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  • FIRST POST
    • Jon_W
    • By Jon_W 6th Mar 17, 10:57 PM
    • 108Posts
    • 17Thanks
    Jon_W
    What will a financial adviser do for me?
    • #1
    • 6th Mar 17, 10:57 PM
    What will a financial adviser do for me? 6th Mar 17 at 10:57 PM
    I am reading Smarter Investing by Tim Hale. I coped up until chapter 7 where I found it difficult. 8 was harder and 9 doesn't make any sense at all to me (I am in NO way blaming the book here!!).

    The book makes a rational case for spreading your investments between (high quality, shorter term) bonds and equity (including emerging markets and lower value and risky companies) depending on what you want your holdings to do.

    I don't know where to start. If you said to me 'Go and buy a UK Governmenr bond' I wouldn't know what to do. If you said to me 'Invest in a fund that replicates the FTSE All Share Index', likewise.

    Would I be able to sit down with an adviser and say something like:

    1. I am nearing 40
    2. I have no pension or other assets
    3. I want to invest a fair-sized 5 figure sum so that it grows steadily to provide for when I'm retired
    4. But it needs to be liquid in case I ever need cash for an emergency
    5. This should be split between around 20% in bonds and 80% equities spread like this according to this book( the table 7.9 for anyone who has the book)

    Can you use my money to buy funds to represent this mix?

    Also would those fund managers reinvest the income from the fund back into or does my adviser decide where to invest it?

    What sort of fees will the adviser charge, a flat fee or a percentage of any gains?

    I can imagine some jaws hitting the floor with some of the basic Qs I've asked here!
Page 6
    • bowlhead99
    • By bowlhead99 10th Mar 17, 10:31 PM
    • 6,873 Posts
    • 12,379 Thanks
    bowlhead99
    Imagine you are a basic rate taxpayer somewhere in the middle of the basic rate band with £30,000 of earnings.

    You pay a marginal rate of 20% tax on those earnings as you say.

    If you decide to 'give up' £12,500 of those earnings one year and put them in a pension, you will not pay tax now on those £12,500 of earnings. So you will save £2500 tax.

    So the choice is, keep the cash and have [£12,500 less 20% tax] in your hand, which is £10,000 cash in your hand.

    Or put it in the pension and have £12,500 in the pension.

    As you can see, the £12,500 in the pension is 25% greater than the £10,000 you would have had in your hand.

    When you eventually draw the pension at age 58 or whatever the age limit is by the time you get there, you can have a quarter of the pension money as a tax free lump sum and then the rest of the money you take out of it will be 'taxable'. I put the taxable in quotes, because although it is technically taxable income, you will probably have a lot of space within your annual personal allowance over the course of a few years to take that money out of the pension without going over your annual personal allowance and therefore only having a tax rate of 0% on the money.

    So, for someone in your position who has not really lined up any other sources of taxable income in retirement which would have used up your annual personal allowances once you stop work, the choice is basically:

    - put £10,000 into a pension now and have it grossed up to £12,500 with basic rate tax relief. Watch the money grow and then when you need it at age 60ish, draw it out 25% tax free and 75% taxable but probably at 0%. The net result is you get £12500 plus growth, back in your hand, in retirement.

    Or

    - put £10,000 into a LISA and get a 25% bonus on it to £12500. Watch the money grow and then when you need it age 60+, take it out and pay zero tax.

    As you can see, the result is pretty much the same, and using the pension route allows you to get literally your entire salary into tax-relieved investments every year whereas the LISA only allows you to get £4k into bonused investments every year.

    A disadvantage of pension is that there is no access (even with penalty) if you want to access the money at some point before the pension access age (although that access age might be slightly earlier than LISA access age). Whereas the LISA could be accessed at any time in a dire emergency by giving up the bonus and the profits on the bonus and paying a further penalty.

    A further disadvantage is that taking the money out of a pension entirely tax free does require that the three-quarters of it which is taxable is received in years where you have spare annual personal allowance. If you were still working at, say, 62, with no spare personal allowance, but wanted to take out £50k to buy a sportscar, that extra lump of pension income taken that year would push you into higher rate tax; whereas £50k taken out of a LISA age 62 would not involve any tax paid at all.

    Advantages of pension include higher rate tax relief for those who are in higher rate tax bands, and the fact that money stuck in a pension can't be taken off you by your creditors when the bailiffs come round, or if you go bankrupt, or if you are looking to get means-tested welfare benefits at some point - whereas if you had ISA/LISA you would be expected to use that up first before taking meanstested benefits.
    • Jon_W
    • By Jon_W 11th Mar 17, 10:58 AM
    • 108 Posts
    • 17 Thanks
    Jon_W
    Imagine you are a basic rate taxpayer somewhere in the middle of the basic rate band with £30,000 of earnings.

    You pay a marginal rate of 20% tax on those earnings as you say.

