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  • FIRST POST
    • the learner
    • By the learner 10th Aug 17, 9:15 PM
    • 160Posts
    • 8Thanks
    the learner
    EIS and SEIS
    • #1
    • 10th Aug 17, 9:15 PM
    EIS and SEIS 10th Aug 17 at 9:15 PM
    Hi,

    After having abandoned the idea to buy a house, I am currently trying to find the best allocation to my money.
    My total income this year is expected to be a bit above £100,000 so apart from my marginal 40% income tax and 2% NI I will see my tax free allowance reducing by £1 for every £2 extra income I earn.
    Effectively, this will correspond to paying a whooping 62% for any £1 I get from my investments generating income.

    I have filled my ISA allowance and increased my pension contributions so now I need to allocate cash for about £50,000.
    Most of this is already in P2P loans and the rest in some high interest bank account or regular saver. All these will get charged 62% tax.

    I was lookimg for alternatives and found EIS and SEIS. What is the best way to use these?
    I see that investing, for example, £10,000 I can reduce my tax bill by £5,000 (in case of SEIS) which is very nice.
    Given the high risks involved, what are the best ways to diversify this risk and leverage the tax efficient treatment?

    Any suggestion would be really appreciated.
Page 2
    • bowlhead99
    • By bowlhead99 13th Aug 17, 6:04 PM
    • 6,868 Posts
    • 12,368 Thanks
    bowlhead99
    Yes, agreed, maybe closer to 60 if state pension age is ticking up to about 70 by then. So probably not really any earlier than LISA access.

    If I were early 30s and cash rich I would at least consider LISA as well as pension (despite pension having the much higher initial tax relief) - more flexibility on drawing it out for emergency access (even if that access is to stuff it into a pension), and especially valuable for someone who has given up on buying a property for now but might at some point change their mind.
    • the learner
    • By the learner 13th Aug 17, 6:32 PM
    • 160 Posts
    • 8 Thanks
    the learner
    Thanks a lot guys. I recognise there is a big tax advantage if I make additional pension contributions but I have to wait more than 20y to access that money and this is not a minor point to me.
    I am making £1,500 contribution per month and I think it is enough at my age given I don't want to say goodbye to that money for at least 20y or more (if rules change).

    Buying a house woukd be the best solution at this stage since at least I coukd save/capitalise my rent without having cash to decide hiw to invest to minimize tha tax bill. Too bad we had Brexit.

    But from the discussions so far I realise that reallocating P2P in a IFISA wrapper is probably the easy solution for the short term. Regarding the concerns you mentioned, I think I can still transfer back to a S&S ISA if my equity portfolio gets bigger and I need to shelter outside the annual allowance.

    Also, I will still open a VCT since it looks a very decent product although I am not very confident about stock markets nowadays...
    • the learner
    • By the learner 13th Aug 17, 7:07 PM
    • 160 Posts
    • 8 Thanks
    the learner
    Actually, I have one doubt. This year I opened an IFISA with HNW. Can I transfer part of previous years' money from the S&S ISA to a new IFISA provider now?
    Cause I saw the rule says I cannot open 2 IFISA on the same year but it is not clear if in my case I can, since the second IFISA would hold previous years' money instead of 2017/18 contributions).
    Do you guys know?
    • bowlhead99
    • By bowlhead99 13th Aug 17, 7:40 PM
    • 6,868 Posts
    • 12,368 Thanks
    bowlhead99
    Buying a house woukd be the best solution at this stage since at least I coukd save/capitalise my rent without having cash to decide hiw to invest to minimize tha tax bill. Too bad we had Brexit.
    Originally posted by the learner
    Yes, buying a house is a decent idea and if not now, then in more than 12 months' time: which means putting £4k of your ISA into a S&S LISA to get the free £1k from the government; not too much hardship, as compared to doing a P2P LISA you are paying extra tax on the P2P income generated that doesn't fit into the wrapper, but likely beaten by the 25% bonus on the principal given by the government under the LISA scheme.

    Also, I will still open a VCT since it looks a very decent product although I am not very confident about stock markets nowadays...
    Yes though be aware that as VCTs are primarily tax planning vehicles the widest set of new issues will usually be available in the December to April window, so the choice is somewhat limited for now and you won't get your tax relief until the end of the tax year anyhow, so no urgency particularly if you're not enamoured by the market prices right now.

