Minimising tax impact on retirement funds
Discussion
I am looking to improve the returns on my savings by balancing SIPP investment in funds (not brave enough for equities and have just hit 65) with ISA tax free wrappers.
My strategy proposal is to invest my tax free cash (say £250k) in 2 SIPPs for self and wife (to allow choice of funds and low charges), but to sell SIP investments up to CGT limit every year and move those funds into an ISA (with choice of funds and low charges) each year.
Then draw down funds from ISA as required to fund lifestyle.
I have looked at the "come and have a go, rise of the machines" comparison report to get some idea of typical SIPP providers and costs.
Any thoughts from the wider community?
Thanks
Richardracer
My strategy proposal is to invest my tax free cash (say £250k) in 2 SIPPs for self and wife (to allow choice of funds and low charges), but to sell SIP investments up to CGT limit every year and move those funds into an ISA (with choice of funds and low charges) each year.
Then draw down funds from ISA as required to fund lifestyle.
I have looked at the "come and have a go, rise of the machines" comparison report to get some idea of typical SIPP providers and costs.
Any thoughts from the wider community?
Thanks
Richardracer
£125k each is too much, even in theory. If you're still drawing 'relevant income', how much can you (both) contribute in theory? Once you draw money out of a pension, you are subject to MPAA rules.
https://www.pensionsadvisoryservice.org.uk/about-p...
You could look on the pension 'wrapper' as the vehicle for investing each year, now, and then drawing out a little later.
No CGT on funds held within a pension.
Why £125k each.. does that reflect current income equilibrium between you and your wife? If £250k is your tax free cash, you have £750k? Watch out for/consider the lifetime allowance if not already declared/breached - but more importantly, is your tax status basic/higher rate now, until you die? How does this compare with your wife's status?
That Langcat report is *incredibly* discerning.
https://www.pensionsadvisoryservice.org.uk/about-p...
You could look on the pension 'wrapper' as the vehicle for investing each year, now, and then drawing out a little later.
No CGT on funds held within a pension.
Why £125k each.. does that reflect current income equilibrium between you and your wife? If £250k is your tax free cash, you have £750k? Watch out for/consider the lifetime allowance if not already declared/breached - but more importantly, is your tax status basic/higher rate now, until you die? How does this compare with your wife's status?
That Langcat report is *incredibly* discerning.
Hi Ging R,
Thank you for your rapid reply.
If all the funds start in a pension fund, am I understanding you correctly that there is no CGT on sales of investment funds? Just pay income tax on 75% of drawdown?
Looking for a legal way of getting pension funds into ISA wrappers to allow more flexibility vs. basic rate tax limits. Also using both of our tax allowances, rather than mainly mine.
I have been looking carefully at lifetime allowances. Very close, so wondering if these limits will at least rise with inflation?
Going round in circles looking at different options and how to divide funds between advised with 0.5% charge vs. self managed without 0.5% charge, but with option to choose my own funds.
You have helped me in the past which started me looking at alternatives.
Thanks
Richardracer
Thank you for your rapid reply.
If all the funds start in a pension fund, am I understanding you correctly that there is no CGT on sales of investment funds? Just pay income tax on 75% of drawdown?
Looking for a legal way of getting pension funds into ISA wrappers to allow more flexibility vs. basic rate tax limits. Also using both of our tax allowances, rather than mainly mine.
I have been looking carefully at lifetime allowances. Very close, so wondering if these limits will at least rise with inflation?
Going round in circles looking at different options and how to divide funds between advised with 0.5% charge vs. self managed without 0.5% charge, but with option to choose my own funds.
You have helped me in the past which started me looking at alternatives.
Thanks
Richardracer
Hi Ging R,
Thank you for your rapid reply.
If all the funds start in a pension fund, am I understanding you correctly that there is no CGT on sales of investment funds? Just pay income tax on 75% of drawdown?
Looking for a legal way of getting pension funds into ISA wrappers to allow more flexibility vs. basic rate tax limits. Also using both of our tax allowances, rather than mainly mine.
I have been looking carefully at lifetime allowances. Very close, so wondering if these limits will at least rise with inflation?
Going round in circles looking at different options and how to divide funds between advised with 0.5% charge vs. self managed without 0.5% charge, but with option to choose my own funds.
You have helped me in the past which started me looking at alternatives.
Thanks
Richardracer
Thank you for your rapid reply.
If all the funds start in a pension fund, am I understanding you correctly that there is no CGT on sales of investment funds? Just pay income tax on 75% of drawdown?
Looking for a legal way of getting pension funds into ISA wrappers to allow more flexibility vs. basic rate tax limits. Also using both of our tax allowances, rather than mainly mine.
I have been looking carefully at lifetime allowances. Very close, so wondering if these limits will at least rise with inflation?
Going round in circles looking at different options and how to divide funds between advised with 0.5% charge vs. self managed without 0.5% charge, but with option to choose my own funds.
You have helped me in the past which started me looking at alternatives.
Thanks
Richardracer
I remember, blimey, that's going back a few years!
If you've released the money from a pension, why put it back?