    If you decide to 'give up' £12,500 of those earnings one year and put them in a pension, you will not pay tax now on those £12,500 of earnings. So you will save £2500 tax.

    So the choice is, keep the cash and have [£12,500 less 20% tax] in your hand, which is £10,000 cash in your hand.

    Or put it in the pension and have £12,500 in the pension.

    As you can see, the £12,500 in the pension is 25% greater than the £10,000 you would have had in your hand.

    When you eventually draw the pension at age 58 or whatever the age limit is by the time you get there, you can have a quarter of the pension money as a tax free lump sum and then the rest of the money you take out of it will be 'taxable'. I put the taxable in quotes, because although it is technically taxable income, you will probably have a lot of space within your annual personal allowance over the course of a few years to take that money out of the pension without going over your annual personal allowance and therefore only having a tax rate of 0% on the money.

    So, for someone in your position who has not really lined up any other sources of taxable income in retirement which would have used up your annual personal allowances once you stop work, the choice is basically:

    - put £10,000 into a pension now and have it grossed up to £12,500 with basic rate tax relief. Watch the money grow and then when you need it at age 60ish, draw it out 25% tax free and 75% taxable but probably at 0%. The net result is you get £12500 plus growth, back in your hand, in retirement.

    Or

    - put £10,000 into a LISA and get a 25% bonus on it to £12500. Watch the money grow and then when you need it age 60+, take it out and pay zero tax.

    As you can see, the result is pretty much the same, and using the pension route allows you to get literally your entire salary into tax-relieved investments every year whereas the LISA only allows you to get £4k into bonused investments every year.

    A disadvantage of pension is that there is no access (even with penalty) if you want to access the money at some point before the pension access age (although that access age might be slightly earlier than LISA access age). Whereas the LISA could be accessed at any time in a dire emergency by giving up the bonus and the profits on the bonus and paying a further penalty.

    A further disadvantage is that taking the money out of a pension entirely tax free does require that the three-quarters of it which is taxable is received in years where you have spare annual personal allowance. If you were still working at, say, 62, with no spare personal allowance, but wanted to take out £50k to buy a sportscar, that extra lump of pension income taken that year would push you into higher rate tax; whereas £50k taken out of a LISA age 62 would not involve any tax paid at all.

    Advantages of pension include higher rate tax relief for those who are in higher rate tax bands, and the fact that money stuck in a pension can't be taken off you by your creditors when the bailiffs come round, or if you go bankrupt, or if you are looking to get means-tested welfare benefits at some point - whereas if you had ISA/LISA you would be expected to use that up first before taking meanstested benefits.
    Originally posted by bowlhead99
    Thanks, Bowlhead. Following on from this (a mix of Qs and statements here):

    1. If I put £ from an inheritance which wasn't liable to IHT (below threshold by some way) is THAT topped-up as being as it wasn't ever taxed? If so is it by my income tax rate (20%)?

    2. This sounds good, the pension, because in effect I am getting the tax back on it (I hope) and then can avoid income tax liability on it in future by keeping withdrawals at a limit where I am still within my income tax personal allowance. The downside of this is that I will probably need to still be working into my old age so if that employment is full time, it'l be taxed

    3. I should ask the same about the LISA instead of just assuming. From what we know so far will I still get the income tax 'back' on the investment of £10k into the LISA as being as it has come to me from a source which is not liable to income tax?

    4. Not being able to access the pension money is something I see as a bonus. I have not been careful with money in the past so I think it would be a blessing and I would have other accessible investments if I needed to get £.

    5. If I throw the £10k into a pension can I choose WHERE and WHAT it is invested? That is, say "I want £8k to be on Tracker Fund x and £2k on Bond Fund y,"?

    6. If the answer to 5 is no, what rates of growth can one expect to achieve, over 25 years? I know we don't have a crystal ball. But what sort of returns would be a reasonable expectation?

    7. STOOPID Q: if creditors can't go after the pension and it is ringfenced, if the debts in question still exist by the time I'm drawing on that pension (both as the 25% lump sum and as an income), does the protection still apply? Or can they access either or both of the 25% lump sum or the income from it?

    8.All things being equal, if I don't expect to be in the higher tax bracket, the LISA is the better option overall isn't it?

    Bowlhead, thanks for taking the time to help me like this. I can't express my gratitude enough for it. You and dunstonh have cleared a bit of the trees so I can see some of the wood.
    Last edited by Jon_W; 11-03-2017 at 11:12 AM.
    • bowlhead99
    • By bowlhead99 11th Mar 17, 12:26 PM
    • 6,873 Posts
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    bowlhead99
    1. If I put £ from an inheritance which wasn't liable to IHT (below threshold by some way) is THAT topped-up as being as it wasn't ever taxed? If so is it by my income tax rate (20%)?
    Originally posted by Jon_W
    It doesn't really matter where you got the money (from an inheritance, a gift from a friend, a loan from a bank, some overtime at work). As long as the gross amount you are putting into your pension doesn't exceed your 'relevant' earnings (employment or self-employed business earnings) for the year in which you're making the contribution, you're fine, and you will get your basic rate relief.

