Intelligent Money - your investment questions answered

[tone]

Possibly a daft question, but I'm about to go into retirement and I'm wondering about the access to the 'tax free' 25%.

I don't seem to be able to find a clear answer to this question: If I take less than 25% on day 1 and leave the balance invested, can I take an additional tax free lump once I've started drawing down income? Or am I limited to having an element of each 'income' slug treated as tax free?

[Mr Pointy]

tone said:

Possibly a daft question, but I'm about to go into retirement and I'm wondering about the access to the 'tax free' 25%.

I don't seem to be able to find a clear answer to this question: If I take less than 25% on day 1 and leave the balance invested, can I take an additional tax free lump once I've started drawing down income? Or am I limited to having an element of each 'income' slug treated as tax free?

HL have a guide which should help (see Taking your Tax-free Cash) & try Pension Wise if you haven't spoken to them:
https://www.hl.co.uk/retirement/drawdown/how-it-wo...

[springfan62]

Does IM provide an account suitable for a limited company to invest long term in equities?

[Intelligent Money]

tone said:

Possibly a daft question, but I'm about to go into retirement and I'm wondering about the access to the 'tax free' 25%.

I don't seem to be able to find a clear answer to this question: If I take less than 25% on day 1 and leave the balance invested, can I take an additional tax free lump once I've started drawing down income? Or am I limited to having an element of each 'income' slug treated as tax free?

Not a daft question at all, in fact a very good question and one that I'm not surprised you can't find a clear answer to.

It is an area that the tax office is also vague about and is often subject to change.

The legislation is open to interpretation so different providers take a different view and as such the answer will vary depending on who your pension is with.

In our case we will pay your tax-free lump sum (or portion of) as one payment and then any regular income will be treated as income. You are then able to draw the remaining part of your lump sum when you request it.

We will normally remind you that you have a remaining balance of tax-free cash available every six months as there is always the possibility that you may lose the ability to draw it should the legislation vary in the future.

Other providers may also take this approach while some may treat each payment as partly income and partly tax free cash until your 25% is used up.

The only way to be sure what approach your provider takes is to contact them directly.

I hope that this helps

Regards

Nik

[JulianPH]

springfan62 said:

Does IM provide an account suitable for a limited company to invest long term in equities?

I have a quick and simple answer for this very good question. No we don't, but due to increased demand for this we will be launching accounts that fit this exact purpose within the next few weeks.

Our history is one of dealing with advisers (on behalf of their clients) or clients directly. Accounts such as you describe are not difficult (they are the same investment accounts) but the system reporting is very different. This is the part we are addressing, nothing else is any different.

PM me if you like, I will announce on here in any event.

Cheers

Julian

[Mattt]

Not sure if it’s been asked yet, but how active is your active allocation?

[tone]

Intelligent Money said:

.........

In our case we will pay your tax-free lump sum (or portion of) as one payment and then any regular income will be treated as income. You are then able to draw the remaining part of your lump sum when you request it.

We will normally remind you that you have a remaining balance of tax-free cash available every six months as there is always the possibility that you may lose the ability to draw it should the legislation vary in the future.

.........

Thanks Nik, does that mean that you hold the undrawn tax free lump in a designated but separate account, which would still accrue returns in line with the chosen portfolio?

[DibblyDobbler]

Intelligent Money said:

Not a daft question at all, in fact a very good question and one that I'm not surprised you can't find a clear answer to.

It is an area that the tax office is also vague about and is often subject to change.

The legislation is open to interpretation so different providers take a different view and as such the answer will vary depending on who your pension is with.

In our case we will pay your tax-free lump sum (or portion of) as one payment and then any regular income will be treated as income. You are then able to draw the remaining part of your lump sum when you request it.

We will normally remind you that you have a remaining balance of tax-free cash available every six months as there is always the possibility that you may lose the ability to draw it should the legislation vary in the future.

Other providers may also take this approach while some may treat each payment as partly income and partly tax free cash until your 25% is used up.

The only way to be sure what approach your provider takes is to contact them directly.

I hope that this helps

Regards

Nik

Hi IM.

Can I ask a related question please?

Just say I had £800k at retirement - I'm entitled to 25% or £200k TFC I believe.

So I immediately take £100k (for the Aston + a cruise or whatever) - ie half of my entitlement (or 12.5%)

Then a year later I want to take the rest of my TFC - my fund has gone up 10% in the meantime (ie £700k to £710k) - so is the remainder of my TFC £100k or is it 12.5% of £710k ?

Cheers


PS - thinking about it it must be the former as the latter would be silly? Anyway please can you confirm

[springfan62]

JulianPH said:

I have a quick and simple answer for this very good question. No we don't, but due to increased demand for this we will be launching accounts that fit this exact purpose within the next few weeks.

