What to do with £250k
Discussion
I'm looking to sell a property this/next year as the cheap 1.65% mortgage is coming to an end and I can't be bothered dealing with ever stricter regulations and an unfavourable tax environment. Net of fees and taxes I should get around £250k equity returned.
I've never had such a large lump sum amount come through before, so not sure how best to utilise it. I could drip feed £49k a year through ISAs (2 adults + 1 child), but what to do with the remaining amount during that time? Do I just stick it in some non-ISA equity fund and deal with the tax implications? Pay down my residential mortgage? Buy an Aventador?
I've never had such a large lump sum amount come through before, so not sure how best to utilise it. I could drip feed £49k a year through ISAs (2 adults + 1 child), but what to do with the remaining amount during that time? Do I just stick it in some non-ISA equity fund and deal with the tax implications? Pay down my residential mortgage? Buy an Aventador?
Regbuser said:
Shaoxter said:
Buy an Aventador?
R8 V10 Manual only going one way too.
Boring answer - any pension allowances left
It depends on what your aim is. Do you want to spend it in a year or two on another property? Do you have debt, are you about to retire?
If you ve no imminent need, and it s for your retirement you could pay it into your pension as well as into ISAs over the next few years and thereby reduce your income tax bill (dependent on how much you earn.)
Edited to say, I see that you do have a mortgage. Whether to pay it off or invest is not so much a purely economic / mathematical question, it depends on how much you value having no debt.
We’ve not paid off the last £250k on ours either as we prefer to keep the money invested, but are thinking of doing so as part of our move to simplify life and finances.
If you ve no imminent need, and it s for your retirement you could pay it into your pension as well as into ISAs over the next few years and thereby reduce your income tax bill (dependent on how much you earn.)
Edited to say, I see that you do have a mortgage. Whether to pay it off or invest is not so much a purely economic / mathematical question, it depends on how much you value having no debt.
We’ve not paid off the last £250k on ours either as we prefer to keep the money invested, but are thinking of doing so as part of our move to simplify life and finances.
Edited by SchillingTwo on Friday 4th September 17:19
I'll have around £20k pension allowance left this year, wife has a bit more. But that does seem a terribly boring option, almost 20 years away (could be more by the time I get there!), and it's not like withdrawing the money from the pension is tax free either.
In the back of my mind I've always had the idea of splashing out on a really special car, run it for a year or two and hopefully not suffer any depreciation and maybe even get some capitals gains free appreciation. But looking at the state of the limited run Ferrari market, it seems I'm a year or two late to that party!
I'm not that fussed about our residential mortgage, I'm not one of those people who think of it as some huge burden and see it as a cheap source of funding (for now).
In the back of my mind I've always had the idea of splashing out on a really special car, run it for a year or two and hopefully not suffer any depreciation and maybe even get some capitals gains free appreciation. But looking at the state of the limited run Ferrari market, it seems I'm a year or two late to that party!
I'm not that fussed about our residential mortgage, I'm not one of those people who think of it as some huge burden and see it as a cheap source of funding (for now).
Shaoxter said:
I'll have around £20k pension allowance left this year, wife has a bit more. But that does seem a terribly boring option, almost 20 years away (could be more by the time I get there!)
That would give your £20k+ plenty of years of growth and compounded interest whilst in your pension, plus you'd get tax relief. The possible negative is you'd be restricted from accessing it depending on government set pension age.Shaoxter said:
I'll have around £20k pension allowance left this year, wife has a bit more. But that does seem a terribly boring option, almost 20 years away (could be more by the time I get there!), and it's not like withdrawing the money from the pension is tax free either.
Well it can be, or a large part of it can be. On current rules 25% of it would be. And if you retired before State Pension age, and had no other income, you could get your annual tax allowance out tax free from the remaining 75%. If you retired say 5 years early, and the annual tax allowance by then was maybe £20K, that's a further £100K out tax free.
If you're getting 40% tax relief on the way in, what's not to like (apart from tying your money up for 20 years or more).
TwigtheWonderkid said:
Shaoxter said:
I'll have around £20k pension allowance left this year, wife has a bit more. But that does seem a terribly boring option, almost 20 years away (could be more by the time I get there!), and it's not like withdrawing the money from the pension is tax free either.