    As described earlier the basic relief for you as a 20% taxpayer means that you will get a £12500 gross pension contribution by contributing £10,000, or you could get a £25000 pension contribution by contributing £20,000. You pay over the net amount to the pension company and tell them that you earned at least the gross amount that year, and they claim the tax relief amount from HMRC and add it to the pension account (the £2500 or £5000 in the above example).

    If you are trying to put £25,000 gross into your pension for the year (£20,000 cash cost), then as long as you had earnings of at least £25,000, it is fine and doesn't really matter how you funded it in practice. For example you could save every penny from work and use some existing savings to make sure you have £20k available in the bank to make the £20k contribution to the pension. Or you could have a lavish lifestyle and hardly save anything from work over the year, but then take a loan or get an inheritance to give you the requisite £20k in the bank to be able to make the £20k contribution to the pension.

    2. This sounds good, the pension, because in effect I am getting the tax back on it (I hope) and then can avoid income tax liability on it in future by keeping withdrawals at a limit where I am still within my income tax personal allowance. The downside of this is that I will probably need to still be working into my old age so if that employment is full time, it'l be taxed
    Yes, if you are still earning more than the £11k a year personal allowance (or whatever it has risen to by that point), there will be some tax on the money coming out of the pension - only a tax free lump of 25% is properly tax free and the other three quarters is taxable.

    3. I should ask the same about the LISA instead of just assuming. From what we know so far will I still get the income tax 'back' on the investment of £10k into the LISA as being as it has come to me from a source which is not liable to income tax?
    You don't get any income tax 'back' by contributing to a LISA. You can put £4k into a LISA each year and they will give you a fixed bonus of 25% which is £1k. That bonus is the same percentage as you get as basic rate tax relief on a personal pension, but it doesn't depend on your personal tax rate and is nothing to do with how you sourced the money (whether from taxed salary, taxed or untaxed inheritance, gift from a friend, loan from a bank, whatever).

    The tax advantage on a LISA compared to investing outside an ISA is simply that there is no tax on any interest, dividend, investment income, capital gain generated inside it as you go through the years of making investment profits. That tax advantage combined with a bonus is nice, but forget about 'getting income tax back on the investment of £10k due to the source it came from'. You are mixing the concepts up.

    The pension is the one that gives you income tax back on the investment of £10k (instead of a bonus) and also has no tax on interest, dividend, investment income, capital gains as you go along; but is (potentially) taxable in retirement depending on your personal circumstances at that time.

    4. Not being able to access the pension money is something I see as a bonus. I have not been careful with money in the past so I think it would be a blessing and I would have other accessible investments if I needed to get £.
    Fine
    5. If I throw the £10k into a pension can I choose WHERE and WHAT it is invested? That is, say "I want £8k to be on Tracker Fund x and £2k on Bond Fund y,"?
    Yes, you can direct what your pension contributions are invested into and switch funds from time to time based on what you or your adviser think that you should do.

    If you use a 'self invested personal pension' or (SIPP) you will have access to all the investments you can get in ISAs or LISAs. If you use a simpler personal pension from a traditional insurance company pension provider you will have fewer choices but there will still be a whole variety of choices for you to pick between and allocate your money as you wish.

    6. If the answer to 5 is no, what rates of growth can one expect to achieve, over 25 years? I know we don't have a crystal ball. But what sort of returns would be a reasonable expectation?
    n/a because the answer is not no.

    7. STOOPID Q: if creditors can't go after the pension and it is ringfenced, if the debts in question still exist by the time I'm drawing on that pension (both as the 25% lump sum and as an income), does the protection still apply? Or can they access either or both of the 25% lump sum or the income from it?
    This can get complicated but certainly if you draw a big 25% into your bank account that bit would definitely be assets that your creditors can go after, or be considered by people who are wondering whether they should give you means-tested benefits.

    And if you have ongoing income from a pension, then just like a salary, that's something that is up for grabs by people to whom you owe money, and something that can reduce means tested benefits if you were saying you didn't have much income.

    8.All things being equal, if I don't expect to be in the higher tax bracket, the LISA is the better option overall isn't it?
    There are pros and cons as described throughout the thread. As illustrated above, the 25% bonus is the same size as the 25% uplift that comes from tax relief on a personal pension contribution by a 20% taxpayer. And income and gains as the years go by are not subject to tax in either LISA or pension. The amount you can stuff into a pension each year is much larger than the amount you can stuff into a LISA each year. The downside is that the pension is only completely tax free when you draw it if you have spare allowances at that time.

