Your questions answered Vol 2 - IM Private Clients
Discussion
assuming they deliver the same return,
i's say draw the pension first,
1. You never know how long the tax free sum will be around for
2. Take the taxable part out of your pension whiles your prevailing tax rate is low (this depends on your circumstances, but I'm assuming it will be lower before the state pension kicks in?)
3. ISAs can be left as part of an estate, not all pensions can
4. If your not using the ISA allowances going forward any excess you take from the pension can be invested in an equivalent ISA
the devil is in the detail so depends on personal circumstances but makes sense to me generally
i's say draw the pension first,
1. You never know how long the tax free sum will be around for
2. Take the taxable part out of your pension whiles your prevailing tax rate is low (this depends on your circumstances, but I'm assuming it will be lower before the state pension kicks in?)
3. ISAs can be left as part of an estate, not all pensions can
4. If your not using the ISA allowances going forward any excess you take from the pension can be invested in an equivalent ISA
the devil is in the detail so depends on personal circumstances but makes sense to me generally
markiii said:
assuming they deliver the same return,
i's say draw the pension first,
1. You never know how long the tax free sum will be around for
2. Take the taxable part out of your pension whiles your prevailing tax rate is low (this depends on your circumstances, but I'm assuming it will be lower before the state pension kicks in?)
3. ISAs can be left as part of an estate, not all pensions can
4. If your not using the ISA allowances going forward any excess you take from the pension can be invested in an equivalent ISA
the devil is in the detail so depends on personal circumstances but makes sense to me generally
Nik And Julian are the experts however a Defined Contribution Pension (the most common) is ring fenced and does not form part of ones estate in regards IHT. This could be a significant consideration for many and guidance on same is offered by IM.i's say draw the pension first,
1. You never know how long the tax free sum will be around for
2. Take the taxable part out of your pension whiles your prevailing tax rate is low (this depends on your circumstances, but I'm assuming it will be lower before the state pension kicks in?)
3. ISAs can be left as part of an estate, not all pensions can
4. If your not using the ISA allowances going forward any excess you take from the pension can be invested in an equivalent ISA
the devil is in the detail so depends on personal circumstances but makes sense to me generally
Grey_Area said:
Presuming hpothetically that there's 2 pots of funds, each with 100k in, for ease of use in numbers.
One set is made up of ISA's, the other is a pension pot.
Which one should be drawn down first, and why. I'm wracking my tiny cerebral calculator in trying to establish whats the best method going forward when the time comes, but with all this crystalising funds, taking some from an ISA and perhaps topping the pension up as we go, I'm suffering from analysis paralysis..
TIA
Hi Grey_AreaOne set is made up of ISA's, the other is a pension pot.
Which one should be drawn down first, and why. I'm wracking my tiny cerebral calculator in trying to establish whats the best method going forward when the time comes, but with all this crystalising funds, taking some from an ISA and perhaps topping the pension up as we go, I'm suffering from analysis paralysis..
TIA
The first consideration will be how much annual income do you need?
There are then a number of areas to consider, tax on the income, other investments in taxable areas that may be usable and IHT/Estate planning. Often a combination of pension and ISA income works well.
Using your income tax allowance to draw pension income along with some tax free cash and then topping up with ISA income is an option
You don't need to crystallise all of the pension pot in one go so this offers the ability to draw £16,760 p.a. from your pension and pay no income tax.
You also have a Capital Gains Tax allowance of £12,300 p.a. so you can take income from assets held outside of ISA's and Pension and keep the tax bill low.
You can then either decide to top up income from ISA's with no tax to pay or accept a 20% tax rate if needs be.
From and IHT perspective, ISA allowances can be passed between spouses but otherwise will form part of the estate for IHT purposes, Most pension pots can be passed on outside of the estate so are free from IHT.
I'm happy to cast an eye of your situation and share some thoughts if that would useful
nik.burrows@intelligentmoney.com
Cheers
Nik
Intelligent Money said:
Grey_Area said:
Presuming hpothetically that there's 2 pots of funds, each with 100k in, for ease of use in numbers.
One set is made up of ISA's, the other is a pension pot.
Which one should be drawn down first, and why. I'm wracking my tiny cerebral calculator in trying to establish whats the best method going forward when the time comes, but with all this crystalising funds, taking some from an ISA and perhaps topping the pension up as we go, I'm suffering from analysis paralysis..
TIA
Hi Grey_AreaOne set is made up of ISA's, the other is a pension pot.
