Shares ISA to pay mortgage ?

colshandy

Between me and Mrs we have about 60k in Stocks and Shares ISA.

Still have 278k outstanding on main (interest only) mortgage and due to recently realising have been ripped off with high charges on ISA product have stopped payments into it and started overpaying on mortgage (about 1.5k overpayment per month).

Am considering using the ISA to chip into the mortgage and wondered what folks views were on this. Realise I would be giving up on the tax free aspect if I do this.

Also have own company and have built up few thousand in there and wondering what best thing to do with that is? One option is to take it out of company in dividend and use to pay off mortgage. Also any thoughts on this ?

Thanks

westy22

It all depends on the relative interest rates. If the mortgage interest rate is higher than what your S&S ISA has been yielding (and may be yielding in the next couple of years) then it would make sense to pay off the mortgage as quickly as possible using some of the ISA and overpayments. It would also make you feel good to become mortgage free.

If you withdraw up to £10,000 in dividends per year then there would be no further tax to pay if you are a basic rate taxpayer (the notional tax credit would cover the tax due). Even if you are a higher rate taxpayer dividends would still make sense rather than taking salary or bonus (NI saving and lower tax rate).

opinions4u

I'd talk to your accountant about the best way of removing capital from the business (e.g. dividends, employing family on a low salary etc).

I'd talk to an IFA about the options around the stocks and shares ISA, high charges and also disucss pension mortgage choices with him/her.

IronWolf

I would avoid withdrawing money from a S&S ISA. It depends how well your investments are doing, and how well they will do in the future.

colshandy

Mtg is 2.5% currently but obviously this is likely to be higher on average over the next say 10 years of mtg. Current ISA involved Critical Illness, Life Insurance aspects and high charge s(hence change of strategy) so hard to say what average yield of ISA has been, but I will be transferring it into a lower charged tracker type fund/provider soon.
I am in the privileged position to be able to overpay on mtg so gut feel is to keep S&S ISA (partly to keep tax benefit) but wanted to attempt to make a comparison, is 5% a good figure to assume for ISA growth ?
Have involved my acc in company finances, me and wife salaried, co pensions contributions, and divis taking us just into higher rate tax has lead to some fund building up in the co. Decision time now what to do with the reserves! IFA advises pumping into pension but we already put a healthy amount into that and have a, to me, high mortgage amount outstanding so tempted to take the tax hit taking it out of the company.
We already have about 150+k between us in S&S related ISAs and pensions and it feels right to spread some of our cash by knocking the mortgage down but any thoughts on this appreciated.

gadgetmind

colshandy wrote: »

is 5% a good figure to assume for ISA growth ?

A portfolio of about 80% equities and 20% bonds will give a real return (above inflation) of about that BUT that rise will be against a background of tremendous noise. A lower percentage of equities will give a slightly lower return, but reduce the volatility, which might improve your confidence.

As you seem to have already pretty much decided to move your S&S ISA to a lower fee environment, and as I think you'd be unwise to remove money from this tax shelter, I suggest you read a copy of "Smarter Investing" by Tim Hale and/or do some reading on monevator.com regards passive investment portfolios.

colshandy

gadgetmind wrote: »

A portfolio of about 80% equities and 20% bonds will give a real return (above inflation) of about that BUT that rise will be against a background of tremendous noise. A lower percentage of equities will give a slightly lower return, but reduce the volatility, which might improve your confidence.

As you seem to have already pretty much decided to move your S&S ISA to a lower fee environment, and as I think you'd be unwise to remove money from this tax shelter, I suggest you read a copy of "Smarter Investing" by Tim Hale and/or do some reading on monevator.com regards passive investment portfolios.

Hi, thnaks for the replies so far. Havent really decided anything to be honest, if anything think I have too open a mind. Been sitting on these two decisions for a few months and know no-one is going to make the decision for be. So any good advice is taken on board before I make the decision.

Before the stocks dip (a few months back) my and Mrs ISAs were worth less than we have invested (till now I have just stuck with the funds the ISA put them in in 2003). Think they are high charging funds but on top of this I was also charged ridiculous amount by the provider (originally NDFA product). Hence my thoughts of moving to low fee passive funds with likes of Fidelity...

Thoughts ?

gadgetmind

colshandy wrote: »

Hence my thoughts of moving to low fee passive funds with likes of Fidelity...

Thoughts ?

Well, as I'm about to do exactly that myself, I'm bound to see it as a good plan, but only you know your own attitude to risk etc. However, if you have managed to sit tight for the last few years, you're obviously made of stern stuff.

Of course, if you hadn't stopped your contributions, you'd have been buying cheap, but people find this hard to grasp and even harder to do as they see it as good money after bad.

I do suggest getting a copy of Smarter Investing as it will give you plenty to think about no matter what you decide.

colshandy

gadgetmind wrote: »

Well, as I'm about to do exactly that myself, I'm bound to see it as a good plan, but only you know your own attitude to risk etc. However, if you have managed to sit tight for the last few years, you're obviously made of stern stuff.

Of course, if you hadn't stopped your contributions, you'd have been buying cheap, but people find this hard to grasp and even harder to do as they see it as good money after bad.

I do suggest getting a copy of Smarter Investing as it will give you plenty to think about no matter what you decide.

Ha, great minds eh ? For stern stuff see, lazy and didnt read the small print properly ! I am staring to get agrip of my finances and will buy and read that, cheers. I have only stopped since about august due to the shock of the charges I have paid through the ISA. (almost 15 k from 79k invested !) I could buy more and use up this years allowance but stopped out of principle but maybe should start again, just means I will be taking the tax hit of taking it out of the company but have to take it out some time I suppose, it is sittin there doing nothing at the minute....

atush

I always keep investing in the bad times. When others around you are in panic, is a good time to hold your nerve and keep investing. Read up on Pound Cost Averaging.

AS a side note, overpaying the mtg, and moving your ISAs to a lower cost environment sound like good ideas to me.

Linton

colshandy wrote: »

Hence my thoughts of moving to low fee passive funds with likes of Fidelity...

Thoughts ?

Before making the decision to move to passive funds I suggest you first consider in what areas you want to invest. If you want a general FTSE based investment you will find many passive funds that perform as expected in an average sort of way.

However if you want the higher returns and accept the higher volatility of areas such as UK small companies, technology, emerging markets I think you will find that passive funds, where they exist, have not matched the average managed fund (never mind the good ones), despite the higher charges.

So the strategy I would advocate is to chose your sector(s) first, then identify the funds in which to invest. trustnet.com will provide much the of the information you need to make a rational and considered choice.