your own research to make sure what people say is sound

Hello!

I am new to the community and was told this was the right place to seek advice on Personal Finance. Hence I would be grateful if you could share your thoughts with me regarding my situation.

I have just started taking control of my Personal Finance (in June) and recently opened an ISA stock&shares and a SIPP which I both maxed-out. Having never really made investments, except for 5-year long government bonds which just reached maturity and a few not very successful bank obligations, I have another lump sum of money which I would like to invest. It is a bit more than 100K, which is the result of just letting money sitting on the bank for a decade. Roughly half of it is in £ and the other half in €, in a bank account outside the UK. I see a couple of major options for that money but I am not sure what the best choice would be.

{-- before we can really answer your queries we need a bit more info about you like are you married (cos that doubles all sorts of allowances and how far off retirement are you cos you can continue to contribute to a SIPP until you are over 75 as can a wife. Is IHT a concern (pensions are not liable to IHT) and so on--}

A) invest the full amount in a non tax-sheltered dealing account {-- Good idea as you can then easily transfer cash from there to an ISA or pension if yo use the right platform : I use A J Bell (YouInvest) for that reason as they provide a good service for ISA/Sipps and dealing accounts : others will have differing views--}- but having preference for index funds {-- I prefer a mix of ITs but one that is almost universally accepted is FCIT Foreign & Colonial as was which has given consistent returns for many decades--} I dread all the paperwork around income tax calculation on dividends on accumulation units and potential CGT when selling.{-- I use TaxCalc to do my tax return - it is fantastic and does all those tricky bits for you - great value for money and you can do up to six tax returns each year with the licence Yu also get useful end of year reports from your platform--}
A*) invest the € outside the UK also in a brokerage account. But the 27% CGT, plus starting paying taxes in two countries tells me it might not be the best choice.{-- I agree but the € has increased in value recently and may well increase more as Brexit day approaches : I would hang on to this for the moment and see what happens - you can always repatriate it if it seems the thing to do in the future --}
B) invest in buy-to-let property (note: I have no property on my own, but I'm not paying rent at the minute). This would be done through a SPV limited company and achieved without resorting to a mortgage. The aim would be to build a portfolio to be an important source of passive income once I retire. {-- there are many things happening in the housing market at the moment and it may not be the best time to jump in with both feet --}
C) put the full lump sum into the SIPP and pay tax as it would be over the annual allowance.{-- Far better I think to trickle it in over the next few years (if you have time) and paying tax on excess contributions would largely negate any benefits unless the IHT saving is important to you --}
D) do nothing with the money for the time being, which would allow me to max-out my SIPP and ISA for the next few years {-- this is a good suggestion: but why not put the bulk of it into a dealing account ready to take opportunities as they arise --}.

You asked elsewhere how to thank someone who has give a good reply.
{-- to give a 'rec'/thank-you to another Fool just click on the thumps up Icon next to the reply --}

There are a number of boring investments that will never be high fliers (and are unlikely for various reasons ever to bite the dust) but will give a steady income and increase in price roughly in line with inflation. The most important of these are probably the Green Infrastructure Funds and you can get a pretty good idea of how they work be reading the while topic by clicking on this link viewtopic.php?f=8&t=17343.

There are also some REITs which are like this IHR and THRL spring to mind but some REITs are in dire straights and are not for the faint hearted although there are probably some real bargains out there .

Hope this is useful and hope it works out for you - kind regards - BBB

[Lemoe]

Hi BBB
Thank you for the welcoming words and best wishes. I have indeed noticed that this forum gathers a lot of knowledge and I look forward to learning a bit more with each post I read.

I am not married but I live with my other half and our little boy. I have just now started to think seriously about saving and investing so I am a long way from retirement but I am determined to do my best to reach Financial Independence.

Your advice makes a lot of sense. It is hard to make a sound move while Brexit is still a mess. I have my SIPP with AJ Bell, so I will look at their fees regarding dealing accounts. And I definitely need to do some research on FCIT and Green Infrastructure Funds which I had never heard about before .

Thank you again for the information and insights.

Ah, I could not see the thumbs icon on my default browser(Vivaldi). For some reason it shows me only the Quote icon, but I'm now using a different browser so I was able to give a 'rec' to all of you.