    Waiting until the very end of the window in March next year may mean missing out on a number of VCTs that filled their allocations early, so don't leave it as late as that to restrict choice too heavily, but no need to do it right now when the choice is already restricted because there are not many groups fundraising just yet. You could always invest in a smaller companies investment trust now instead and sell up to buy into VCT later.

    Actually, I have one doubt. This year I opened an IFISA with HNW. Can I transfer part of previous years' money from the S&S ISA to a new IFISA provider now?
    Cause I saw the rule says I cannot open 2 IFISA on the same year but it is not clear if in my case I can, since the second IFISA would hold previous years' money instead of 2017/18 contributions).
    Do you guys know?
    Originally posted by the learner
    Current year money in one particular ISA sub-class (e.g. S&S, IF, Cash, LISA) must all stay in one provider. However, prior year money can go anywhere. So yes you can keep your current year HNW ISA and move over some prior year money from S&S to IF - either with HNW or someone else.

    As a general commemt, some providers don't like dealing with partial transfers of cash out, so depending on the flexibility of your existing S&S provider they may not want to move 'some but not all' of your old money. These days most are OK with it, hopefully not an issue (and if it's a problem, you could move everything to a different S&S ISA manager and then smaller transfers out from there).
    • the learner
    • By the learner 13th Aug 17, 8:07 PM
    • 160 Posts
    • 8 Thanks
    the learner
    Yes, buying a house is a decent idea and if not now, then in more than 12 months' time: which means putting £4k of your ISA into a S&S LISA to get the free £1k from the government; not too much hardship, as compared to doing a P2P LISA you are paying extra tax on the P2P income generated that doesn't fit into the wrapper, but likely beaten by the 25% bonus on the principal given by the government under the LISA scheme.

    Yes though be aware that as VCTs are primarily tax planning vehicles the widest set of new issues will usually be available in the December to April window, so the choice is somewhat limited for now and you won't get your tax relief until the end of the tax year anyhow, so no urgency particularly if you're not enamoured by the market prices right now.

    Waiting until the very end of the window in March next year may mean missing out on a number of VCTs that filled their allocations early, so don't leave it as late as that to restrict choice too heavily, but no need to do it right now when the choice is already restricted because there are not many groups fundraising just yet. You could always invest in a smaller companies investment trust now instead and sell up to buy into VCT later.


    Current year money in one particular ISA sub-class (e.g. S&S, IF, Cash, LISA) must all stay in one provider. However, prior year money can go anywhere. So yes you can keep your current year HNW ISA and move over some prior year money from S&S to IF - either with HNW or someone else.

    As a general commemt, some providers don't like dealing with partial transfers of cash out, so depending on the flexibility of your existing S&S provider they may not want to move 'some but not all' of your old money. These days most are OK with it, hopefully not an issue (and if it's a problem, you could move everything to a different S&S ISA manager and then smaller transfers out from there).
    Originally posted by bowlhead99
    I am already contributing to an H2B ISA since I am followinf the strategy on this website given uncertainty around a house buying.

    Thanks for your suggestion regarding the VCT, yeah I will wait a bit more or go only with a £2,000 on the Unicorn VCT for now and buy another in December.

    Regarding the ISA transfer. If I tell an IFISA provider that I want to move, let's say, £20,000 from my S&S ISA with Fidelity, how do they know which fund they have to transfer? For example I want them to move the money in the cash park and leave the other investments untouched.
    • Snakey
    • By Snakey 14th Aug 17, 11:29 AM
    • 1,004 Posts
    • 1,219 Thanks
    Snakey
    Re: holding off on buying a house. I've no idea what "the strategy on this website" is, but on the assumption it involves waiting for an uncertain future event I would say don't forget your life along the way. Everything may well take place eventually, but in the context of (let's say) a thirty-year "before I retire" period or a ten-year "while I'm still young", you must consider the non-financial impact that circling around in a holding pattern for even three or five years will have on what you want to achieve on a personal level.

    I sat and waited for years for the "inevitable" house price crash that people told me was bound to happen because things were so overheated, overpriced, silly prices, unsustainable growth, already far beyond what anybody can afford, can't go on like this... and in central London all that happened when the "crash" did come was that things flatlined for a few months as people held off transactions while they waited to see what everybody else was doing.

