Armydilllo Strategy

2

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  • badger09
    badger09 Posts: 11,128
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    Pincher wrote: »
    I had a lecturer who said investment decisions shouldn't be based on tax reliefs. I myself cannot imagine doing anything to do with money without thinking about tax.

    Eighteen years of tax deductibles against rental income was a major factor in my return on investment.

    There is however a big difference between 'thinking about tax' when making investment decisions, and making those decisions based solely on the tax position.

    Eg the very large proportion of savers who still insist on using cash ISAs with miniscule interest rates 'because the interest is tax free':eek:
  • Thrugelmir
    Thrugelmir Posts: 89,546
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    Pincher wrote: »
    I had a lecturer who said investment decisions shouldn't be based on tax reliefs. I myself cannot imagine doing anything to do with money without thinking about tax.

    Most entrepreneurs focus their energy on making lots of money first then worry about the tax afterwards. Tax legislation as BTL investors have found out recently is not set in stone.
  • Pincher
    Pincher Posts: 6,552
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    Thrugelmir wrote: »
    Most entrepreneurs focus their energy on making lots of money first then worry about the tax afterwards. Tax legislation as BTL investors have found out recently is not set in stone.

    Entrepreneurs can sell their startup business tax free, that's why they don't need to think about it.

    The re-investment of income in the early years means they cannot be taxed as profit.
  • Eco_Miser
    Eco_Miser Posts: 4,708
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    ArmyDilllo wrote: »
    If I leave it until 2020, I will need to draw some income from personal pensions to top up a tax-free income which I expect to be more significant from my bond and ISA's.
    I will take as little as possible from my pension, as it's taxable, and reduce that amount each year, as my tax-free income becomes greater.
    It's taxable, but is it actually taxed? Remember your first £11k is tax-free (plus £1k PSA, £5k dividend allowance, and possibly £5k starting rate on savings).
    I'd be looking to draw up to my personal allowance, and stuffing the excess into ISAs, or even unwrapped investments if there was available dividend allowance.
    Eco Miser
    Saving money for well over half a century
  • ArmyDilllo
    ArmyDilllo Posts: 150 Forumite
    Eco_Miser wrote: »
    It's taxable, but is it actually taxed? Remember your first £11k is tax-free (plus £1k PSA, £5k dividend allowance, and possibly £5k starting rate on savings).
    I'd be looking to draw up to my personal allowance, and stuffing the excess into ISAs, or even unwrapped investments if there was available dividend allowance.
    Exactly!
    :)
    I've already paid tax on it when I earned it in the first place, I don't want to pay even more just because I've put the rest to work.

    I will max my income allowances while I can and draw anything else I need from tax-free sources; ISA's slicing an Investment Bond, etc.
    As the tax-free sources increase in value I will take less an less from the taxable sources.
    My state pension will kick in in 2016 and use most of my allowance anyway.

    Because of their starting value, the growth of my tax-free investments should increase at a greater rate than my 'taxable' source.
    Eventually I will only be drawing from tax-free income, leaving the taxable sources to grow again.

    I do not intend to purchase any annuities, unless my calculations prove wildly inaccurate (in which case that's one of my back-up plans).
    I will put my pensions into Drawdown and estimate that I can generate a significantly larger return from doing this than from an annuity (which would also die with me).
    If I die before 75, my beneficiaries will get the tax-free benefits of my continuing drawdown arrangement.
    If I die later, they'll have to pay tax on them and everything else in my estate anyway.
    But at least they'll benefit from it and not some warped insurance company.

    I have recently stopped working full time to ease toward full retirement
    I will be able to live comfortably on less than I generate so my estate will continue to grow for my beneficiaries as long as I'm alive and could be quite significant in just a couple of decades as I also believe that it will outpace inflation
    .
    The longer I stay alive this will compound and generate even more for them, although the cost of having hot nurses/hookers around to change my nappies later on might make something of a dent later.
    :beer:
    2016 : Realised £103,000.00 savings (banked)
    2017 : Realised £97,000.00 savings (banked)
    2018 : Realised £ savings (banked)

    20.4% avg annual portfolio growth since 2004.

    Retired 17:30 hrs, Friday 30th September 2016, aged 56, and luvvin' it!!
    :beer:
  • ArmyDilllo
    ArmyDilllo Posts: 150 Forumite
    edited 10 October 2016 at 7:17AM
    Update:-

    Last month I sold the holding I had in Royal Dutch Shell 'A' and moved everything to B.P.

    One other tiny little detail;
    On Friday 30th September I retired.
    I'll let you know if I've got my sums right in due course.
    Right now I'm eyeing up boats in case events prove that I did.
    2016 : Realised £103,000.00 savings (banked)
    2017 : Realised £97,000.00 savings (banked)
    2018 : Realised £ savings (banked)

    20.4% avg annual portfolio growth since 2004.

    Retired 17:30 hrs, Friday 30th September 2016, aged 56, and luvvin' it!!
    :beer:
  • Dird
    Dird Posts: 2,702
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    edited 10 October 2016 at 3:18PM
    It's only worth making pension contributions for a few years right? Current state pension gives £8k of the £11k tax free allowance so once you've got enough to cover £3k (inflation linked or DC high enough that it reaches the new allowance at retirement age) more then you'll end up paying 20% on withdrawal in income tax. Or it's still good because you get an extra 80% from employer from matched contributions (less the 20% income tax)?

