Tax free Lump sum investment

algerry

I wonder if any one can solve the following problem please? I had a relatively modest private pension arrangement . Having retired, I have managed get the cash out of the scheme. I am entitled take 25 per cent of that as a tax-free lump sum and will reinvest the balance in a SIPP. I was informed by a financial adviser that the tax-free lump sum can itself be reinvested to produce an income which is then also tax free. Unfortunately he offered Hobson's Choice (a "bond"). I am told that this investment is not good value and is not really a bond at all. I am therefore looking for an alternative. I wonder whether anyone knows what the Revenue rules are governing this type of investment or where I can find the information. I have telephoned the Revenue who were very unhelpful. My own accountant has not been able to assist either and I am reluctant to go back to the financial adviser. Algerry

missile

You have worked hard, maybe now is the time to enjoy what the money can buy. There are no pockets in a shroud

dunstonh

Unfortunately he offered Hobson's Choice (a "bond"). I am told that this investment is not good value and is not really a bond at all.

Investment bonds are not tax free. They are tax paid. They are usually best advice for around 10-15% of investment cases. Typically the following types of investors are suited to investment bonds:

1 - higher rate taxpayers
2 - investing utilising trusts
3 - those who may be eligible for pension credit if it wasnt for their lump sum investments (investment bonds dont go towards means test but have to be done before pension credit is claimed)
4 - those concerned over long term care costs (investment bonds are not included in local authority care means testing).
5 - Those over age 65 whose income will be close to £20,100 (including savings accounts, dividends, state pension and other pensions).

Is the financial adviser tied or independent (check their initial disclosure document called "key facts about our services" - first item confirms status). I know a few tied agents that go straight to bond every time and this is acceptable by their employer (even though it is a mis-sale waiting to happen). IFAs can sometimes oversell bonds but usually you would expect an IFA to utilise things like ISAs first. You mention nothing about ISA so that is why I think you should check the status of the adviser.

Accountants and the HMRC cannot help you as the remit falls under financial advise.

If you think the adviser is not giving you best advice, then complain with your reasons. Or at least challenge them with why. It could be the bond is best for you. It could be that it isnt. However, you would expect at least ISA first. ISA tops everything except in areas where trusts are required (or ineligble).

EdInvestor

algerry wrote:

I wonder if any one can solve the following problem please? I had a relatively modest private pension arrangement . Having retired, I have managed get the cash out of the scheme. I am entitled take 25 per cent of that as a tax-free lump sum and will reinvest the balance in a SIPP. I was informed by a financial adviser that the tax-free lump sum can itself be reinvested to produce an income which is then also tax free.

The tax free cash needs to go into an ISA, at 7k per year until all of it is in.

Have you already decided how to invest the pension money in your SIPP?
If so, you could just duplicate the investments in the ISA, as both will presumably be aimed at providing you with income and both will be in tax free wrappers.

Have you chosen a SIPP provider yet?

richone

If you investing in shares or funds do you need an ISA? Only really suits higher rate tax payers and those that have used their capital gains tax allowances. Remember if you make a loss on an isa you can't offset it against gains you have made elsewhere.

EdInvestor

It is easy to avoid tax on share or equity fund investments if you are a basic rate taxpayer, as there is no further liability on dividends and the capital gains tax free allowance is large.

But if the OP wants to spread his investment portfolio to include property funds or corporate bonds and gilts, then he should use the ISA.

Personally I'd have thought you should always use your ISA if possible anyways as it is usually very cheap or free, saves hassle with tax returns, and helps avoid problems with age allowance clawback for older investors.