    But as you've said you have no existing pension assets, and your retirement might last from your 60s for forty years, it sounds like at some point you are going to get plenty of space to draw pension money out well within your annual allowances. £4k a year into a LISA for the next decade is not going to get you a massive pot of assets to fall back on so it will definitely make sense to make large pension contributions as well.
    • Jon_W
    • By Jon_W 11th Mar 17, 2:16 PM
    • 108 Posts
    • 17 Thanks
    Jon_W
    Thanks, Bowlhead. I got confused, sorry about that; the LISA top-up is a bonus, not a tax rebate, as you point out.

    So my choices of 'vehicle' if that's the right term are: S & S ISA, LISA and SIPP. Blimey, I was struggling just with the picking funds part!!

    When I've got my head around the info in this thread I think a sheet of A4 for each listing its features and pros/cons would be in order. At least then I have something to go on when it comes to meeting an IFA. Because at the moment, the answer to the Q "How can I help?" would be, "Er...I'm not sure!".

    Then just the fund picking to get on with...
    • Sean473
    • By Sean473 11th Mar 17, 3:03 PM
    • 71 Posts
    • 33 Thanks
    Sean473
    You do realise that outperforming VLS60 is not that difficult. VLS is not some spectacular option that is better than everything else out there.

    We buy our allocations in. The allocations are fluid and not fixed and the funds we use include managed and passive. We dont put a restriction on using passive only. So, that does not handicap the potential return.
    Originally posted by dunstonh
    Lol I do realise that...

    Just so that I can look in the correct direction, do you mind sharing an example of what funds you are currently invested in? I have a good idea of what I should be looking towards but just to firm it up, this would help
    • bigadaj
    • By bigadaj 11th Mar 17, 3:05 PM
    • 10,673 Posts
    • 6,974 Thanks
    bigadaj
    Lol I do realise that...

    Just so that I can look in the correct direction, do you mind sharing an example of what funds you are currently invested in? I have a good idea of what I should be looking towards but just to firm it up, this would help
    Originally posted by Sean473
    I think he'll want paying for that, check his footer.
    • badger09
    • By badger09 11th Mar 17, 3:22 PM
    • 5,384 Posts
    • 4,620 Thanks
    badger09
    Great, I'll get onto the bank Monday morning to get the cash ISA opened.

    As for choice of S & S ISA, Hargreaves Lansdown caught my eye, if only for the telephone advice which is available.
    Originally posted by Jon_W
    If you're going down my suggested cash ISA route (temporarily) then you have time to look at various platforms.

    You should first decide which funds/ITs etc you want to invest in.

    Then look at the platforms which offer those funds/ITs etc and whose charges suit the way you intend to invest. The platforms have very different charging models and some will be more cost effective than others for you.

    Hargreaves Lansdown can be one of the most expensive platforms if you are holding funds. When you mention telephone advice, what did you have in mind?

    Once you've decided on the investments, and whether you're going to invest your £40k in 2 lump sums say mid April 2017 and again mid April 2018, or in smaller tranches, there is a tool provided by forum user snowman, which compares platform costs. BUT there is no need to choose a platform now.
    • badger09
    • By badger09 11th Mar 17, 3:26 PM
    • 5,384 Posts
    • 4,620 Thanks
    badger09
    Lol I do realise that...

    Just so that I can look in the correct direction, do you mind sharing an example of what funds you are currently invested in? I have a good idea of what I should be looking towards but just to firm it up, this would help
    Originally posted by Sean473
    Even if dunstonh was prepared to do this why would it be of use to you? He is not you, and what suits him might be totally unsuitable for you.
    • Jon_W
    • By Jon_W 11th Mar 17, 4:29 PM
    • 108 Posts
    • 17 Thanks
    Jon_W
    If you're going down my suggested cash ISA route (temporarily) then you have time to look at various platforms.

    You should first decide which funds/ITs etc you want to invest in.

    Then look at the platforms which offer those funds/ITs etc and whose charges suit the way you intend to invest. The platforms have very different charging models and some will be more cost effective than others for you.

    Hargreaves Lansdown can be one of the most expensive platforms if you are holding funds. When you mention telephone advice, what did you have in mind?

    Once you've decided on the investments, and whether you're going to invest your £40k in 2 lump sums say mid April 2017 and again mid April 2018, or in smaller tranches, there is a tool provided by forum user snowman, which compares platform costs. BUT there is no need to choose a platform now.
    Originally posted by badger09
    Again wisdom which might be apparent to you but which I'd never have thought of, so thanks!

    Would the ideal order of decision therefore be:

    1. Which funds
    2. Which vehicle (SIPPS, S & S ISA, LISA)
    3. Which provider(s)/platform(s)

    therefore?

