How do I become investment literate?

[JulianPH]

Jockman said:

I like your ambitious thinking, matey, and a fair bit of your post seems to be encapsulated in the Lifetime ISA. Anyone would think that the Govt has drawn a line in the sand at 40 years of age for old style / new style pensions.

Employer's NI is too lucrative for the Govt. Remember, Pensioners in work no longer have to pay NI.......but their Employer still does

Thank you matey!

It was the Lifetime ISA that got me thinking down this route (though a retirement focused - or "grown-up" version).

The government has drawn a line in the sand at 40. This is because it knows that hardly anyone under that age can take much advantage of the tax breaks on offer so making more tax breaks available to this demographic costs very little in winning votes.

Employer's NI is simply a tax on job creation and wages. It has no place in a developed country, IMHO.

[NickCQ]

JulianPH said:

Employer's NI is simply a tax on job creation and wages. It has no place in a developed country, IMHO.

It’s no different to income tax, surely? Just means that you have to look at the all-in rate. If you removed it and added 13.8% on to the relevant income tax bands you’d get the same outcome. The market would adjust wages to be neutral.

But it means that the true top rate of income tax in this country is 60.8%

[JulianPH]

NickCQ said:

JulianPH said:

Employer's NI is simply a tax on job creation and wages. It has no place in a developed country, IMHO.

It’s no different to income tax, surely? Just means that you have to look at the all-in rate. If you removed it and added 13.8% on to the relevant income tax bands you’d get the same outcome. The market would adjust wages to be neutral.

But it means that the true top rate of income tax in this country is 60.8%

It is very different to income tax as you do not pay it out of your earnings, the company you work for pays it on top of your earnings. If the government could be honest (we know that is not going to happen) they would state that the starting level of tax is incredibly higher than is thought (by adding Employer and Employee NI figures).

The starting rate (after the tax free allowance) is c. 44%. The loss of child benefit at £50k is another form of tax. The loss of personal allowance after £100k is another form of tax and the loss of pension contributions after £150k is another form of tax.

It goes over 65% at one point IIRC.

[Happy Jim]

JulianPH said:

.

It goes over 65% at one point IIRC.

From £100k to £120k the effective tax rate on that slice is ~62% - Yikes!

[shopper150]

Jockman said:

JulianPH said:

shopper150 said:

This is a great thread, as we have come to expect from HF.

Reading this, I want to explore the possibility of carrying back my pension contributions three years. So I think I can get relief on £40k x 3.
Can anyone clarify the rules in this. I think I was talking to someone that mentioned that you can only get relief on £40k if all that money had been from your primary source of income (and therefore not if you are controlling income from various limited companies and decide to put £40k from one of those companies directly into your SIPP, if that makes sense)?

HF - have you thought about maximising your pensions contributions for the last three years. It seems as though this everyones number 1 financial rule.

Edited by shopper150 on Saturday 6th January 22:02

Obviously you need to have relevant earning to support the contributions, but very importantly you need to have had a pension scheme in place covering the tax years you wish to utilise the carry back.

Primary income is neither her nor there, it is relevant earnings that count. Your companies can make a gross contribution on your behalf, subject to the rules above.

Not sure I’m following shopper correctly here but I would observe that there is no income connection for company contributions. Your company can make the contribution even if you have no earnings. It will receive Corp tax relief at 19%. You will receive no income tax relief.

It’s appears as though you are both correct. I spoke to my accountant briefly this morning and he stated that I was unlikely to be able to do what I wanted (maximise my pension contributions and carry back three years allowances with the view of getting back some of the tax paid in those previous years). He says that I have very little net relevant income as the bulk of my income is through dividends and property, neither of which count.

Please let me know if there is a way carrying back and getting income tax relief.

[FredClogs]

This was interesting...

Courtesy of shroders via Monevator

What kind of investor are you quiz...

http://www.schroders.com/en/uk/private-investor/a-...

[tight fart]

I've always thought we should think how much we have to earn to buy something as opposed to how much it costs, i.e. A top rate tax payer needs to earn £2.66 to buy a litre of petrol.

[FredClogs]

tight fart said:

I've always thought we should think how much we have to earn to buy something as opposed to how much it costs, i.e. A top rate tax payer needs to earn £2.66 to buy a litre of petrol.

Nonsense

[Matt p]

FredClogs said:

This was interesting...

Courtesy of shroders via Monevator

What kind of investor are you quiz...

http://www.schroders.com/en/uk/private-investor/a-...

According to that I’m a level headed optimist

[Jockman]

shopper150 said:

Jockman said:

JulianPH said:

shopper150 said:

This is a great thread, as we have come to expect from HF.