Which one should be drawn down first, and why. I'm wracking my tiny cerebral calculator in trying to establish whats the best method going forward when the time comes, but with all this crystalising funds, taking some from an ISA and perhaps topping the pension up as we go, I'm suffering from analysis paralysis..
TIA
The first consideration will be how much annual income do you need?
There are then a number of areas to consider, tax on the income, other investments in taxable areas that may be usable and IHT/Estate planning. Often a combination of pension and ISA income works well.
Using your income tax allowance to draw pension income along with some tax free cash and then topping up with ISA income is an option
You don't need to crystallise all of the pension pot in one go so this offers the ability to draw £16,760 p.a. from your pension and pay no income tax.
You also have a Capital Gains Tax allowance of £12,300 p.a. so you can take income from assets held outside of ISA's and Pension and keep the tax bill low.
You can then either decide to top up income from ISA's with no tax to pay or accept a 20% tax rate if needs be.
From and IHT perspective, ISA allowances can be passed between spouses but otherwise will form part of the estate for IHT purposes, Most pension pots can be passed on outside of the estate so are free from IHT.
I'm happy to cast an eye of your situation and share some thoughts if that would useful
nik.burrows@intelligentmoney.com
Cheers
Nik
I'll probably take you up on that once I know roughly where things are heading.
markiii said:
assuming they deliver the same return,
i's say draw the pension first,
1. You never know how long the tax free sum will be around for
2. Take the taxable part out of your pension whiles your prevailing tax rate is low (this depends on your circumstances, but I'm assuming it will be lower before the state pension kicks in?)
3. ISAs can be left as part of an estate, not all pensions can
4. If your not using the ISA allowances going forward any excess you take from the pension can be invested in an equivalent ISA
the devil is in the detail so depends on personal circumstances but makes sense to me generally
Thank youi's say draw the pension first,
1. You never know how long the tax free sum will be around for
2. Take the taxable part out of your pension whiles your prevailing tax rate is low (this depends on your circumstances, but I'm assuming it will be lower before the state pension kicks in?)
3. ISAs can be left as part of an estate, not all pensions can
4. If your not using the ISA allowances going forward any excess you take from the pension can be invested in an equivalent ISA
the devil is in the detail so depends on personal circumstances but makes sense to me generally
AdamIM said:
markiii said:
assuming they deliver the same return,
i's say draw the pension first,
1. You never know how long the tax free sum will be around for
2. Take the taxable part out of your pension whiles your prevailing tax rate is low (this depends on your circumstances, but I'm assuming it will be lower before the state pension kicks in?)
3. ISAs can be left as part of an estate, not all pensions can
4. If your not using the ISA allowances going forward any excess you take from the pension can be invested in an equivalent ISA
the devil is in the detail so depends on personal circumstances but makes sense to me generally
Nik And Julian are the experts however a Defined Contribution Pension (the most common) is ring fenced and does not form part of ones estate in regards IHT. This could be a significant consideration for many and guidance on same is offered by IM.i's say draw the pension first,
1. You never know how long the tax free sum will be around for
2. Take the taxable part out of your pension whiles your prevailing tax rate is low (this depends on your circumstances, but I'm assuming it will be lower before the state pension kicks in?)
3. ISAs can be left as part of an estate, not all pensions can
4. If your not using the ISA allowances going forward any excess you take from the pension can be invested in an equivalent ISA
the devil is in the detail so depends on personal circumstances but makes sense to me generally
Nik ( or anyone who knows ) on a similar thread ......
With zero taxable income , If I decided to take advantage of potentially unused income tax allowance , does crystallising a DC pension put a stop to the 720GBP boost I get adding the non working maximum to my SIPP ? ( under age of state pension draw )
The destination would be to my ISA each year , and not worried about IHT ( taken care of largely by matters I won't go into on a forum )
With zero taxable income , If I decided to take advantage of potentially unused income tax allowance , does crystallising a DC pension put a stop to the 720GBP boost I get adding the non working maximum to my SIPP ? ( under age of state pension draw )
The destination would be to my ISA each year , and not worried about IHT ( taken care of largely by matters I won't go into on a forum )
Mr Whippy said:
What’s the buyback scenario like USA vs UK?
I see the big USA companies aren’t always innovating as much as just buying innovative competitors, or buying their own stock.
And the USA government is now taxing buybacks, and may continue to add to this tax if it proves ‘popular’
From what I can see it’s still relative peanuts but it’s a new trend change in a tightening environment.
Also I see increased pressure and awareness that buying up innovators (Meta being challenged, and Nvidia being blocked buying ARM) isn’t a way to drive growth and innovation as easily as it was.
