Interesting and in my opinion well written article in today's Sunday Times;
https://www.thetimes.co.uk/article/ian- ... -jb68dnfgm
Gostevie
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Sunday Times Article
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- Lemon Slice
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Re: Sunday Times Article
Hi Steve - interesting article - yes: well written - yes: factually correct - sort of: picture painted: totally wrong - my respect for article’s author : approaching zero after this.
He begins
Even if they cocked up they merely punish themselves (and their heirs - remember pension funds are outside the scope of inheritance tax) if they don't contribute to their pension fund because they are miffed after they misread the rules - so they throw away the ability to contribute £4K to their pot which loses them either 20% tax relief or 40% if they pay at the higher rate. And they would have got the full value of that 4K in their pot.
Instead he recommends VCTs (in his words “a type of tax shelter" - 30% tax relief BUT on a price higher than NAV and higher still than the quoted SP. In other words, immediately after investing in a VCT you have less than you started with. His investment in Northern VCTs was made six years ago - and has done well : but we are in a different world now not only in the pension arena which is what his article was about but more importantly in the VCT space where the rules are dramatically different to those when he invested and which he notably and regrettably fails to point out.
With kind regards - John
He begins
So he sets out to tackle a problem which all investors should have been aware of - the rules are very clear and there has been much press coverage of this issue.Many people who took money from their pots have been hit with hefty tax bills. But there is another way . . .
Even if they cocked up they merely punish themselves (and their heirs - remember pension funds are outside the scope of inheritance tax) if they don't contribute to their pension fund because they are miffed after they misread the rules - so they throw away the ability to contribute £4K to their pot which loses them either 20% tax relief or 40% if they pay at the higher rate. And they would have got the full value of that 4K in their pot.
Instead he recommends VCTs (in his words “a type of tax shelter" - 30% tax relief BUT on a price higher than NAV and higher still than the quoted SP. In other words, immediately after investing in a VCT you have less than you started with. His investment in Northern VCTs was made six years ago - and has done well : but we are in a different world now not only in the pension arena which is what his article was about but more importantly in the VCT space where the rules are dramatically different to those when he invested and which he notably and regrettably fails to point out.
With kind regards - John
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- 2 Lemon pips
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Re: Sunday Times Article
Underwhelming, I agree. We've lived through a period of some stability with VCTs paying good dividends, but many of us can recall an earlier period with such disasters as Acuity/ Electra.... No certainty that those days won't return.
Nevertheless I do find myself in the (not entirely unhappy) position of having a sizeable pension pot in a SIPP on which I'll have to pay 40% tax on drawdown, with the risk of a nasty tax hit or on-fund growth if/when I reach age 75 (see https://www.sense-network.co.uk/blog/20 ... n-clients/).
Presently, low 60s, I find myself living on a mix of a P/T job, NHS pension and a lot of consulting, without drawing on the SIPP at all, which may exacerbate the age 75 problem. This'll continue for another 3-5 years. Thereafter other investment income still keeps me in the 40% bracket. I do therefore begin to wonder about drawing money from the SIPP long before I need it, then 'laundering' through a VCT or EIS scheme. This will reduce the effective tax rate from 40/45% to 10/15% or, looked at another way, means I should still come out ahead so long as the average VCT/EIS doesn't lose >30%. [I know this is a simplification, as it doesn't take into account dividends, interest or 'opportunity cost'].
Of course I could solve the whole problem by dropping dead long before age 75, but don't really favour that as an answer.
Nevertheless I do find myself in the (not entirely unhappy) position of having a sizeable pension pot in a SIPP on which I'll have to pay 40% tax on drawdown, with the risk of a nasty tax hit or on-fund growth if/when I reach age 75 (see https://www.sense-network.co.uk/blog/20 ... n-clients/).
Presently, low 60s, I find myself living on a mix of a P/T job, NHS pension and a lot of consulting, without drawing on the SIPP at all, which may exacerbate the age 75 problem. This'll continue for another 3-5 years. Thereafter other investment income still keeps me in the 40% bracket. I do therefore begin to wonder about drawing money from the SIPP long before I need it, then 'laundering' through a VCT or EIS scheme. This will reduce the effective tax rate from 40/45% to 10/15% or, looked at another way, means I should still come out ahead so long as the average VCT/EIS doesn't lose >30%. [I know this is a simplification, as it doesn't take into account dividends, interest or 'opportunity cost'].
Of course I could solve the whole problem by dropping dead long before age 75, but don't really favour that as an answer.
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- 2 Lemon pips
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Re: Sunday Times Article
Very interesting post, Vulgaris. I entirely agree with the previous comments that the Ian Cowie article was not wonderful, although I suppose that he was probably trying to give simple messages to investors who are not that savvy.
If you are maxed out in investing in pensions, which will increasingly apply to people, as the lifetime allowance is pretty dreadful, I believe that VCTs are still a viable option, although the risk profile is unarguably much worse than it was 5/6 years ago. FWIW, I drawdown on my SIPP, which is above my lifetime allowance, mainly to reinvest in VCTs. The combination of tax free dividends and 30% upfront relief justifies to me the immediate tax hit in the SIPP. Everyone will have a different tax position, but my basic point is that that the upfront hit may very well be justified in just a few years by the much more favourable tax treatment for the leading VCTs.
If you are maxed out in investing in pensions, which will increasingly apply to people, as the lifetime allowance is pretty dreadful, I believe that VCTs are still a viable option, although the risk profile is unarguably much worse than it was 5/6 years ago. FWIW, I drawdown on my SIPP, which is above my lifetime allowance, mainly to reinvest in VCTs. The combination of tax free dividends and 30% upfront relief justifies to me the immediate tax hit in the SIPP. Everyone will have a different tax position, but my basic point is that that the upfront hit may very well be justified in just a few years by the much more favourable tax treatment for the leading VCTs.
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- Lemon Quarter
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Re: Sunday Times Article
james188 wrote:If you are maxed out in investing in pensions, which will increasingly apply to people, as the lifetime allowance is pretty dreadful, I believe that VCTs are still a viable option, although the risk profile is unarguably much worse than it was 5/6 years ago.
I put myself in this category. I have some funds in BVT and NTV but have been reluctant to add any more despite the 30% rebate. I can't read the full article but I suspect it may not discuss the liquidity (or lack of) these products - the first question every investor in any scheme should be asking themselves is "how do I exit this, and at what cost" ?
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- Lemon Slice
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Re: Sunday Times Article
Moorfield,
watching for the periods when buybacks are happening is a good time for selling. Thankfully mine are all starting to move past the 5 year holding period.
watching for the periods when buybacks are happening is a good time for selling. Thankfully mine are all starting to move past the 5 year holding period.
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