Reading this, I want to explore the possibility of carrying back my pension contributions three years. So I think I can get relief on £40k x 3.
Can anyone clarify the rules in this. I think I was talking to someone that mentioned that you can only get relief on £40k if all that money had been from your primary source of income (and therefore not if you are controlling income from various limited companies and decide to put £40k from one of those companies directly into your SIPP, if that makes sense)?

HF - have you thought about maximising your pensions contributions for the last three years. It seems as though this everyones number 1 financial rule.

Edited by shopper150 on Saturday 6th January 22:02

Obviously you need to have relevant earning to support the contributions, but very importantly you need to have had a pension scheme in place covering the tax years you wish to utilise the carry back.

Primary income is neither her nor there, it is relevant earnings that count. Your companies can make a gross contribution on your behalf, subject to the rules above.

Not sure I’m following shopper correctly here but I would observe that there is no income connection for company contributions. Your company can make the contribution even if you have no earnings. It will receive Corp tax relief at 19%. You will receive no income tax relief.

It’s appears as though you are both correct. I spoke to my accountant briefly this morning and he stated that I was unlikely to be able to do what I wanted (maximise my pension contributions and carry back three years allowances with the view of getting back some of the tax paid in those previous years). He says that I have very little net relevant income as the bulk of my income is through dividends and property, neither of which count.

Please let me know if there is a way carrying back and getting income tax relief.

I don't correct Julian as he knows his stuff. When I join his posts it is generally to add to them

Last time I looked at relevant earnings, BiKs were included so if still applicable have a look at car / healthcare benefits you may receive.

What did your Accountant say about company contributions to your pension fund?

https://www.pensionbee.com/pensions-explained/pens...

[tighnamara]

shopper150 said:

It’s appears as though you are both correct. I spoke to my accountant briefly this morning and he stated that I was unlikely to be able to do what I wanted (maximise my pension contributions and carry back three years allowances with the view of getting back some of the tax paid in those previous years). He says that I have very little net relevant income as the bulk of my income is through dividends and property, neither of which count.

Please let me know if there is a way carrying back and getting income tax relief.

This may not be correct but believe you can.....

Use your limited company to make an employers contribution rather than you make an employee contribution. You can then also depending on profitability of the company carry back the 3 years.

[Shnozz]

tighnamara said:

This may not be correct but believe you can.....

Use your limited company to make an employers contribution rather than you make an employee contribution. You can then also depending on profitability of the company carry back the 3 years.

That was my understanding too. Any accountants wish to confirm?

[arguti]

tighnamara said:

shopper150 said:

It’s appears as though you are both correct. I spoke to my accountant briefly this morning and he stated that I was unlikely to be able to do what I wanted (maximise my pension contributions and carry back three years allowances with the view of getting back some of the tax paid in those previous years). He says that I have very little net relevant income as the bulk of my income is through dividends and property, neither of which count.

Please let me know if there is a way carrying back and getting income tax relief.

This may not be correct but believe you can.....

Use your limited company to make an employers contribution rather than you make an employee contribution. You can then also depending on profitability of the company carry back the 3 years.

The other way of getting back income tax is through an EIS or SEIS investment although this is higher risk but IIRC you can only carry back one year.

[Jon39]

Harry Flashman said:

I love our house by the way, it was an emotional purchase as our family home. But my flat, which was my home since I bought it in 2004, I kept for emotional decisions too, and banking on it being worth tonnes in 20 years. Reading about the concept of relative wealth has put detail to my recent uneasiness that I may have got this decision rather wrong...

I'll sleep on all of this and keep reading/researching, and start making decisions when I feel confident (and have taken more advice). Thanks again, all!

There are many different ways to achieve your aim, but probably most involve knowledge, experience and risk.

I set out 30 years ago with the hopeful intention of making life independently more comfortable, and chose to learn as much as I could about equity investment. I certainly did not want to pay anyone else to do it for me, and thanks to PEPs, now ISAs, there have been hardly any tax liabilities. That aspect can make a huge difference and can make equity investment an extremely attractive long-term asset class. Property is popular, but see how much tax you have to pay, if selling after say 30 years of owning a second home, not to mention the time and costs that are involved. Owning stakes in businesses, leaves all the work to be done by the employees. Although of course not essential, but the timely introduction of spreadsheets and information available through the internet was helpful for me. It certainly made record keeping much quicker and more informative, although there are downsides to being swamped with opinions and misleading 'facts'.

