Taking pension entitlement early to reinvest

jem16

pennyunwise wrote: »

I'm only just into the higher rate tax bracket by a couple of hundred pounds.

Don't forget that your income includes gross interest from savings and dividends from any investments. Have you included this when you say you are into the higher rate tax bracket by a couple of hundred pounds?

Also don't foget the tax relief on any pensions you are paying into will reduce your taxable income.

Are you sure you are into higher rate tax?

EdInvestor

Pennyunwise I wouldn't worry about this decision at all, IMHO you have done the right thing.

I would:

Stash the TFC into N&SI tax free index linked certs where you will get a top return as a high rate taxpayer (8%+) and absolutely no risk - up to 30k a year can go in there

Open a stocks and shares ISA and feed the actual pension money into that as it comes in.
So your next job is to figure out how to do that.(Are we now back at the beginning?;) )

Start with this discount broker for the ISA account:

www.h-l.co.uk

After that, it's a question of picking funds, working out attitude to risk etc.

pennyunwise

EdInvestor wrote: »

where you will get a top return as a high rate taxpayer (8%+)

Can you please explain how you come to the 8% figure ?
IMHO ??

jem16

pennyunwise wrote: »

Can you please explain how you come to the 8% figure ?

NS&I currently paying 1% plus RPI. RPI is 4.6% so total 5.6% tax free. This is the equivalent of 7% for a basic rate taxpayer and 9.33% for a higher rate taxpayer (not 8% as Ed quotes). That is taking 20% and 40% for tax.

However whatever way you look at it, it is still paying 5.6%, not guaranteed, as the 1% currently will vary from issue to issue and RPI will also vary.

£15k can be put into each issue - generally a 3yr and 5yr one so £30k. No-one knows when the next issue will be.

IMHO ??

In My Humble Opinion.

There is still not enough information for anyone here to formulate an informed opinion. The fact that this extra income takes you into higher rate tax ( presumably as you didn't answer my question about it) makes any investment more difficult as you have to take account of the extra tax due on savings interest and dividend payments.

There is of course the option as jamesd suggested of investing in a pension and that way you can get back into basic rate tax.

EdInvestor

jem16 wrote: »

NS&I currently paying 1% plus RPI. RPI is 4.6% so total 5.6% tax free. This is the equivalent of 7% for a basic rate taxpayer and 9.33% for a higher rate taxpayer

Even better than before.

jem16

EdInvestor wrote: »

Even better than before.

Would be even better to avoid higher rate tax altogether for the sake of a couple of hundred pounds.

jamesd

Those NS&I schemes aren't good enough for someone who can so easily be a basic rate tax payer by making quite low pension contributions and doesn't need the income now.

One alternative for some of the money is the Halifax International regular saver that pays 10% on 100-2,000 of deposits made each month, amount can be changed within that range at any time. That plus a holding account paying 6.3% until the money goes in beats NS&I for basic rate tax payers (it's 8.3% before tax for the combination). It's an offshore account and 75% of up to 20k is protected by a deposit protection sheme; HMRC needs to be told about the interest in the appropriate tax year; can be funded by standard transfers from any UK bank account. This lasts just long enough that the stock market uncertainties are likely to be mostly over when it ends.

There are also fairly stable investments that use the capital gains tax allowance, so would probably be tax free for pennyunwise:

BlackRock UK Absolute Alpha
Cru Investment Portfolio

Note that returns on these are not guaranteed and there's always the chance that they could do less well in the future.