Well it can be, or a large part of it can be. On current rules 25% of it would be. And if you retired before State Pension age, and had no other income, you could get your annual tax allowance out tax free from the remaining 75%. If you retired say 5 years early, and the annual tax allowance by then was maybe £20K, that's a further £100K out tax free.
If you're getting 40% tax relief on the way in, what's not to like (apart from tying your money up for 20 years or more).
What will the rules be in 20 years time? Whilst it's by no means certain, it's highly likely that the number will be lower than that, potentially significantly lower. Very possibly zero. It's a gamble, the outcome is unknown.
If you're then talking about taking just the annual tax allowance amount then you're going to have a pension pot that you NEVER get to actually spend. What's the point of locking money up for 20+ years just so that you can see a nice big number on a pension portal - which is money that you'll never actually spend because you don't want to access it because that will mean paying tax.
omniflow said:
TwigtheWonderkid said:
Shaoxter said:
I'll have around £20k pension allowance left this year, wife has a bit more. But that does seem a terribly boring option, almost 20 years away (could be more by the time I get there!), and it's not like withdrawing the money from the pension is tax free either.
Well it can be, or a large part of it can be. On current rules 25% of it would be. And if you retired before State Pension age, and had no other income, you could get your annual tax allowance out tax free from the remaining 75%. If you retired say 5 years early, and the annual tax allowance by then was maybe £20K, that's a further £100K out tax free.
If you're getting 40% tax relief on the way in, what's not to like (apart from tying your money up for 20 years or more).
What will the rules be in 20 years time? Whilst it's by no means certain, it's highly likely that the number will be lower than that, potentially significantly lower. Very possibly zero. It's a gamble, the outcome is unknown.
If you're then talking about taking just the annual tax allowance amount then you're going to have a pension pot that you NEVER get to actually spend. What's the point of locking money up for 20+ years just so that you can see a nice big number on a pension portal - which is money that you'll never actually spend because you don't want to access it because that will mean paying tax.
Only on stocks and shares isas ?
Starting next April, savers will pay a 22pc tax charge on the interest earned on cash held in stocks and shares Isas, the Treasury announced on Tuesday.
The rules are being introduced to police the Chancellor s cut in the annual cash Isa allowance from £20,000 to £12,000.
A last-minute exemption for over-65s was announced at the last Budget in November, meaning that pensioners will retain their full £20,000 cash Isa allowance.
However, those older investors will not be exempted from the 22pc charge on interest on cash held in stocks and shares accounts, and will also have to abide by rules on cash-like investments.
Starting next April, savers will pay a 22pc tax charge on the interest earned on cash held in stocks and shares Isas, the Treasury announced on Tuesday.
The rules are being introduced to police the Chancellor s cut in the annual cash Isa allowance from £20,000 to £12,000.
A last-minute exemption for over-65s was announced at the last Budget in November, meaning that pensioners will retain their full £20,000 cash Isa allowance.
However, those older investors will not be exempted from the 22pc charge on interest on cash held in stocks and shares accounts, and will also have to abide by rules on cash-like investments.
omniflow said:
TwigtheWonderkid said:
Even if you take out a lot more than the annual tax free allowance, you still get the annual allowance out tax free.
Only until you reach state pension age.The gist of what I'm saying is that people are fond of saying "pensions...pah, you get taxed when you take out your money". The fact is you can get a hell of a lot of it out tax free, especially if you retire early, and if you're a 40% taxpayer, the tax you pay, unless you're earning more than £50K (currently) in retirement, will be a lot less than the tax relief you got putting the money in.
x type said:
Starting next April, savers will pay a 22pc tax charge on the interest earned on cash held in stocks and shares Isas, the Treasury announced on Tuesday. The rules are being introduced to police the Chancellor s cut in the annual cash Isa allowance from £20,000 to £12,000.
Is this in a place called "reality" or just in your imagination? I can't find any significant announcements last week. I thought it had been clearly set out that S&S ISA was away and laughing so long as it isn't "all cash".Either way, you've got to be a bit of a muppet to have your S&S ISA full of cash. You want your biggest gains in the tax free environment and that means equities, not cash. Which isn't to say there's anything wrong with a bit of cash in there, but all cash is nuts.