    As for telephone advice...I don't know what questions may arise but I expect I'll have many! ;-)
    Last edited by Jon_W; 11-03-2017 at 4:33 PM.
    • badger09
    • By badger09 11th Mar 17, 5:08 PM
    • 5,384 Posts
    • 4,620 Thanks
    badger09
    Again wisdom which might be apparent to you but which I'd never have thought of, so thanks!

    Would the ideal order of decision therefore be:

    1. Which funds
    2. Which vehicle (SIPPS, S & S ISA, LISA)
    3. Which provider(s)/platform(s)

    therefore?

    As for telephone advice...I don't know what questions may arise but I expect I'll have many! ;-)
    Originally posted by Jon_W
    Its only apparent to me because I'm a few years (only a few) ahead of you on this learning curve

    I would say

    2) (though it doesn't have to be either/or)
    1)
    3)

    HL would only give you telephone advice on the mechanics of investing through their platform, as would most platforms. HL would charge if you wanted investment advice.
    • bowlhead99
    • By bowlhead99 11th Mar 17, 5:11 PM
    • 6,873 Posts
    • 12,379 Thanks
    bowlhead99
    When I've got my head around the info in this thread I think a sheet of A4 for each listing its features and pros/cons would be in order.
    Originally posted by Jon_W
    Yes you could do that by going back through the thread and writing them down (as many of them have been laid out above, or are implicit from what has been laid out above), or using google to search for pros and cons of the different options.
    At least then I have something to go on when it comes to meeting an IFA.
    Why do you need to list in advance the pros and cons of the different options? The IFA will already know the pros and cons of the different options, so you don't have to teach him what they are. He can tell you in the meeting what the pros and cons are, and ask you which ones you consider most important, to help you establish what is best for you to do.
    .Because at the moment, the answer to the Q "How can I help?" would be, "Er...I'm not sure!".
    Wouldn't the answer be "I don't have any provision for my retirement, and would like some assistance understanding the options available to me and putting a plan in place using the money I have available and new money coming available to me in the future, which would result in me building up a portfolio of suitable investment funds using appropriate tax wrappers to meet my objectives."

    Then the IFA's question would be "So what are those objectives then", to which you will probably say something inane like "I want money in retirement but not sure when or how much, but as much as possible please, that costs me as little as possible now". Then the IFA will say OK that's what everyone wants but let's explore more about your needs and objectives and what might be realistic and what the priorities are and how we could best accomplish that.

    None of that requires you to know what all the different wrappers are. You can just say "I have heard of pensions and ISAs and now LISAs but I'm afraid I don't remember the pros and cons of each or how they might best be used in my plan, but hopefully you understand them don't you Mr or Ms IFA?" And he/she will say that first we need to work out what the objectives are and then we can decide broadly the types of assets which might be used to meet them and what if any of the major tax planning opportunities we should use to get there.

    Then just the fund picking to get on with...
    Once you've decided what the objectives are. If you are going to an IFA they will walk you through the process and advise on the funds and tax wrappers. You only need to do the structuring and fund picking yourself on a DIY basis if you want to do it DIY and not advised.

    If you are going to decide your structure and tax wrappers and funds for yourself then you won't need an IFA because you will have already found the answers yourself. Of course, if you're not confident that the answers you found are the right ones you can meet an IFA and do a full fact find and pay the IFA to work with you to come up with the plan of how they would have done it, which will either help validate that your choice was OK or give you an alternate path to follow if you are more convinced by their plan than yours.
    • Skibunny40
    • By Skibunny40 11th Mar 17, 5:15 PM
    • 84 Posts
    • 64 Thanks
    Skibunny40
    What about making a few "free initial appointments" with various FA/IFA's?

    I did this when I was starting out, and gained more/different information and understanding which each person I talked to. I also finally found an IFA I got on with and trusted - some of them might have been fab at their job, but I just didn't like them. I know many will say that shouldn't be relevant, but it was for me.
    • Jon_W
    • By Jon_W 11th Mar 17, 9:50 PM
    • 108 Posts
    • 17 Thanks
    Jon_W
    Yes you could do that by going back through the thread and writing them down (as many of them have been laid out above, or are implicit from what has been laid out above), or using google to search for pros and cons of the different options.
    Why do you need to list in advance the pros and cons of the different options? The IFA will already know the pros and cons of the different options, so you don't have to teach him what they are. He can tell you in the meeting what the pros and cons are, and ask you which ones you consider most important, to help you establish what is best for you to do.
    Wouldn't the answer be "I don't have any provision for my retirement, and would like some assistance understanding the options available to me and putting a plan in place using the money I have available and new money coming available to me in the future, which would result in me building up a portfolio of suitable investment funds using appropriate tax wrappers to meet my objectives."

    Then the IFA's question would be "So what are those objectives then", to which you will probably say something inane like "I want money in retirement but not sure when or how much, but as much as possible please, that costs me as little as possible now". Then the IFA will say OK that's what everyone wants but let's explore more about your needs and objectives and what might be realistic and what the priorities are and how we could best accomplish that.