Our history is one of dealing with advisers (on behalf of their clients) or clients directly. Accounts such as you describe are not difficult (they are the same investment accounts) but the system reporting is very different. This is the part we are addressing, nothing else is any different.

PM me if you like, I will announce on here in any event.

Cheers

Julian

Thanks, may well be interested.

Does your Optimum Global Growth Portfolio have an income / accumulation option?

[Intelligent Money]

tone said:

Thanks Nik, does that mean that you hold the undrawn tax free lump in a designated but separate account, which would still accrue returns in line with the chosen portfolio?

The remaining funds are all held as part of the same account and remain invested in your portfolio. At the time that you request additional tax free cash we run the required calculations to make sure that your entitlement has not been exceeded and then make payment and update HMRC.

Regards

Nik

[Intelligent Money]

DibblyDobbler said:

Hi IM.

Can I ask a related question please?

Just say I had £800k at retirement - I'm entitled to 25% or £200k TFC I believe.

So I immediately take £100k (for the Aston + a cruise or whatever) - ie half of my entitlement (or 12.5%)

Then a year later I want to take the rest of my TFC - my fund has gone up 10% in the meantime (ie £700k to £710k) - so is the remainder of my TFC £100k or is it 12.5% of £710k ?

Cheers


PS - thinking about it it must be the former as the latter would be silly? Anyway please can you confirm

It's always easier to answer a question when you have answered yourself! It is the former because the later would be silly!

At the point you start drawing benefits the fund value at that time is used to calculate your TFC entitlement

Regards

Nik

[JulianPH]

Mattt said:

Not sure if it’s been asked yet, but how active is your active allocation?

Hi Mattt, I'll try and give you a detailed answer as this is a very good question.

Our active management of the portfolios is a daily process, though this is not to so day we make daily changes (we most certainly do not), just that we are able to do so should anything arise that warranted this.

The reality is about getting your positioning right to start with and only making changes where and when appropriate. Indeed, the mark of a good portfolio is that it requires little in the way of changes other than gradual tweaks during different investment cycles. We rebalance every quarter though.

So the evolution of a portfolio over the years could be compared to the design evolution of the Porsche 911. Put two consecutive models side by side and the differences are subtle (to non-PHers, anyway!). But put an early model next to the latest one and the changes are very obvious.

I meet regularly with our investment manager (Tim Horrocks) and go over all our positions and the rationale behind them. This is the macro level asset management. Tim and his team are constantly monitoring the assumptions behind our positions, weightings and underlying tracker choice. Should any current market cycle deviate from these assumptions we will adjust holdings in line. This is the micro level asset management.

You can see the asset allocation of each of our portfolios here:

https://www.intelligentmoney.com/private-clients/o...

If you go through each portfolio you will see that we weigh (or omit) assets according to the objective of each portfolio (and that each are indeed different).

This is something that a standard tracker cannot do as it is bound to the market capitalisation of each constituent asset within. We are not bound by this at all.

It is also worth noting that many Discretionary Portfolio Managers trade quite frequently as this increases their earning from dealing charges. IM absorbs the dealing charges with our 0.87% inclusive annual fee so has no intensive to over trade.

I hope that answers your question.

Cheers

Julian

[JulianPH]

springfan62 said:

Thanks, may well be interested.

Does your Optimum Global Growth Portfolio have an income / accumulation option?

The short answer is that if you take any returns as income you have made it an income option, and if you leave them invested you have the growth option!

Our focus is on capital preservation and generating strong investment returns with managed volatility.

Whilst we signpost our portfolios to more easily assist investors in identifying the right one for their requirements, growth portfolios can be used to take an income and income portfolios used for growth.

It is all based upon the level of risk/reward you are happy to take. The order (with the highest first) is:

Optimum Global Growth

Optimum Global Growth & Income

Optimum Income

Optimum Cautious

Optimum Defensive

I would also add that our Optimum Global Growth portfolio, whilst being the highest level of risk/reward we offer, is not high risk per se.

It aims to deliver returns akin to global stock markets whilst also holding other asset classes (bonds, gilts, property, gold, cash) to reduce volatility and risk. It has also been very successful in doing this!

This is a core element in our active asset allocation management. We aim to manage money in a way that gives high investment returns at a lower level of volatility and risk than our peers deliver.

Cheers

Julian

[DibblyDobbler]

Intelligent Money said:

It's always easier to answer a question when you have answered yourself! It is the former because the later would be silly!

At the point you start drawing benefits the fund value at that time is used to calculate your TFC entitlement

Regards

Nik

Great - thanks a lot Nik

[springfan62]

JulianPH said:

The short answer is that if you take any returns as income you have made it an income option, and if you leave them invested you have the growth option!

Our focus is on capital preservation and generating strong investment returns with managed volatility.