It’ll be interesting to see how this perpetual growth model stacks up in the coming 5 years, with ESG type pressures too.
At least with dividends you can see businesses just passing on your share of profits.
But to expect a business to grow perpetually in a new world of green, sustainability etc… I struggle too see it working.
Of course the cynic in me says ESG is just three letters, and it’s business as usual.
But what if it’s not? Can big business just grow and grow with finite resources, customers, and rules limiting how much they just steam-roller their competitors, the environment, etc?
Adam, thanks for reply on 24hr trading.
But as I noted don’t you also have many big companies on international markets.
How do they work?
Also I note some non USA exchanges, like London, have ETF on stocks like Tesla, like 3x short, etc.
Surely they must effect things on the USA open on individual stocks?
Or am I misunderstanding the natures of these instruments and exchanges?
Thanks
BuybackI see the big USA companies aren’t always innovating as much as just buying innovative competitors, or buying their own stock.
And the USA government is now taxing buybacks, and may continue to add to this tax if it proves ‘popular’
From what I can see it’s still relative peanuts but it’s a new trend change in a tightening environment.
Also I see increased pressure and awareness that buying up innovators (Meta being challenged, and Nvidia being blocked buying ARM) isn’t a way to drive growth and innovation as easily as it was.
It’ll be interesting to see how this perpetual growth model stacks up in the coming 5 years, with ESG type pressures too.
At least with dividends you can see businesses just passing on your share of profits.
But to expect a business to grow perpetually in a new world of green, sustainability etc… I struggle too see it working.
Of course the cynic in me says ESG is just three letters, and it’s business as usual.
But what if it’s not? Can big business just grow and grow with finite resources, customers, and rules limiting how much they just steam-roller their competitors, the environment, etc?
Adam, thanks for reply on 24hr trading.
But as I noted don’t you also have many big companies on international markets.
How do they work?
Also I note some non USA exchanges, like London, have ETF on stocks like Tesla, like 3x short, etc.
Surely they must effect things on the USA open on individual stocks?
Or am I misunderstanding the natures of these instruments and exchanges?
Thanks
Buyback is much more common in the US and it is another way of distributing surpless cash - again, to generate share growth price.
It works by buying back existing share in the market and effectively deleting them, thereby reducing the number of shares available and in doing to increasing the prices of the ones still trading.
In the UK, these funds would typically be used to pay out a stronger dividend, but as I mentioned, in the US it is all about the underlying stock price. I am not sure the 1% tax Biden introduced on this will have any great impact on buybacks, but time will tell.
US v UK models (sustainability)
Regarding the model of buying up innovators, this is just one route to reinvesting capital back for growth, but as you mention the giants are starting to hit brick walls with this.
I believe serious budget will start to be diverted to internal projects, 'innovation hubs', if you will, that exist internally and act as an incubator for start ups under a holding company's umbrella.
A tech business incubator where people can go and create completely independent start-ups, but structured under the umbrella of the company than might buy them out.
Finally, can this seemingly perpetual growth continue? As with all questions the answer depends on where you are sitting at the time. In the UK we are used to the higher paying dividend model, in the US they are not, but there is no reason why this growth cycle will not continue (all things being equal) providing the reinvested profits are put to work effectively.
Summary
At the end of the day, the question is do you wish to take profits as you go along (usually reinvesting them back into shares yourself), or do you wish to see this money automatically reinvested back to grow the business?
I would argue that the former represents a lower level of risk (4% annual dividends retained by you over 25 years is effectively getting your original investment back) and the latter offers hight reward potentials (none of it distribuets, but instead reinvested directly), but that would be abount the end of it.
In this respect, to my mind at least, comparing whether to have greater/lesser exposure to the UK and US markets can become as simple as your attitude to stockmarket risk/reward.
I hope this gives a clearer picture regarding my earlier post. Regarding ESG, yes, it is mainly box ticking and lip service, in my experience. It works though!
Cheers
Julian
I'm slightly surprised there has been no mention or discussion of the descision of the UD Federal Reserve to crash the US economy in order to bring inflation under control:
https://www.telegraph.co.uk/business/2022/08/24/us...
https://www.forbes.com/sites/jonathanponciano/2022...
Given the monumental impact this would have on portfolio values is this because maybe you don't think it will happen or perhaps because it's just one of the blips in the overall investment timeline. Some of us aren't working on long timescales.
There have been a couple of posts suggesting that the US stock model might be better than the UK one & Tech stocks might be particularly favoured but if there is the possibility of 30-50% cuts in stock market values this is something that needs consideration. Or is it too late to take action?
https://www.telegraph.co.uk/business/2022/08/24/us...
https://www.forbes.com/sites/jonathanponciano/2022...