TwigtheWonderkid said:
omniflow said:
TwigtheWonderkid said:
Even if you take out a lot more than the annual tax free allowance, you still get the annual allowance out tax free.
Only until you reach state pension age.The gist of what I'm saying is that people are fond of saying "pensions...pah, you get taxed when you take out your money". The fact is you can get a hell of a lot of it out tax free, especially if you retire early, and if you're a 40% taxpayer, the tax you pay, unless you're earning more than £50K (currently) in retirement, will be a lot less than the tax relief you got putting the money in.
As someone else pointed out on the "Enjoying Retirement" thread - there's a big difference (mentally) between paying 40% tax on your pension and paying 40% tax on your salary.
£250,000 invested over 20 years with an assumed 10% compounded growth rate is approx £1.5 million pounds. That doesn't take into account the tax relief on the way in (I didn't include this because I've got absolutely no idea how much it would be), and it doesn't take into account any other money the OP already has in their pension, or any money that they're planning to put in their pension.
Wouldn't the OP be far better off putting the £250,000 into ISAs (assuming he's married and his Wife has unused ISA allowances each year) over a period of 6 years - paying tax on the tapering income from investments outside of ISAs during those 6 years and then having the money available to him at a time of his choosing, completely unencumbered by any form of taxation.
The other thing people seem to overlook is that the underlying investment can be identical - whether it's in an ISA or a SIPP. So you're not "missing out" on pension growth by having money in ISAs - the growth can be identical, it's just the tax treatment that varies.
omniflow said:
Fair enough. However, my point is that lots of people only ever think about the tax relief on the way in and completely ignore the fact that you pay tax on the way out. I'm also sure you're aware that under the current rules, "retiring early" only gives you a maximum of 10 years (57 - 67) of being able to take £12,500 / year without paying tax.
As someone else pointed out on the "Enjoying Retirement" thread - there's a big difference (mentally) between paying 40% tax on your pension and paying 40% tax on your salary.
£250,000 invested over 20 years with an assumed 10% compounded growth rate is approx £1.5 million pounds. That doesn't take into account the tax relief on the way in (I didn't include this because I've got absolutely no idea how much it would be), and it doesn't take into account any other money the OP already has in their pension, or any money that they're planning to put in their pension.
Wouldn't the OP be far better off putting the £250,000 into ISAs (assuming he's married and his Wife has unused ISA allowances each year) over a period of 6 years - paying tax on the tapering income from investments outside of ISAs during those 6 years and then having the money available to him at a time of his choosing, completely unencumbered by any form of taxation.
The other thing people seem to overlook is that the underlying investment can be identical - whether it's in an ISA or a SIPP. So you're not "missing out" on pension growth by having money in ISAs - the growth can be identical, it's just the tax treatment that varies.
I might be missing something here but if you've got your £1.5 mil in a pension you could crystallize £53600 a year for 20 years giving you £25970 a year tax free inc your £12570 allowance. Oversimplified of course ignoring rule changes etc.As someone else pointed out on the "Enjoying Retirement" thread - there's a big difference (mentally) between paying 40% tax on your pension and paying 40% tax on your salary.
£250,000 invested over 20 years with an assumed 10% compounded growth rate is approx £1.5 million pounds. That doesn't take into account the tax relief on the way in (I didn't include this because I've got absolutely no idea how much it would be), and it doesn't take into account any other money the OP already has in their pension, or any money that they're planning to put in their pension.
Wouldn't the OP be far better off putting the £250,000 into ISAs (assuming he's married and his Wife has unused ISA allowances each year) over a period of 6 years - paying tax on the tapering income from investments outside of ISAs during those 6 years and then having the money available to him at a time of his choosing, completely unencumbered by any form of taxation.
The other thing people seem to overlook is that the underlying investment can be identical - whether it's in an ISA or a SIPP. So you're not "missing out" on pension growth by having money in ISAs - the growth can be identical, it's just the tax treatment that varies.
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