Correct, there's no CGT within a pension starting position. But taking them out of a pension and then putting them into a potentially grotty fund or, worse, a bank account is like stepping from a hot bath into a snow drift. If your money is in a pension still, keep it there for a while until you think things through - you'll have economies of scale and options. For instance, 'dripfeed drawdown' might be an option, whereby you draw fillets if tax free cash and supplement it with taxable income.
No CGT on death, either - passing a CGT creaking portfolio to a spouse when you're terminally ill is a great way to get rid of a liability..! Limits will rise with inflation from '18. I saw some data which suggests the uplift over ten years may be appreciable. But don't hang your coat on it though.
Biggest worry, right now, for those entering drawdown? Volatility. Trump switching off fiscal restraint (when the US job market is healthy anyway), (still) low interest rates (although strong sentiment today is that there will be two more forthcoming), bond yield caps.. all point to increasing financial repression, blossoming volatility and the governments of the world all attempting (successfully?) to impede and influence markets.
I'd be considering going defensive for sure, if I were you.. certainly for the foreseeable future. And I don't necessarily mean lowest risk. Bear in mind you have a £5,000 divi allowance each.
If you've released the money from a pension, why put it back?
Correct, there's no CGT within a pension starting position. But taking them out of a pension and then putting them into a potentially grotty fund or, worse, a bank account is like stepping from a hot bath into a snow drift. If your money is in a pension still, keep it there for a while until you think things through - you'll have economies of scale and options. For instance, 'dripfeed drawdown' might be an option, whereby you draw fillets if tax free cash and supplement it with taxable income.
No CGT on death, either - passing a CGT creaking portfolio to a spouse when you're terminally ill is a great way to get rid of a liability..! Limits will rise with inflation from '18. I saw some data which suggests the uplift over ten years may be appreciable. But don't hang your coat on it though.
Biggest worry, right now, for those entering drawdown? Volatility. Trump switching off fiscal restraint (when the US job market is healthy anyway), (still) low interest rates (although strong sentiment today is that there will be two more forthcoming), bond yield caps.. all point to increasing financial repression, blossoming volatility and the governments of the world all attempting (successfully?) to impede and influence markets.
I'd be considering going defensive for sure, if I were you.. certainly for the foreseeable future. And I don't necessarily mean lowest risk. Bear in mind you have a £5,000 divi allowance each.
Hi Al - Of course the divi allowance drops to £2,000 per person from April 2018... (how is Spain treating you, by the way?!)
OP - There is all sorts of information required to properly answer your question (what type of pension is it you currently have? What are your other sources of income and how are they taxed? Do you have any IHT mitigation requirements, etc?) and this is something that sounds as though it merits advice (certainly from a tax planning perspective if not from an investment planning one if you are happy to run your portfolio yourself).
If Al has been of assistance before then he is likely the best person to go to for this again.
Equally PM me if you would like any further info on matters you don't want to share with the whole community (I am not a financial adviser so cannot advise you, but I am FCA authorised and regulated in relation to pensions/SIPPs/ISAs/Investments and so could give you information and guidance).
OP - There is all sorts of information required to properly answer your question (what type of pension is it you currently have? What are your other sources of income and how are they taxed? Do you have any IHT mitigation requirements, etc?) and this is something that sounds as though it merits advice (certainly from a tax planning perspective if not from an investment planning one if you are happy to run your portfolio yourself).
If Al has been of assistance before then he is likely the best person to go to for this again.
Equally PM me if you would like any further info on matters you don't want to share with the whole community (I am not a financial adviser so cannot advise you, but I am FCA authorised and regulated in relation to pensions/SIPPs/ISAs/Investments and so could give you information and guidance).
Indeed. Just two more years (if you're quick with this one!).
I'm getting loads of work done, thanks. Lots of work on the architecture of the new pension website, hill-work/training (I bought a mountain bike), and of course, as I tap, tap away, 'Air' and good gin. If you're the PHer who phoned up Fiver a Day yesterday early evening to ask about your new investment, I hope I didn't sound emotional and confused.
I'm getting loads of work done, thanks. Lots of work on the architecture of the new pension website, hill-work/training (I bought a mountain bike), and of course, as I tap, tap away, 'Air' and good gin. If you're the PHer who phoned up Fiver a Day yesterday early evening to ask about your new investment, I hope I didn't sound emotional and confused.
Ginge R said:
Indeed. Just two more years (if you're quick with this one!).
I'm getting loads of work done, thanks. Lots of work on the architecture of the new pension website, hill-work/training (I bought a mountain bike), and of course, as I tap, tap away, 'Air' and good gin. If you're the PHer who phoned up Fiver a Day yesterday early evening to ask about your new investment, I hope I didn't sound emotional and confused.
No, but you do know!!!I'm getting loads of work done, thanks. Lots of work on the architecture of the new pension website, hill-work/training (I bought a mountain bike), and of course, as I tap, tap away, 'Air' and good gin. If you're the PHer who phoned up Fiver a Day yesterday early evening to ask about your new investment, I hope I didn't sound emotional and confused.
We were chatting on Sunday before you left about Fiver, the Parmenion pension and Intelligent Money!
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