Given the monumental impact this would have on portfolio values is this because maybe you don't think it will happen or perhaps because it's just one of the blips in the overall investment timeline. Some of us aren't working on long timescales.
There have been a couple of posts suggesting that the US stock model might be better than the UK one & Tech stocks might be particularly favoured but if there is the possibility of 30-50% cuts in stock market values this is something that needs consideration. Or is it too late to take action?
PM3 said:
Nik ( or anyone who knows ) on a similar thread ......
With zero taxable income , If I decided to take advantage of potentially unused income tax allowance , does crystallising a DC pension put a stop to the 720GBP boost I get adding the non working maximum to my SIPP ? ( under age of state pension draw )
The destination would be to my ISA each year , and not worried about IHT ( taken care of largely by matters I won't go into on a forum )
Hi PM3With zero taxable income , If I decided to take advantage of potentially unused income tax allowance , does crystallising a DC pension put a stop to the 720GBP boost I get adding the non working maximum to my SIPP ? ( under age of state pension draw )
The destination would be to my ISA each year , and not worried about IHT ( taken care of largely by matters I won't go into on a forum )
No, it does not do this. It does limit your contributions to £4k a year (gross), but does not restrict the tax relieft you get on these contributions (including the non-relevant earnings amount you describe.
You correctly identify IHT issues can arrise, but you are not concerend with this and, quite rightly, do not which to go into it on the forum. Remember though you can always speak with Nik off forum should you wish too (though it sounds as though you woun't need to , he remains available if you would like to double check anything).
Just shout with anything else!
Edited due to stupidity!
Edited by JulianPH on Tuesday 30th August 09:47
Another distantly-relevant question which may be better elsewhere ....
Is there any way of getting money out of a GIA without crystallising the gains? I am aware of the fact that you can take a gain of up to the annual CGT limit each year, and that if you take £1 out of the GIA then you can calculate the proportion that is gain and the proportion that was original investment, but is there any way of getting more than the CGT allowance out without paying a thumping great big tax bill? Something like an in-specie transfer of ISA's and pensions and whatnot?
I am pretty sure that the answer is a simple 'No' but I thought I'd ask.
Is there any way of getting money out of a GIA without crystallising the gains? I am aware of the fact that you can take a gain of up to the annual CGT limit each year, and that if you take £1 out of the GIA then you can calculate the proportion that is gain and the proportion that was original investment, but is there any way of getting more than the CGT allowance out without paying a thumping great big tax bill? Something like an in-specie transfer of ISA's and pensions and whatnot?
I am pretty sure that the answer is a simple 'No' but I thought I'd ask.
2Btoo said:
Another distantly-relevant question which may be better elsewhere ....
Is there any way of getting money out of a GIA without crystallising the gains? I am aware of the fact that you can take a gain of up to the annual CGT limit each year, and that if you take £1 out of the GIA then you can calculate the proportion that is gain and the proportion that was original investment, but is there any way of getting more than the CGT allowance out without paying a thumping great big tax bill? Something like an in-specie transfer of ISA's and pensions and whatnot?
I am pretty sure that the answer is a simple 'No' but I thought I'd ask.
Hi 2Btoo,Is there any way of getting money out of a GIA without crystallising the gains? I am aware of the fact that you can take a gain of up to the annual CGT limit each year, and that if you take £1 out of the GIA then you can calculate the proportion that is gain and the proportion that was original investment, but is there any way of getting more than the CGT allowance out without paying a thumping great big tax bill? Something like an in-specie transfer of ISA's and pensions and whatnot?
I am pretty sure that the answer is a simple 'No' but I thought I'd ask.
Firstly, in-specie transfers are not something you can use for tax mitigation. Nik may be able to add something-it's not my area of expertise
2Btoo said:
Another distantly-relevant question which may be better elsewhere ....
Is there any way of getting money out of a GIA without crystallising the gains? I am aware of the fact that you can take a gain of up to the annual CGT limit each year, and that if you take £1 out of the GIA then you can calculate the proportion that is gain and the proportion that was original investment, but is there any way of getting more than the CGT allowance out without paying a thumping great big tax bill? Something like an in-specie transfer of ISA's and pensions and whatnot?
I am pretty sure that the answer is a simple 'No' but I thought I'd ask.
Hi 2BtooIs there any way of getting money out of a GIA without crystallising the gains? I am aware of the fact that you can take a gain of up to the annual CGT limit each year, and that if you take £1 out of the GIA then you can calculate the proportion that is gain and the proportion that was original investment, but is there any way of getting more than the CGT allowance out without paying a thumping great big tax bill? Something like an in-specie transfer of ISA's and pensions and whatnot?
