Early-retirement wannabe

atush

AnotherJoe wrote: »

"fat flogged" ?

It says flat flogged

Daniel54

gadgetmind wrote: »

Why not pull the money out of the pension at 0%/20% tax (rather than maybe 40%/60%/45% later) and invest in the same assets in an ISA?

Depends of course on each person's overall tax position,but a key reason not to is that the SIPP falls outside of your estate for IHT purposes,and is entirely tax free if you die before 75

I have a SIPP and an ISA for roughly similar amounts,and for the above reason will take drawdown from the ISA in priority to the SIPP ( I have other pensions outside of this specific SIPP)

When I( hopefully) get to near 75,I will have to crystallise the SIPP anyway

The ISA wrapper is transferable only to my wife upon death,whereas the SIPP can also be passed down the line to my children.My wishes to the trustees are that the pension is split equally between wife and children

atush

aldershot wrote: »

"The last cheque you write should be to your undertaker, and it should bounce"

I do have 2 kids and the way I have thought about it is to try (within reason) to help them now rather than when they are 60. Allowing them to leave university debt free made me feel good anyway. Interest free loans for cars. The odd holiday paid for. If there is any left at the end when we're both gone, that would be nice for them but I hope it's not on their spreadsheet.

That is what we have done for my 3 boys. All thru university, and one thru law school after w/o owing a bean. All will be professionals. The 2 graduated have graduate jobs. All were given smallish gifts of cash when leaving. I bought them one car to share (any others they can buy themselves). But we will give small (not 100%) interest free loans for anew car.

As far as I can see they are set, with no debt, some money in the bank, and they can stay at home for 50 quid a week to save for a house. Plus they have transportation.

Then, they can inherit anything left over we do not spend.

Job done.

jamesd

Daniel54 wrote: »

Depends of course on each person's overall tax position,but a key reason not to is that the SIPP falls outside of your estate for IHT purposes,and is entirely tax free if you die before 75

With the income potential here it makes more sense to start to pay the 20% as soon as possible to avoid later paying the 40%. It's not as good as 0% within the personal allowance but for the 20% band it doesn't tie up that much money as a percentage of assets to eliminate the whole 20% tax rate with desirable VCTs.

So far as IHT goes I'd personally be more inclined to enjoy seeing the recipients getting the benefits from at least a fair chunk of the money and that takes giving it away while still alive.

Daniel54 wrote: »

When I( hopefully) get to near 75,I will have to crystallise the SIPP anyway

At a minimum you should be using your basic rate income tax band to get 0% income tax but I think there's also a good argument for using the 20% band and perhaps VCTs to shift the money into long term tax free ISA wrapped investments. That way it's nil to start and nil ongoing income tax. It's the most efficient UK resident way I know of to extract money from a pension.

Daniel54 wrote: »

The ISA wrapper is transferable only to my wife upon death,whereas the SIPP can also be passed down the line to my children.

It's only passed down to your children tax efficiently if you die before you're 75 and that's a pretty pessimistic assumption. Instead you can take out the money at nil income tax burden and pass the money as part of your estate or while alive, which can also be completely tax free depending on estate size and planning. Not subject to their own marginal income tax rate but nil as gifts while alive.

Pension inheritance is a nice trick but there are better tricks available, like that steady state ongoing VCT purchase one.

jamesd

I'm not sure that the full potential of giving while alive is appreciated as a way to multiply the money so here are some ideas.

My gift to you is nil effective income tax rate on your basic rate income

Provide money to buy VCTs sufficient to eliminate the income tax liability with a loan agreement to repay after fix or six years. You have the long time horizon and the money, they probably don't have the money or long view. Ties up enough of your money in the VCTs for the five years to get it done and they will have had the money for so long that it may well be outside your estate. A big potential advantage for this one is that they still have to make the original money and that can address the concerns that some have about just giving them money and making them dependent instead of self-sufficient.

My gift to you is more pension contributions than you can afford

Give money to make maximum permitted pension contributions with tax relief but with an agreement to pay you the tax free lump sum a year after reaching the minimum age. Pension law doesn't allow this to be secured on the pension. You get back the lump sum but they still get the 75% helped by the kind people at HMRC.