    None of that requires you to know what all the different wrappers are. You can just say "I have heard of pensions and ISAs and now LISAs but I'm afraid I don't remember the pros and cons of each or how they might best be used in my plan, but hopefully you understand them don't you Mr or Ms IFA?" And he/she will say that first we need to work out what the objectives are and then we can decide broadly the types of assets which might be used to meet them and what if any of the major tax planning opportunities we should use to get there.

    Once you've decided what the objectives are. If you are going to an IFA they will walk you through the process and advise on the funds and tax wrappers. You only need to do the structuring and fund picking yourself on a DIY basis if you want to do it DIY and not advised.

    If you are going to decide your structure and tax wrappers and funds for yourself then you won't need an IFA because you will have already found the answers yourself. Of course, if you're not confident that the answers you found are the right ones you can meet an IFA and do a full fact find and pay the IFA to work with you to come up with the plan of how they would have done it, which will either help validate that your choice was OK or give you an alternate path to follow if you are more convinced by their plan than yours.
    Originally posted by bowlhead99
    I want to know the basics before I meet an IFA so I can get the most out of the meeting: if he is explaining the basics to me, which I could learn from this thread, then it's wasted time for both of us to a degree.

    I like your model responses that I could (will!) use though, so cheers!!
    • Jon_W
    • By Jon_W 11th Mar 17, 9:51 PM
    • 108 Posts
    • 17 Thanks
    Jon_W
    What about making a few "free initial appointments" with various FA/IFA's?

    I did this when I was starting out, and gained more/different information and understanding which each person I talked to. I also finally found an IFA I got on with and trusted - some of them might have been fab at their job, but I just didn't like them. I know many will say that shouldn't be relevant, but it was for me.
    Originally posted by Skibunny40
    Where did you find them, Ski bunny?
    • Skibunny40
    • By Skibunny40 12th Mar 17, 8:39 AM
    • 84 Posts
    • 64 Thanks
    Skibunny40
    I went on unbiased.co.uk and also just googled "IFA in xxxxx(my hometown)". Anyone that offered a free initial appointment, I went along.
    • Jon_W
    • By Jon_W 12th Mar 17, 8:52 AM
    • 108 Posts
    • 17 Thanks
    Jon_W
    I went on unbiased.co.uk and also just googled "IFA in xxxxx(my hometown)". Anyone that offered a free initial appointment, I went along.
    Originally posted by Skibunny40
    Thanks, I'll start there.
    • Jon_W
    • By Jon_W 12th Mar 17, 10:40 AM
    • 108 Posts
    • 17 Thanks
    Jon_W
    Some more Qs and general statements of my understanding (sorry!) on SIPPs and LISAs (albeit with me knowing that some/all of this may just be speculation at this stage for the latter).

    QUESTIONS/STATEMENTS ABOUT SIPPS

    1. Do you get any interest on the value of your investments held in a SIPP? If so, I would imagine that it is up to the pension owner (me) to invest it?

    2. Any dividends from the investments held in the SIPP, I would imagine that whether these are reinvested depends on whether the funds held in the SIPP are accumulatory or income?

    3. Are the dividends from the investments held in the SIPP liable to income tax? And even if automatically reinvested by the fund holder(s)?

    4. Are the capital gains taxed? (I think that CGT is only payable when gains are crystalised, that is, turned into cash so wouldn't be payable as they accumulate, right?) From what has been explained it seems not, and that only the income from it (after the 25% lump sum has been taken) is taxed, if over the personal allowance or at a higher rate if takes your annual income into a higher band.

    QUESTIONS/STATEMENTS ABOUT LISAS

    1. Completely tax free. No income tax on any dividends, no income tax if take and income from the investments, no CGT if/when sell

    2. Interest payable on LISAs and S & S ISAs is on the value of assets held?

    3. The interest on LISAs and S & S ISAs, is it calculated on the value of assets held at the end of each month? Or is it (say) calculated on the value of assets held at the end of the financial year?

    3. When is interest on S & S ISAs and LISAs paid? Monthly, quarterly or (financial) yearly?

    4. When does the Government pay the 25% bonuses? Every tax year or on the occurrence of reaching age 60 or buying property?

    5. IF the government 25% bonus is payable in the future on a qualifying event what happens if a subsequent Chancellor says, "Actually, I don't like these LISAs. I will pass legislation to abolish them." Then what will happen? We're stuffed!