Regards
Lm

[BusyBumbleBee]

I am not married but I live with my other half and our little boy. I have just now started to think seriously about saving and investing so I am a long way from retirement but I am determined to do my best to reach Financial Independence. Regards Lm

Glad you like the Fool's responses (we tend to capitalise Fool when referring to other subscribers to differentiate it from fools generally

Don't forget that spouses and partners can have their own separate SIPPs and ISAs as can your son. They also have their own allowances for income tax and Capital Gains Tax (and you can give assets to your spouse without any CGT which can save lots of tax sometimes. Even if your partner is not earning you can still contribute £2880 a year to a pension and the gov't will top it up with another £720 per year. Your son is entitled to the same and I have made an effort to see that all my grandchildren have a SIPP. They cannot touch the money until they retire BUT if you start it when they are young it will grow for much longer and they will not have to contribute so much themselves especially at that tricky time in their twenties/early thirties when they are making their way in the world. There are also junior ISAs. A J Bell do the full range and you can manage it on their behalf.

Marriage though is wonderful for IHT planning as there are special exemptions and enhanced allowances for married couples. Also if you own a house you can pass it down to the next generation with a much lower IHT charge.

with kind regards - BBB

[Bouleversee]

Bearing in mind it's easier to lose money in the stockmarket than make it, especially in such volatile times as these, you could put a chunk of it (max. £50k each) into premium bonds. With the max. you should win several tax free small prizes over a year and might be lucky and win a bigger one. The money can be withdrawn piecemeal without notice so you could sell sufficient to fund your SIPP and ISA at the appropriate time and it will give you some time to inform yourself about investing.

I don't understand your question to Alaric about deducting dividends from CGT when you sell. Dividends and net gains are taxed separately.

[Alaric]

I don't understand your question to Alaric about deducting dividends from CGT when you sell.

It relates to when you hold accumulation units in an OEIC or similar. You are required to report the reinvested dividends every year as part of your income for taxation purposes. By way of compensation, you are also allowed to add the dividends to the base cost. Thus the gain for CGT purposes is what you get from a sale minus what you paid minus the accumulated dividends. There doesn't seem any easy way to establish this, other than by keeping your own long term record, updated every year. No need for this in an ISA or SIPP of course.

[Lemoe]

Hi Bouleversee,

(I had replied already but my post does not appear).
Thank you for your input. I had had a look at NS&I premium bonds but thought they were not worth it. I was not aware that ivnesting the maximum would "gurantee" several prizes over the year. Do you have a good track record with premium bonds yourself ? it could be an option for me while I'm learning more about investing. I'm getting curious on IT rather than just Index tracking funds and ETFs.

As for dividends, I learned that one should avoid accumulation units outside a tax-sheltered account.
Lm

[BusyBumbleBee]

Do you have a good track record with premium bonds yourself ?

I once bought the max for my wife and the max for me on the same day - posted in the same envelope. So expected roughly the same return for each of us. Not a bit of it. ERNIE is a ladies man methinks cos almost invariably and over several years my wife's' returns were nearly 50% higher than mine.

[Bouleversee]

Hi Bouleversee,

(I had replied already but my post does not appear).
Thank you for your input. I had had a look at NS&I premium bonds but thought they were not worth it. I was not aware that ivnesting the maximum would "gurantee" several prizes over the year. Do you have a good track record with premium bonds yourself ? it could be an option for me while I'm learning more about investing. I'm getting curious on IT rather than just Index tracking funds and ETFs.

As for dividends, I learned that one should avoid accumulation units outside a tax-sheltered account.
Lm

I didn't say there was any guarantee. Some months I don't win any prizes but others I might get 2 or 3. With the full holding one would be very unlucky not to have several small wins. Last year my wins amounted to £550 which is 1.1%, around what one can get in an instant access savings account but that would be taxable whereas the prizes aren't. In previous years I have had two prizes of £1,000 but nowadays there are fewer larger prizes and more smaller ones. If you have a look at the relevant board on here (Managing Your Finances - Bank Accounts Savings & ISAs), you will see that some Fools have done considerably better and others have possibly done worse. All a gamble but not a bad place to park one's cash till one (hopefully) has a better home for it.

[Bouleversee]

Do you have a good track record with premium bonds yourself ?

I once bought the max for my wife and the max for me on the same day - posted in the same envelope. So expected roughly the same return for each of us. Not a bit of it. ERNIE is a ladies man methinks cos almost invariably and over several years my wife's' returns were nearly 50% higher than mine.

Well, you do know what ERNIE stands for.