    I ended up buying for at least double what I could have paid had I just held my nose and jumped in at the start - think of the difference that's made to my investment/retirement planning - and I'd have been in my own home for all those extra years instead of renting. You may not care too much about this for whatever reason including stuff you've not mentioned here, and that's fine, but don't let the financial tail wag the This Is Your One And Only Life dog!
    • marktristan
    • By marktristan 14th Aug 17, 11:31 AM
    • 13 Posts
    • 5 Thanks
    marktristan
    On the timing: while the traditional “window” for VCTs has been December to April, actually a fair few VCTs have announced they will be opening offers much earlier this year. This includes Mobeus, Northern and Octopus Titan which will all be opening in the coming months. One possible reason for this is that the chancellor has moved the date of the budget forward from March to November. Read into that what you will.

    On the platforms: HL does VCTs only (I am an HL client btw and I know they are not bargain-cheap but I like their service particularly the online bit). Wealth Club, a specialist in the tax-efficient area, does VCTs and also EIS / SEIS, if you are still considering those. Worth getting on their list just so you hear about everything.
    • the learner
    • By the learner 14th Aug 17, 1:39 PM
    • 160 Posts
    • 8 Thanks
    the learner
    Re: holding off on buying a house. I've no idea what "the strategy on this website" is, but on the assumption it involves waiting for an uncertain future event I would say don't forget your life along the way. Everything may well take place eventually, but in the context of (let's say) a thirty-year "before I retire" period or a ten-year "while I'm still young", you must consider the non-financial impact that circling around in a holding pattern for even three or five years will have on what you want to achieve on a personal level.

    I sat and waited for years for the "inevitable" house price crash that people told me was bound to happen because things were so overheated, overpriced, silly prices, unsustainable growth, already far beyond what anybody can afford, can't go on like this... and in central London all that happened when the "crash" did come was that things flatlined for a few months as people held off transactions while they waited to see what everybody else was doing.

    I ended up buying for at least double what I could have paid had I just held my nose and jumped in at the start - think of the difference that's made to my investment/retirement planning - and I'd have been in my own home for all those extra years instead of renting. You may not care too much about this for whatever reason including stuff you've not mentioned here, and that's fine, but don't let the financial tail wag the This Is Your One And Only Life dog!
    Originally posted by Snakey
    Thanks a lot for your thoughts. The "strategy" I am mentioning here is the one that suggests to feed the H2B ISA and before end of tax year transfer to a LISA if not yet in the process of buying a house soon.

    I have other personal reasons in play, like the possibikity of moving back to my country at some point in the next 5y or so.

    So I am currently waiting for scenarios to unfold and I just want to keep all the strategies in place based on what will happen to my life in the near future.
    And in the meantime, I want to optimise my tax bill if possible.
    • the learner
    • By the learner 14th Aug 17, 3:28 PM
    • 160 Posts
    • 8 Thanks
    the learner
    My plan to transfer part of old stock&share ISA I have with Fidelity to a P2P IFISA provider seems to be difficult to execute.

    Fidelity does not allow for partial transfer so I should transfer everything to the new provider but I actually still want to keep some stock&share in place.

    Do you know if there is any S&S ISA providing the flexibility for partial transfers? So far I only verified that Cavendish don't allow that since they can only offer a change of agency to my current Fidelity account (which anyway would save me 0.1% in charges).

    Do you have any suggestion how to achieve my goal with least impact and max tax benefit?

    Current situation:

    Fidelity S&S: £45,000
    IFISA: £20,000
    P2P outside IFISA: £30,000

    Desired situation to reduce taxable income from P2P and leave mutual funds distributing dividends outside ISA to use the dividend allowance:

    Fidelity S&S: £15,000
    IFISA: £50,000
    P2P outside IFISA: £0
    Mutual funds outside ISA: 30,000


    In the S&S ISA I would keep funds distributing as income (like M&G Optima Income for example) while outside the ISA I can keep funds that distribute as dividends.
    Given that dividends contribute to the taxable income I would still pay 20% tax in my situation (because of reducing personal income tax allowance) but that is still better than paying 62%.
    Thanks for any suggestion.
    Last edited by the learner; 14-08-2017 at 5:17 PM.
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