    6. What sort of interest rates can you see providers offering? (I assume these will increase if/when the base rate moves up, which may be some way off)

    7. I also assume that I could make my annual £4k top-up into the LISA by transferring funds from a S & S ISA

    8. Again, I assume that the responsibility for investing any dividends from the funds held is a function of the funds themselves and depends on whether they are accumulatory/income

    9. Will the £4k a year I am allowed to put in a LISA deducted from the ISA annual allowance of £20k (which it'll be by the time they're up and running)?
    Last edited by Jon_W; 12-03-2017 at 10:42 AM.
    • masonic
    • By masonic 12th Mar 17, 10:43 AM
    • 9,125 Posts
    • 6,274 Thanks
    masonic
    Maybe it would be a useful exercise for you to research (i.e. Google) a few of those questions for yourself and come back with a shorter list of those you couldn't easily find the answers to. Finding out basic information for yourself using the internet is a useful skill to possess.
    • badger09
    • By badger09 12th Mar 17, 11:05 AM
    • 5,384 Posts
    • 4,620 Thanks
    badger09
    Jon_W

    You seem to have forgotten something very basic. S&S ISA, LISA (S&S), SIPP are just tax wrappers, or envelopes.

    What you hold inside those envelopes determines whether they attract interest or dividends.

    Income and gains inside all of the above are free of tax

    You can choose to have dividends automatically reinvested by buying acc version.
    • bowlhead99
    • By bowlhead99 12th Mar 17, 1:23 PM
    • 6,873 Posts
    • 12,379 Thanks
    bowlhead99
    Some more Qs and general statements of my understanding (sorry!) on SIPPs and LISAs (albeit with me knowing that some/all of this may just be speculation at this stage for the latter).
    Originally posted by Jon_W
    Many of these have been answered up the thread.

    1. Do you get any interest on the value of your investments held in a SIPP? If so, I would imagine that it is up to the pension owner (me) to invest it?
    Depending on the nature of the investment funds you choose to hold in the SIPP they may pay interest, dividends, property income distributions, whatever.

    If your assets are cash or bonds they will generate interest income. If it is investments in funds that invest in company shares and properties you will get dividends or other types of income instead. You do not magically get paid interest on the value of your dividend-paying funds as well as receiving dividends from them.

    If the funds you buy are not 'accumulation' ones which reinvest the proceeds of their investment activity, and they instead send the interest, dividends, property income distributions, whatever - into your account; you will end up with cash within your SIPP which needs to be reinvested by you.

    2. Any dividends from the investments held in the SIPP, I would imagine that whether these are reinvested depends on whether the funds held in the SIPP are accumulatory or income?
    Yes. Most are available in both flavours.

    3. Are the dividends from the investments held in the SIPP liable to income tax? And even if automatically reinvested by the fund holder(s)?
    No they are not. As I already explained when you were asking about the pros and cons of pension versus ISA, a pension just like an ISA "has no tax on interest, dividend, investment income, capital gains as you go along".

    When you get to retirement and want to draw out the total value of the pension into your bank account, there may be some tax to pay on the amount of money you take out, depending on your available allowances.

    4. Are the capital gains taxed? (I think that CGT is only payable when gains are crystalised, that is, turned into cash so wouldn't be payable as they accumulate, right?) From what has been explained it seems not
    Answered by the previous answer. There are no taxes to pay on the gains.
    , and that only the income from it (after the 25% lump sum has been taken) is taxed, if over the personal allowance or at a higher rate if takes your annual income into a higher band.
    A pension, because it has had income tax relief at the beginning when you put the money in, is considered to be a big pot of value coming from your employment.

    It gets bigger over time due to the returns on investment, but is basically a pile of employment income which has not been taxed yet (because any tax paid was relieved on the way in).

    So when you get to your late 50s or beyond and you want to access it, you will need to pay tax at your marginal rate at that time. As you say, 25% lump sum will be tax free as a nice concession to encourage people to use pensions, but the rest will be taxable at your marginal rate. This might be 0% within your annual personal allowance, or basic rate or higher rate.

    The size of the personal allowance is not guaranteed but will presumably remain higher than state pension level; the 20% and 40% figures are not guaranteed, because tax rates change from time to time. So you might find the rates are 18% and 42% or 15% and 35% or 25% and 50% or any other combination that the government decides.

    QUESTIONS/STATEMENTS ABOUT LISAS

    1. Completely tax free. No income tax on any dividends, no income tax if take and income from the investments, no CGT if/when sell
    Basically yes, as already mentioned several times on the thread.

    However, just to be pedantic I am going to say there is no *UK* income tax but if you invested in something exotic like spending £50 on one individual share of Microsoft, then the US taxman would take a 15% cut of the annual Microsoft dividends before it reached your ISA, but the UK taxman would not take any further tax on the dividend income.

    To all intents and purposes though, ISA investing is considered tax free.

    2. Interest payable on LISAs and S & S ISAs is on the value of assets held?
    If your assets are cash or bonds they will generate interest income. If it is investments in funds that invest in company shares and properties you will get dividend or other types of income instead. You do not magically get paid interest on the value of your dividend-paying funds as well as receiving dividends from them.

