Investment advice & wisdom for a unique situation please!!

innovate

Caan wrote: »

Didn't realise i could do that thanks, lots to think about ... just ordered the book.

What happens if you don't pay tax?
If you don't pay tax you can still pay into a personal pension scheme and benefit from basic rate tax relief (20 per cent) on the first £2,880 a year you put in. In practice this means that if you pay £2,880 the government will top up your contribution to make it £3,600. There is no tax relief for contributions above this amount.

Source: http://www.hmrc.gov.uk/incometax/relief-pension.htm

I have my SIPP with HL, and they automatically claim the £720 every time I put my annual £2,880 in. I should hope any other SIPP provider will do the same but don't know.

Caan

atush wrote: »

So, 3.6K in a pension, and fill your S&S isa allowance for a start.

these monies wont be easily accessible, but the rest of your money is.

Yeah sure, still that leaves enough for any immediate crisis where i need some cash too

innovate

Also look at paying National Insurance - I haven't investigated it myself as my contributions are done, but the main MSE site seems to think it is a good idea to put your claim in for state pensions. On current figures, the weekly state pension will pay for a very decent weekly food shop if you have other income to pay for the rest of what you need.

Whether it would be the sensible thing for you to do, only you can decide.

http://www.moneysavingexpert.com/reclaim/increase-state-pensions

Ifts

Caan wrote: »

I'll order "Smarter Investing" by Tim Hale straight away, if there any other books that people know of that are constantly advised on this sort of thing id appreciate it.

http://www.amazon.co.uk/Slow-Steady-Steps-Wealth-ebook/dp/B007EBLN3G/ref=sr_1_1?s=digital-text&ie=UTF8&qid=1361990892&sr=1-1

The Intelligent Investor (by Benjamin Graham)

http://monkeywithapin.com/

The forums are very interesting so far i've been reading them all day!

Few more useful sites here: http://monevator.com/ and http://www.fool.co.uk/

Perelandra

innovate wrote: »

Even if you are not employed, you can put £3.6K p.a. into a SIPP. HMRC will pay £720 of that £3.6K, so it costs you only £2,880. Small beer compared with what you can put into a S&S ISA, and even smaller beer compared with what you can put into a pension when you are employed.

Having said this, £3.6K p.a. is 10% of a very reasonable salary for the average 28 year old, and properly invested over the next, say, 40-50 years will end up a formidable sum of money, even if you normalise the balance for inflation.

Possibly, depending on the tax situation later in life/when drawing pension. From what the OP has said I don't think there's any particular rush to put money into a pension (as long as it's invested in some way), and there may be far greater tax advantages in waiting to see if he/she will become a higher rate tax payer in the future. At this point, the money invested now could be switched to the pension, having a much greater impact than putting it away now.

I'd concentrate on the ISA for now, and then look to the SIPP only if the OP is confident he/she will never need to pay 40% tax (net of any pension contributions at that time).

innovate

If you make as much as the OP probably does, your ISA limit is quickly used up, and another £2,880 is peanuts expense. IMO, it would be a shame to forego the investment opportunity.

Perelandra

innovate wrote: »

If you make as much as the OP probably does, your ISA limit is quickly used up, and another £2,880 is peanuts expense. IMO, it would be a shame to forego the investment opportunity.

Again, possibly- you'd need to know more about the future likely income of the OP in order to know if this would be beneficial or not!

Put £2,880 in now and, depending on the OP's pension in retirement, it could attract anything from 20% net benefit to 20% net loss** (plus the tax-free bonus). If the OP becomes a 40% taxpayer at some point, then the risk of it being a net loss goes away (and could, conceivably, become a 40% net benefit).

Unless you're likely to be hit by the £40k limit at some point, and if your income is likely to be higher at some point, there's not necessarily any reason to rush into a pension (as long as the money's being put aside). If the OP fits into this category, it may be worth delaying to consider.



"Go now":
20% net benefit = £2,880 now; below personal allowance threshold in retirement.
Neutral = £2,880 now; in 20% tax band in retirement
20% net loss = £2,880 now, in 40% tax band in retirement

EDIT:

I don't disagree that starting the pension is probably the right thing to do, but it might not be- some scenarios would make it better for the OP to wait, and he/she should be aware of these before deciding how to proceed.

innovate

I think we are both agreeing that the S&S ISA should be filled first. I believe that it easily done very quickly (@ £3K a month it won't even take 6 months). There is then further money to invest, and the next best option is the SIPP IMO. Yes, 75% of it will be taxable at some stage at whatever tax the OP will need to pay at the time, but 25% will be tax free. In addition, there is the upfront free 20% (£720) going towards the investment, and the whole investment is outside any CGT for the duration.

Perelandra

We're also agreeing that the investment would be wisely invested in the SIPP at some point as well- but that time isn't necessarily now. It may work out better for the OP to invest now in unwrapped shares/funds, and delay putting into a pension until he/she has 40% tax to be avoided.

Capital gains adds some complexity- put relatively easily avoided given the CGT allowance.

(likewise dividend tax unlikely to be an issue, due to the OP's current low taxable earnings).

Pension choice is all about tax planning- and I know you know this. The OP may well be in one of those situations where he/she would actually benefit from delaying putting the money into a pension, and needs to be aware of that.

atush

We don't really need to know the OP's future tax rate. Just that they will have one.

What we know for certain, is that they will have a personal allowance to be used up in retirement so the pension would be a way of starting to address this.

In the mean time, should trading go B*lls up, then the money (unlike ISAs) cannot be touched by creditors.