Intelligent Money - your investment questions answered

[JulianPH]

BertieWooster said:

I'm not sure if this is the right place to ask this as, although it is pension-related, it is related to state pension additional voluntary contributions.

I left the UK in 2012 and haven't paid any NI contributions since then. From the UK government pension calculator, it appears I can make annual voluntary contributions of £780 for the next 21 years to be eligible for a state pension.

Is this worth doing or should I invest that money elsewhere?

For context, I'm in a DB pension scheme here in the USA and also have 15 years in the UK Civil Service Classic Scheme (2002-2017, although from 2012 to 2017 I was on secondment so didn't contribute).

That is a really complicated question (given you are in the US and the tax position is not simple). Nik is much better placed to answer this than I am as many things need to be taken into account.

Nik is working in Vancouver for the next week or so. You can get him at [e-mail]

You can always contact me directly too.

Cheers

Julian

[JulianPH]

supersport said:

Also thank you from me.

No problem. Give a shout if you need anything.

[onny]

Julian mentioned in his reply to the below thread to here for a better explanation and possible technical solution to how to lend money from a SIPP to a ltd business.

https://www.pistonheads.com/gassing/topic.asp?h=0&...

My brother and his wife are sole owners/directors of a ltd landscaping company. He is 61 and she is 58. They have a SIPP for their pensions and wants to inject some money into the business from the SIPP as they are likely to win a big contacts that will require some up front capital outlay of around 100K but they don't have the cash in the business to cover this. They will draw up a commercial loan agreement with a reasonable interest rate if this is the way to go?

Julian mentioned that this is a nightmare and not advisable. Is there any other ways lend money from the SIPP to their business?

[JulianPH]

onny said:

Julian mentioned in his reply to the below thread to here for a better explanation and possible technical solution to how to lend money from a SIPP to a ltd business.

https://www.pistonheads.com/gassing/topic.asp?h=0&...

My brother and his wife are sole owners/directors of a ltd landscaping company. He is 61 and she is 58. They have a SIPP for their pensions and wants to inject some money into the business from the SIPP as they are likely to win a big contacts that will require some up front capital outlay of around 100K but they don't have the cash in the business to cover this. They will draw up a commercial loan agreement with a reasonable interest rate if this is the way to go?

Julian mentioned that this is a nightmare and not advisable. Is there any other ways lend money from the SIPP to their business?

Hi

SIPPs cannot loan to connected parties, so you brother and his wife would need to transfer to a SSAS and then still jump through hoops (the loan needs to be secured on a non-depreciating asset of the company and can only be in place for a maximum of 5 years).

This all costs money to achieve and therefore is, as I said, a nightmare!

Simpler alternatives are if the company has a commercial property the SIPPs could buy this (or part of this) to free up the funds needed.

Even more simply, your brother and his wife could draw £100,000 of tax free cash (assuming a collective £400,000 scheme value) and then lend this to the company in the form of a personal loan.

Please let me know if either of these options sound like they could work.

Cheers

Julian

[JulianPH]

A couple of interesting articles in the news today regarding financial adviser charges.

The first relates to contingent charging on pension transfers (that is to say the adviser only gets paid if you transfer):

https://citywire.co.uk/new-model-adviser/news/fca-...

Citywire said:

In a paper published this morning, the FCA said: ‘We are concerned too many advisers are delivering poor advice, much of it driven by conflicts of interest in the way they are remunerated. In particular, the practice of contingent charging creates an obvious conflict.’

The regulator has therefore decided to consult on a ban on contingent charging. The regulator said it estimates ‘harm is created on’ up to £2 billion a year in unsuitable transfer advice.

The FCA said the ban would ‘protect customers from the conflicts of interest which arise where a financial adviser only gets paid if a transfer goes ahead’.

The second is in regard to ongoing annual charges made by financial advisers:

https://citywire.co.uk/new-model-adviser/news/fca-...

Citywire said:

FCA targets expensive & ‘conflicted’ ongoing advice fees

...The FCA admitted the proposal, which will be measured via new data collection, is ‘controversial’ but said it is necessary to stop consumers being transferred into schemes which are too complex for their needs and ‘perpetuate the need for unnecessary ongoing charges that ultimately reduce consumers’ income in retirement’.

All quotes reproduced here with kind permission from Citywire. If you can't see the full articles it is free to sign up.

[Tresco]

Julian/Nik, I'm a happy IM customer but any thoughts of introducing an AIM invested ISA purely to avoid inheritance tax?

I appreciate the higher risk to capital and no doubt increased management costs over your current offering but by maxing out ISA allowances every year into 'regular' investments I can see that our beneficiaries will get clobbered for IHT.

Just thinking aloud could a widowed investor, having built up a combined isa allowance of, say £200,000 then transfer some or all of that into an AIM invested ISA which would allow their beneficiaries to avoid IHT?