Whilst we signpost our portfolios to more easily assist investors in identifying the right one for their requirements, growth portfolios can be used to take an income and income portfolios used for growth.

It is all based upon the level of risk/reward you are happy to take. The order (with the highest first) is:

Optimum Global Growth

Optimum Global Growth & Income

Optimum Income

Optimum Cautious

Optimum Defensive

I would also add that our Optimum Global Growth portfolio, whilst being the highest level of risk/reward we offer, is not high risk per se.

It aims to deliver returns akin to global stock markets whilst also holding other asset classes (bonds, gilts, property, gold, cash) to reduce volatility and risk. It has also been very successful in doing this!

This is a core element in our active asset allocation management. We aim to manage money in a way that gives high investment returns at a lower level of volatility and risk than our peers deliver.

Cheers

Julian

Thanks its just that there is a different tax treatment for franked investment income as opposed to capital growth in a limited company.
I know that only a proportion of the income will be treated as franked income but it would be tax efficient to take whatever income that can be as franked investment income.

[JulianPH]

springfan62 said:

Thanks its just that there is a different tax treatment for franked investment income as opposed to capital growth in a limited company.
I know that only a proportion of the income will be treated as franked income but it would be tax efficient to take whatever income that can be as franked investment income.

Ahh! Now I understand your question more fully. Your company would have to hold shares directly (rather than through a collective investment scheme) to offset this fully (if that is even still possible after HMRC introduced FA72/PART5, FA(2)97 and FA98).

You need also to be careful that entering into such investments does not trigger an IHT liability on your company (as it is likely to be classed by HMRC as trading in investments and therefore falls out of the nil IHT band upon inheritance by your kids).

This is why I have always shunned such activity (though, ironically we are an investment manager!). Our investment management is our business and this is very different from using a business to hold and manage investments).

I hope this give a better answer. If not please get back to me.

Cheers

[springfan62]

JulianPH said:

Ahh! Now I understand your question more fully. Your company would have to hold shares directly (rather than through a collective investment scheme) to offset this fully (if that is even still possible after HMRC introduced FA72/PART5, FA(2)97 and FA98).

You need also to be careful that entering into such investments does not trigger an IHT liability on your company (as it is likely to be classed by HMRC as trading in investments and therefore falls out of the nil IHT band upon inheritance by your kids).

This is why I have always shunned such activity (though, ironically we are an investment manager!). Our investment management is our business and this is very different from using a business to hold and manage investments).

I hope this give a better answer. If not please get back to me.

Cheers

IHT isn't an issue as the company is already an investment company, I am planning to move all my property investments into equity based investments over the next 10 years as I head towards retirement.

It appears that you can separate the income from collective investments with the assistance of the fund manager but having considered it further if I invest in global funds only a small percentage would be eligible anyway so probably not worth being too concerned about. Probably far more important to pick the right investment strategy.

Thanks for your help I will keep an eye out for your new offering.

[JulianPH]

springfan62 said:

IHT isn't an issue as the company is already an investment company, I am planning to move all my property investments into equity based investments over the next 10 years as I head towards retirement.

It appears that you can separate the income from collective investments with the assistance of the fund manager but having considered it further if I invest in global funds only a small percentage would be eligible anyway so probably not worth being too concerned about. Probably far more important to pick the right investment strategy.

Thanks for your help I will keep an eye out for your new offering.

We can split out the income from the capital gains. I agree that the right investment strategy is the most important thing. Give us a shout if we can be of any further help, regardless of whether you decide to use us or another investment manager.

[JulianPH]

springfan62 said:

Thanks its just that there is a different tax treatment for franked investment income as opposed to capital growth in a limited company.
I know that only a proportion of the income will be treated as franked income but it would be tax efficient to take whatever income that can be as franked investment income.

This has been niggling me so I have just spoken to our company accountant.

Whilst I knew you were referring to the dividend tax credit (franked investment income being long gone) I was sure that the dividend tax credit had now been replaced with the new tax rates for such income (i.e. there was no longer any ability to claim the tax credit and this was balanced out with new tax treatment of the dividend income itself).

It was an itch worth scratching as this does indeed appear to be the case. So a company account would be tax neutral in this respect, regardless of whether the company holds the shares directly, through funds, or through our portfolios.

If you would like a far more qualified explanation of this than I can give you here please get in touch and our account will assist.

Cheers

Julian

[DibblyDobbler]

JulianPH said:

You can see the asset allocation of each of our portfolios here:

https://www.intelligentmoney.com/private-clients/o...

Hi Julian - I'm trying to compare your portfolios to other (seemingly at least) similar ones - eg Vd Ly and while I can see the cumulative performance and 10 year average I would like to see a graphical representation to better gauge volatility, is this possible please?

If not then no problem, it was just a thought

Thanks, Mike.