If you want to consider this as a possiblity, perhaps read about Warren Buffett's approach to the subject. You probably already know about the powerful effect of long-term compounding, but always take into açcount the constant depreciating value of money. Many people seem pleased to make 3% per annum, whilst completely overlooking that RPI might be 4%.

Sorry to read that you might have to part with your Aston Martin. Either skill, determination or luck must have helped me during my patient quest, because there is no need to part with my AM, even though it is not driven very much. As you say, not investments, but oh my, what beautiful works of art.

Best of luck.

Edited by Jon39 on Tuesday 9th January 22:11

[NRS]

FredClogs said:

This was interesting...

Courtesy of shroders via Monevator

What kind of investor are you quiz...

http://www.schroders.com/en/uk/private-investor/a-...

Kind of true as a personality, but actually since viewing it as a long term thing and being young(ish!) then I am heavily equity skewed, and have my "safe" money paying off the mortgage rather than bonds. Being conservative I view it as losing money in the long term if it's siting in the bank, and the long term perspective means it's "safer". In addition have stuck some money aside some rainy day money if needed. Plus quite a lot in whisky actually - enjoy drinking it, but buy more than I drink. Theory is to drink it at some point, but with some of the big price increases it means I also sell bottles off if they have gone up a lot and I don't really want to keep it.

[Harry Flashman]

Thanks all - I am currently researching investment ISAs. I have not used any of my 2017-18 allowance and suspect that doing so would be A Good Idea.

(I opened an HL Vantage a couple of years back which I have never really used, but they may not be the best game in town anymore. Anyone have any views? I basically want to diversify fully, so I need to read who offers the best of worldwide investments in their ISAs vs what fees they charge).

I have no cash to put into an ISA this year, as I have spent earnings and bonus on buying a house and renovating it. All other cash I hold is held in cash ISAs (which I will transfer into investment ISAs when I get my act together).

Next year (2018-19), I will have my full ISA allowance dealt with by a SAYE share scheme maturing in May. The remainder of those shares will eat into my 2018-19 CGT allowance.

So to my Aston - thanks for the commiserations: it’s rather that I think some of the cash tied up in it would be better put in this year's ISA allowance, so it needs selling soon to do this. Also, as we're planning on kids, I'll need something practical. I figured I could use the remaining money from the sale on a Mk1 C63 AMG wagon. I haven’t gone completely sensible yet…

[xeny]

Can I interest Sir in a global equity tracker?:

http://monevator.com/why-a-total-world-equity-inde...

[Harry Flashman]

I will definitely hold one of those, but I don't really like it for everything. Reading his site, I get the principal of being 3.5% in Apple if tracking the US market. But as AIG and others have taught us, I don't fancy being overweight in Fortune 10 companies. So I need something a bit smarter - that tracks everything but also counteracts the weightings given to large cap companies, and takes a bit more risk in smallcap/emerging.

I also instinctively think that as equities are overvalued and developed economies are a bit stagnant, I should be looking at some other asset classes, especially stuff that is less vulnerable to QE/inflation?

Hell, I don't know. That's what this thread is for. I need more books to read - keep them coming!

[bitchstewie]

Harry Flashman said:

I will definitely hold one of those, but I don't really like it for everything. Reading his site, I get the principal of being 3.5% in Apple if tracking the US market. But as AIG and others have taught us, I don't fancy being overweight in Fortune 10 companies. So I need something a bit smarter - that tracks everything but also counteracts the weightings given to large cap companies, and takes a bit more risk in smallcap/emerging.

I also instinctively think that as equities are overvalued and developed economies are a bit stagnant, I should be looking at some other asset classes, especially stuff that is less vulnerable to QE/inflation?

Hell, I don't know. That's what this thread is for. I need more books to read - keep them coming!

I think I said earlier on the thread but seriously, watch these http://www.kroijer.com - best half hour I've spent all year (in financial terms).

[Craikeybaby]

Harry Flashman said:

I will definitely hold one of those, but I don't really like it for everything. Reading his site, I get the principal of being 3.5% in Apple if tracking the US market. But as AIG and others have taught us, I don't fancy being overweight in Fortune 10 companies. So I need something a bit smarter - that tracks everything but also counteracts the weightings given to large cap companies, and takes a bit more risk in smallcap/emerging.

I also instinctively think that as equities are overvalued and developed economies are a bit stagnant, I should be looking at some other asset classes, especially stuff that is less vulnerable to QE/inflation?

Hell, I don't know. That's what this thread is for. I need more books to read - keep them coming!

It takes a lot of the fun out of it, but look at the Vanguard Lifestrategy funds.