[BertieWooster]

JulianPH said:

BertieWooster said:

I'm not sure if this is the right place to ask this as, although it is pension-related, it is related to state pension additional voluntary contributions.

I left the UK in 2012 and haven't paid any NI contributions since then. From the UK government pension calculator, it appears I can make annual voluntary contributions of £780 for the next 21 years to be eligible for a state pension.

Is this worth doing or should I invest that money elsewhere?

For context, I'm in a DB pension scheme here in the USA and also have 15 years in the UK Civil Service Classic Scheme (2002-2017, although from 2012 to 2017 I was on secondment so didn't contribute).

That is a really complicated question (given you are in the US and the tax position is not simple). Nik is much better placed to answer this than I am as many things need to be taken into account.

Nik is working in Vancouver for the next week or so. You can get him at [e-mail]

You can always contact me directly too.

Cheers

Julian

Thanks. I'll drop Nik a line. On another note, I found out today that I'm still accruing benefit for my Civil Service pension as my old department screwed up and didn't process my resignation. So, according to them, I'm still on unpaid secondment overseas.

[JulianPH]

Tresco said:

Julian/Nik, I'm a happy IM customer but any thoughts of introducing an AIM invested ISA purely to avoid inheritance tax?

I appreciate the higher risk to capital and no doubt increased management costs over your current offering but by maxing out ISA allowances every year into 'regular' investments I can see that our beneficiaries will get clobbered for IHT.

Just thinking aloud could a widowed investor, having built up a combined isa allowance of, say £200,000 then transfer some or all of that into an AIM invested ISA which would allow their beneficiaries to avoid IHT?

Hi Tresco

Glad to hear you are happy with IM!

Some good points. Most (though not all) AIM stocks are free from IHT (if held for at least 2 years). However, as you rightly point out, they are much higher risk, notoriously volatile and can sometimes have liquidity issues.

In theory there is nothing stopping us holding AIM stocks within your IM ISA, but it would have to be on a self selected basis as I would not feel comfortable (or qualified) to manage a portfolio of AIM stocks.

I don't think it is a great idea though, unless you have some serious insight. Yes, you might pick the next big thing, but equally you could loose your shirt!

I would prefer to leave my daughter with a taxable but solid well constructed portfolio than risk losing money in a portfolio that by its very definition would carry higher risk and volatility (your entire portfolio would be invested in small UK companies).

You could even end up losing more through this route than any IHT bill would cost on a globally diversified portfolio (and its returns).

I know it is old fashioned, but a simple life insurance policy (to cover the IHT bill) may be something you should consider...

Also, don't forget that as well as the income tax relief on contributions, all money held in a pension/SIPP is exempt from IHT. This makes for excellent IHT planning.

I hope that helps. Give me a shout if there is anything else.

Cheers

Julian

[JulianPH]

BertieWooster said:

Thanks. I'll drop Nik a line. On another note, I found out today that I'm still accruing benefit for my Civil Service pension as my old department screwed up and didn't process my resignation. So, according to them, I'm still on unpaid secondment overseas.

No problem. I can't believe they screwed up on that, I doubt it, but it would be interesting to see if you could keep this!

It must be tempting to ask for a CETV to see just how much this is worth...

[anonymous-user]

BertieWooster said:

I'm still accruing benefit for my Civil Service pension as my old department didn't process my resignation.

Have you still got the Lotus 7 or are you now driving a Mini Moke?

[JulianPH]

Just a quick update.

We have now added a Junior Pension account (we have always had one, but the Private Client front end used to stop people from opening more than one pension with us) and updated the client login to show transaction history (again, this was always available, but for some reason not to Private Clients).

Next stage is to add the additional functionality requested here and we will be doing this at the same time as the GIA, IM Index and my core buy and hold portfolio.

These additional updates should all be live by the end of the month.

Many thanks to everyone who has given feedback. We will continue to evolve our client interface as we understand more what people want.

Cheers

Julian

[KTF]

Another question I had about the interface is the lack of a 'sell' option as at the moment I assume you have to email/phone someone if you want to do this?

Other providers let you do this online with no human interaction.

[Tresco]

JulianPH said:

Tresco said:

Julian/Nik, I'm a happy IM customer but any thoughts of introducing an AIM invested ISA purely to avoid inheritance tax?

I appreciate the higher risk to capital and no doubt increased management costs over your current offering but by maxing out ISA allowances every year into 'regular' investments I can see that our beneficiaries will get clobbered for IHT.

Just thinking aloud could a widowed investor, having built up a combined isa allowance of, say £200,000 then transfer some or all of that into an AIM invested ISA which would allow their beneficiaries to avoid IHT?

Hi Tresco

Glad to hear you are happy with IM!

Some good points. Most (though not all) AIM stocks are free from IHT (if held for at least 2 years). However, as you rightly point out, they are much higher risk, notoriously volatile and can sometimes have liquidity issues.

In theory there is nothing stopping us holding AIM stocks within your IM ISA, but it would have to be on a self selected basis as I would not feel comfortable (or qualified) to manage a portfolio of AIM stocks.