Bonus points if they cut their effective earned income enough to receive tax credits by making the contributions themselves but living normally because of money from you plus the credits. Thanks HMRC!

Keep your Child Benefit

Maybe you can't afford high enough pension contributions to take your income low enough to keep it but I can afford to lend you the money and you can repay me later. For example, do three years of CB and one year of no CB. Three years with cut income via pension contributions and the fourth with low pension contributions and the money repaying the three years of lending.

My gift to you is early retirement

You can't get pension money until you are 55 but I can lend you money to be repaid from the pension pot. Enjoy your early retirement!

My gift to you is moving into your new home sooner than you otherwise could

Either gifted or lent deposit.

My gift to you is a lower mortgage interest rate

Either larger deposit so better LTV or one of the mortgages that allows parents to place money on deposit to reduce the mortgage cost.

Each of these things ultimately exploits the difference in time need for money between giver and recipient, with the giver having money need ultimately but not short term while the younger person can't yet afford to do beneficial things that they can do later. Some of the purest benefit ones just rely on tax breaks that the younger people can't afford to fully benefit from, with no net cost to giver or recipient.

westv

If I had any offspring I'd not give them anything until after I was dead. In my day we had to earn the money ourselves. Bah humbug!!! :D

mgdavid

westv wrote: »

If I had any offspring I'd not give them anything until after I was dead. In my day we had to earn the money ourselves. Bah humbug!!! :D

If you had offspring I'll lay 3 to 1 that your views would have changed....

AnotherJoe

gadgetmind wrote: »

As I say, money is fungible and each pot (ISA, pension, unwrapped) can invest in pretty much the same thing. You can artificially skew asset allocations and make all kinds of arguments, but why would you?

Why not pull the money out of the pension at 0%/20% tax (rather than maybe 40%/60%/45% later) and invest in the same assets in an ISA?

I think I am seeing the light. I've also just thought of another factor, lifetime allowance. Whilst I probably wont hit it it could be close, whilst if I take out of my pension immediately I pack in work (I have 4 years or so to cover before SP kicks in) then that will pretty much ensure that i dont. Are you "in the clear" if at point of withdrawal, you have say 900k, you take out the 25% TFLS and then later on the remainder grows to well above LA?

And as I understand it once I've made that crystalisation event happen then unless my investments go crazy in a good way (in which case thats a good problem to have)

So the plan is - for the 4 years or so to SP, take drawdown to what I need, but dont get into HRT band. To top up, use cash or ISAs. If I need to sell Acme Consolidated Fund within my SIPP to get that money, but I really like that, then rebuy it in ISA, though I'm sure there will be some dogs I can liquidate instead.

Then at SP age decrease the drawdown and increase the cash/ISA spend. What about merits of taking TFLS and putting in ISA? I could make two contributions this year and then two more in the new tax year effectively out of the SIPP even if borrowing forward, that will be about £70k for a couple?

Hmmmm ..... I think I need to post in the saving tax forum.

aldershot

atush wrote: »

Does she have children? If not (or even if), have you thought about if you die first?

Do you want the money left over after she dies to go to your children? Rather than HMG? Or people you may or may not even know or be related to by blood? Worth at least a thought or two if you have children.

If they are adults, I am all for leaving everything to your wife- for her lifetime. But you might want to at least write half of it in trust for after she passes to your own children? Then she can leave the other half to them or someone else.


After all, you could pop your clogs and she could then remarry and then half of your money would belong to her new husband. or she could pop her clogs and leave it all to her cat/the RSPCA.

It is something that we are thinking about in how we write our next will.

Interesting, and something that does affect us.

The adult children are mine. Flown the nest and left home. My wife has no children. We brought similar assets into our relationship; we each had a property, pension, savings and this makes things easier I think as we both have the same skin in the game.

Estate passes IHT free to the survivor with a cash legacy to either my children or her neices on the first death with a trust written that the remaining estate is split between the respective sides of the family on the second death.

I imagine that a remarriage or a will rewrite after the first death could change things but you have to trust your spouse to do the right thing in death as well as life. That may be naive but if she wants to leave it all to the cat, that would be her choice (or mine).

atush

Well i favor my children more than any cat, so i'd leave the money in trust just in case lol.