I am pretty sure that the answer is a simple 'No' but I thought I'd ask.
The simple answer is unfortunately no.
You can transfer assets between spouses with no CGT, but the asset is treated as transferred at the price that you purchased at so all you really do is transfer the gain over. It allows you to use both CGT allowances if one partner is using theirs.
Capital gain is wiped out on death, but that seems a high price to pay to avoid some tax and it could well then just fall into the IHT band!
Cheers
Nik
Intelligent Money said:
Hi 2Btoo
The simple answer is unfortunately no.
You can transfer assets between spouses with no CGT, but the asset is treated as transferred at the price that you purchased at so all you really do is transfer the gain over. It allows you to use both CGT allowances if one partner is using theirs.
Capital gain is wiped out on death, but that seems a high price to pay to avoid some tax and it could well then just fall into the IHT band!
Cheers
Nik
Hi NikThe simple answer is unfortunately no.
You can transfer assets between spouses with no CGT, but the asset is treated as transferred at the price that you purchased at so all you really do is transfer the gain over. It allows you to use both CGT allowances if one partner is using theirs.
Capital gain is wiped out on death, but that seems a high price to pay to avoid some tax and it could well then just fall into the IHT band!
Cheers
Nik
Following on from this question. If you transfer between spouse, is there any tax forms required to be completed e.g declaration on self assessment or CGT forms?
Cheers
Frank
JulianPH said:
PM3 said:
Nik ( or anyone who knows ) on a similar thread ......
With zero taxable income , If I decided to take advantage of potentially unused income tax allowance , does crystallising a DC pension put a stop to the 720GBP boost I get adding the non working maximum to my SIPP ? ( under age of state pension draw )
The destination would be to my ISA each year , and not worried about IHT ( taken care of largely by matters I won't go into on a forum )
Hi PM3With zero taxable income , If I decided to take advantage of potentially unused income tax allowance , does crystallising a DC pension put a stop to the 720GBP boost I get adding the non working maximum to my SIPP ? ( under age of state pension draw )
The destination would be to my ISA each year , and not worried about IHT ( taken care of largely by matters I won't go into on a forum )
No, it does not do this. It does limit your contributions to £4k a year (gross), but does not restrict the tax relieft you get on these contributions (including the non-relevant earnings amount you describe.
You correctly identify IHT issues can arrise, but you are not concerend with this and, quite rightly, do not which to go into it on the forum. Remember though you can always speak with Nik off forum should you wish too (though it sounds as though you woun't need to , he remains available if you would like to double check anything).
Just shout with anything else!
Intelligent Money said:
Hi 2Btoo
The simple answer is unfortunately no.
You can transfer assets between spouses with no CGT, but the asset is treated as transferred at the price that you purchased at so all you really do is transfer the gain over. It allows you to use both CGT allowances if one partner is using theirs.
Capital gain is wiped out on death, but that seems a high price to pay to avoid some tax and it could well then just fall into the IHT band!
Cheers
Nik
Nik, The simple answer is unfortunately no.
You can transfer assets between spouses with no CGT, but the asset is treated as transferred at the price that you purchased at so all you really do is transfer the gain over. It allows you to use both CGT allowances if one partner is using theirs.
Capital gain is wiped out on death, but that seems a high price to pay to avoid some tax and it could well then just fall into the IHT band!
Cheers
Nik
Thanks. Just as I thought. Nice and clear and simple, even if it's not the answer I was hoping for!
Thanks again.
PorkInsider said:
Wonder where we're heading this week?
Joules and ASOS taking another dive today so presumably retail outlook is becoming ever more gloomy...
Truss (the huge favourite) takes the reins during a maelstrom of big issues. I would expect a plan on energy costs within a week. Most likely freeze the Cap, followed by an emergency budget to unwind the NI and CT tax hikes. I read recently she wants to raise the speed limit which, in theory would increase productivity. We really do need to be more productive. Perhaps enact new laws requiring Unions to use arbitration rather than strikes where their sector/service is a public necessity.Joules and ASOS taking another dive today so presumably retail outlook is becoming ever more gloomy...
I expect investment in energy production. The UK must strive to be self sufficient.
I think Truss will reveal some quite radical plans to restore faith in the government as quickly as possible(and by default UK PLC). Investment/spending! I think it's a case of, can we afford not to double down, here.
Edited by AdamIM on Monday 5th September 11:26
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