    3. The interest on LISAs and S & S ISAs, is it calculated on the value of assets held at the end of each month? Or is it (say) calculated on the value of assets held at the end of the financial year?
    As mentioned, for SIPPs, LISAs and S&S ISAs you do not receive fixed amounts of interest unless what you are holding is cash or bonds. If you are holding cash or bonds then the returns will be based on the amount held every day and not just a snapshot of month-end or year-end. Like in a bank account, you can't just have £1 in the account all year and then put another £999 in on the last day of the year and say "pay me interest as if I had £1000 all year".

    3. When is interest on S & S ISAs and LISAs paid? Monthly, quarterly or (financial) yearly?
    It depends what investment you hold within it. If you invest in a bond fund or cash fund that happens to pay interest distributions monthly, it will be monthly. There are thousands of choices of funds. If it is quarterly it is quarterly. If it is annually it is annually. Presumably if your goal is retirement in 25 years you don't care because you will either be reinvesting the interest or using accumulation funds which do not pay it out anyway.

    There will be some LISAs that will be offered by banks or building societies which are simple cash products which operate like a normal cash ISA, paying an agreed amount of interest. Those do not let you invest in investment funds so would not be suitable for a retirement goal 20+ years away because the interest will be unlikely to exceed inflation by any material amount. But whether they chose to add your interest monthly or quarterly or annually would be similarly irrelevant given you are not going to touch the money anyway for a couple of decades and there are penalties for withdrawal from a LISA.

    4. When does the Government pay the 25% bonuses? Every tax year or on the occurrence of reaching age 60 or buying property?
    The first will not be paid at the end of the 2017/18 tax year.

    After that, it is acknowledged that if you need to make a withdrawal to buy property or because you're 60, you won't have to wait to the end of the full tax year to get the remaining accrued bonuses that have not yet been paid, so there will be a mechanism to get the bonuses earlier. The suggestion in the last draft of the rules and regulations which went out for consultation with industry was that they would address that by doing the bonuses monthly. In the world of pensions, government pays over tax relief to the pension operators monthly and that seems to work OK.

    LISAs as a product do not exist yet, and will not be launched until the 2017/18 tax year. There is a guide to LISAs on the main site and many long threads discussing LISAs. If you are still lost, read them.

    5. IF the government 25% bonus is payable in the future on a qualifying event what happens if a subsequent Chancellor says, "Actually, I don't like these LISAs. I will pass legislation to abolish them." Then what will happen? We're stuffed!
    Well, it would be politically pretty unacceptable to 'abolish' millions of people's retirement plans. So, they are not going to take your assets from you.

    Imagine in a decade's time you are 49 and they say they are going to phase out LISAs because young people don't need these 'bonuses' any more and we can just go back to the system where everyone uses pensions for their retirement instead. Presumably they would do it by reducing the annual LISA allowance to zero. It wouldn't mean you couldn't keep what you already had in there, they are unlikely to go around confiscating your assets.

    If you are concerned about the government confiscating your assets you could plan for retirement by hiding your money under your bed instead of in a bank account or investment product. Make sure you do it in foreign currency cash though because the government will cunningly change the design of UK notes and coins over time causing the old ones to stop being accepted. There is all kinds of ways the government can screw you over. You can plan for taxation risk but do not let it put you off doing your retirement planning properly.

    6. What sort of interest rates can you see providers offering? (I assume these will increase if/when the base rate moves up, which may be some way off)
    Cash LISAs will be similar to existing Cash ISAs. On the one hand perhaps slightly better because the limited amount of new money you can put into them is set at a pretty low level by law and so they can offer an attractive rate without actually having to pay it out on tens of thousands of account balance. But on the other hand perhaps slightly worse because people are getting a free 25% bung from the government which they would not get on a normal Cash ISA and so there will be quite a lot of demand for them even if the providers have crap rates.

    However, this is largely irrelevant : because you are not going to be investing in a cash-interest-rate product for your retirement, you are going to be investing in investment funds to grow your wealth. The interest rates that providers offer on cash LISA products is irrelevant ; you will be using S&S ISAs and S&S LISAs.

    7. I also assume that I could make my annual £4k top-up into the LISA by transferring funds from a S & S ISA
    Yes, or from the other types of ISA being Cash ISA or Innovative Finance ISA.

    If you transfer from an existing ISA it will not use up any of the £20k overall ISA allowance for the year. But your balance in the other ISA will fall, so you might want to top it up with cash from your bank account, in which case you might as well have made the contribution to the LISA direct from your bank account.

    8. Again, I assume that the responsibility for investing any dividends from the funds held is a function of the funds themselves and depends on whether they are accumulatory/income
    Yep.

    9. Will the £4k a year I am allowed to put in a LISA deducted from the ISA annual allowance of £20k (which it'll be by the time they're up and running)?
    Yep.
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