I don't think it is a great idea though, unless you have some serious insight. Yes, you might pick the next big thing, but equally you could loose your shirt!

I would prefer to leave my daughter with a taxable but solid well constructed portfolio than risk losing money in a portfolio that by its very definition would carry higher risk and volatility (your entire portfolio would be invested in small UK companies).

You could even end up losing more through this route than any IHT bill would cost on a globally diversified portfolio (and its returns).

I know it is old fashioned, but a simple life insurance policy (to cover the IHT bill) may be something you should consider...

Also, don't forget that as well as the income tax relief on contributions, all money held in a pension/SIPP is exempt from IHT. This makes for excellent IHT planning.

I hope that helps. Give me a shout if there is anything else.

Cheers

Julian

Thank you for the full reply Julian, food for thought.

[JulianPH]

Tresco said:

Thank you for the full reply Julian, food for thought.

No problem. Probably a good idea to talk it through with Nik where he can go over the big picture with info you wouldn't want to share online.

Cheers

[JulianPH]

KTF said:

Another question I had about the interface is the lack of a 'sell' option as at the moment I assume you have to email/phone someone if you want to do this?

Other providers let you do this online with no human interaction.

Sorry, I missed this yesterday.

Again, a really good point and a hangover from the adviser focused original system design when the client view was info only.

All the tech has long been in place and we just need to drag it into the Private Client screen, so this will be included in the next update.

Cheers

Julian

[BertieWooster]

JulianPH said:

BertieWooster said:

Thanks. I'll drop Nik a line. On another note, I found out today that I'm still accruing benefit for my Civil Service pension as my old department screwed up and didn't process my resignation. So, according to them, I'm still on unpaid secondment overseas.

No problem. I can't believe they screwed up on that, I doubt it, but it would be interesting to see if you could keep this!

It must be tempting to ask for a CETV to see just how much this is worth...

HR just confirmed I am still on their books. So I might be able to get another two years service out of their mistake.

And I've asked for an update pension statement to see what the situation is like now.

[Mr Whippy]

I’ve ~ £10k sat with some Scottish Widows stakeholder type DC pension thing. 1% AMC, plus the funds they choose will no doubt take some off the top.

Can I transfer that (free?) to a SIPP wrapper at IM and pay the 0.87% annual charge?

Seems like I’ll be winning with a lower charge and higher expected returns?

And kinda feels half way to a SIPP, which I’ve not got around to yet haha.

[mikeiow]

Mr Whippy said:

I’ve ~ £10k sat with some Scottish Widows stakeholder type DC pension thing. 1% AMC, plus the funds they choose will no doubt take some off the top.

Can I transfer that (free?) to a SIPP wrapper at IM and pay the 0.87% annual charge?

Seems like I’ll be winning with a lower charge and higher expected returns?

And kinda feels half way to a SIPP, which I’ve not got around to yet haha.

I’m sure the answer will be “yes”....& you wouldn’t be half-way to a SIPP....you’d be all in, surely!!

[JulianPH]

BertieWooster said:

HR just confirmed I am still on their books. So I might be able to get another two years service out of their mistake.

And I've asked for an update pension statement to see what the situation is like now.

That is fantastic news if you can pull that off!

[JulianPH]

Mr Whippy said:

I’ve ~ £10k sat with some Scottish Widows stakeholder type DC pension thing. 1% AMC, plus the funds they choose will no doubt take some off the top.

Can I transfer that (free?) to a SIPP wrapper at IM and pay the 0.87% annual charge?

Seems like I’ll be winning with a lower charge and higher expected returns?

And kinda feels half way to a SIPP, which I’ve not got around to yet haha.

As Mike says, the answer is of course yes.

To be fair to Scottish Widdows, if it is a Stakeholder the 1% AMC will include the fund costs (though may not include dealing costs).

EOur IM Optimum Portfolios are 0.87% including all costs and if you are happy with a purely passive approach remember we are also launching our IM Index portfolios at the end of the month at a 0.57% AMC (all inclusive).

An added benefit is that you will have access to Nik whenever you want any help with financial planning in order to meet your future targets.

Also, as Mike has mentioned, our pension is indeed a SIPP as it offers commercial property investment and full flexi access drawdown. However, it is limited to IM run investment portfolios (which in turn invest in a variety of global assets in line with the objective of each portfolio).

So it is probably best described as a fully managed SIPP.

If you decide to switch to us please remember to put the code PH2607 in the 'Additional Notes' box on the personal details page. This removes our standard £100,000 minimum and ensures the switch and any investments are free of initial charge.

We look forward to welcoming you as a Private Client and working with you to grow your wealth.

Give give me a shout if you have any other questions or need any help!

Cheers

Julian



Edited to correct 'Additional Information' box to 'Additional Notes' box to avoid any confusion!

Edited by JulianPH on Saturday 3rd August 12:44