    Also, if you are cruising around on your boat does that make you able to avoid any income tax? I think I read before that a person is deemed a resident for tax purposes if they spend 6 months+ in the country in a year
    Mortgage (Nov 15): £79,950 | Cashback sites: £900 | Current accounts: 11
    Mortgage (May 19): £71,754 | £30k in 2016: £30,300 (101%)
  • Thrugelmir
    Thrugelmir Posts: 89,546
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    ArmyDilllo wrote: »
    Last month I sold the holding I had in Royal Dutch Shell 'A' and moved everything to B.P.

    What was your thinking behind the switch?
  • ArmyDilllo
    ArmyDilllo Posts: 150 Forumite
    edited 12 October 2016 at 10:11AM
    Thrugelmir wrote: »
    What was your thinking behind the switch?
    Annoyingly, B.P. has outperformed RDSA in the period I held both.
    Of course, since the day I switched RDSA has outperformed B.P.!
    lolol.
    Them's the breaks.
    BP are still up (+12%) since I switched.


    I also felt more comfortable with BP as a company moving forward but now OPEC and Putin have joined forces both should be safer with the imminent rise in oil prices.
    I bought BP six months ago, thinking they may reach £5.00 by xmas and with the intention of cashing in at that point.
    Now I'm hoping for £6.00 before next Spring and holding them.
    The dividend's still around 7% p.a. and now the producers are getting their act together the oil companies and everything else could benefit.
    Not that we're on solid ground yet.


    { 8-]
    2016 : Realised £103,000.00 savings (banked)
    2017 : Realised £97,000.00 savings (banked)
    2018 : Realised £ savings (banked)

    20.4% avg annual portfolio growth since 2004.

    Retired 17:30 hrs, Friday 30th September 2016, aged 56, and luvvin' it!!
    :beer:
  • ArmyDilllo
    ArmyDilllo Posts: 150 Forumite
    edited 12 October 2016 at 10:56AM
    Sorry, I replied to this twice yesterdayand was logged out both times before I could post.
    (Will remember to copy the text this time....!)
    Dird wrote: »
    Also, if you are cruising around on your boat does that make you able to avoid any income tax? I think I read before that a person is deemed a resident for tax purposes if they spend 6 months+ in the country in a year

    I have to remain a U.K. resident in order to continue a programme of ISA investment I plan to exploit for my retirement fund.
    I'm happy with that as I do not care to fully leave the U.K. anyway.
    Dird wrote: »
    It's only worth making pension contributions for a few years right? Current state pension gives £8k of the £11k tax free allowance so once you've got enough to cover £3k (inflation linked or DC high enough that it reaches the new allowance at retirement age) more then you'll end up paying 20% on withdrawal in income tax. Or it's still good because you get an extra 80% from employer from matched contributions (less the 20% income tax)?

    There's a few things to consider there.
    If you see pension growth as equal to any other investment I would say contribute to a pension.
    • You get an automatic 20% (min) contribution from the Govt., on any taxed income you contribute, so you're already up.
    • You can take 25% tax-free when you decide to withdraw it, providing your total taxable income is within your basic rate tax band. If you go over you pay at the higher rate tax band. Don't forget you also get a personal allowance of currently £11k tax-free anyway.
    • Your employer may contribute to an occupational pension alongside your own contributions.
    There's a lot to be said for pensions.
    But now there's a Lifetime ISA you could use as well (you might not persuade your employer to contribute as there is no N.I. incentive for them to do so yet).
    With a LISA there are similar benefits but, because it's and ISA tax-wrapper, the return is 100% tax-free rather than just 25%.
    You can only start one if you're under 40 and only claim it after you're 60 (or there are penalties to pay).

    I'm 56.
    So I can't claim my state pension for another ten years (2026).
    When I can claim it I fully intend to use it to absorb my personal allowance and top it up with other savings vehicles which are more tax efficient (ISA's, investment bonds, endowment, etc).

    Until 2026 I have personal pensions which I can use on a variable drawdown type basis.
    If I only withdraw from my pensions up to my personal income allowance I have other savings vehicles from which I can withdraw further income on a tax free basis, making my retirement income entirely income-tax efficient (damn you, Vat-Man!).
    So, this year, apart from retiring, I have also become income-tax free
    I was not expecting this for another ten years but, thanks to Brexit, it appears, for now, that I am already there.
    I have sufficient savings in place that I believe it should be possible (barring another Wall Street style crash) to live on the natural growth without touching the capital.
    I believe that I should also be able to continue investing to grow the estate I'm leaving to my beneficiaries; I am happy in my own skin and have relatively simple needs (owning my own boat would be a luxury I can live happily with or without).

    Once my state pension kicks in and takes up my income allowance, I will leave my personal pensions alone and forget about them.
    They'd become taxable anyway so they may as well recover and grow within my estate.
    Much better for me to use the tax efficient status of my other investments.
    If my estate grows at 7-8% per year I can live on 4% and re-invest the remainder.
    As I re-invest I hope that my estate will continue to grow and my demands upon will become less, until I need someone to wipe my backside and feed me (let's hope they get that the right way around).
    I see that my funds will initially reduce but start growing again in three to four years and become self-funding in ten (some already are).

    I have a will and now I've begun to put plans in place to deal with the I.H.T. on my estate, which will continue until I snuff it.

    { 8-]
    2016 : Realised £103,000.00 savings (banked)
    2017 : Realised £97,000.00 savings (banked)
    2018 : Realised £ savings (banked)

    20.4% avg annual portfolio growth since 2004.

    Retired 17:30 hrs, Friday 30th September 2016, aged 56, and luvvin' it!!
    :beer:
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