ISA Reform

kidmugsy

Lots of people draw larger sums from their pensions, and earlier than expected: income tax gets paid.

Then they pop it into their ISAs: in due course lots of IHT gets paid. Or Chancellor Balls applies a wealth tax on it.

dunstonh

Pensions are suddenly much more attractive as well. Indeed, potentially more so than ISAs.

yatinsardana

dunstonh wrote: »

Pensions are suddenly much more attractive as well. Indeed, potentially more so than ISAs.

Just to clarify, you say that because of the freedom we now have in withdrawing from pension pot or other reasons too?

Is it possible to save money in ISA while you're a basic rate tax payer and then move some of the money into SIPP when you become a higher rate payer to get a higher tax relief?

kidmugsy

yatinsardana wrote: »

Is it possible to save money in ISA while you're a basic rate tax payer and then move some of the money into SIPP when you become a higher rate payer to get a higher tax relief?

You betcha.

Archi_Bald

yatinsardana wrote: »

Is it possible to save money in ISA while you're a basic rate tax payer and then move some of the money into SIPP when you become a higher rate payer to get a higher tax relief?

If your ISA is of the S&S variety, you would have to sell your investments before you invest them again in a SIPP.

If it is a cash ISA, you have to withdraw your money from it and then pay it into the SIPP.

If you are employed, you might get employer contributions to a SIPP regardless of your tax rate.

Given that in future you will no longer have to buy an annuity and that you can get at least 25% of your SIPP tax free, with the rest taxed at your nominal rate, a SIPP might now be a better choice than an ISA if you are truly investing for the long term. You can, at least in theory, also pay more into a SIPP each year than into an ISA.

yatinsardana

Archi_Bald wrote: »

If your ISA is of the S&S variety, you would have to sell your investments before you invest them again in a SIPP.

If it is a cash ISA, you have to withdraw your money from it and then pay it into the SIPP.

If you are employed, you might get employer contributions to a SIPP regardless of your tax rate.

Given that in future you will no longer have to buy an annuity and that you can get at least 25% of your SIPP tax free, with the rest taxed at your nominal rate, a SIPP might now be a better choice than an ISA if you are truly investing for the long term. You can, at least in theory, also pay more into a SIPP each year than into an ISA.

I agree with that entirely. The only issue I may have (and I know I'm getting ahead of myself but it's just future planning) is that there is a possibility that according to today's rules, the lifetime allowance is 1.25m and there is a chance that my work pension will take me to that allowance by the point of retirement, in which case if I build a huge sipp pot, that will be taxed at 55% anyway. So maybe I should not do anything with sipp at the moment as closer to retirement, see what my pension pot is like and accordingly contribute to sipp.

planteria

Nednats wrote: »

So there won't be 2 allowances?
There will 1 big allowance that can be use for cash or S&S?

yes. exactly. i approve:T.

planteria

kidmugsy wrote: »

Or Chancellor Balls applies a wealth tax on it.

don't, i've been enjoying today's news:A

kidmugsy

planteria wrote: »

don't, i've been enjoying today's news:A

Me too; but I'm aware that nothing is forever, so people would be well advised to use these novelties before the world spins once again.

dunstonh

yatinsardana wrote: »

Just to clarify, you say that because of the freedom we now have in withdrawing from pension pot or other reasons too?

Is it possible to save money in ISA while you're a basic rate tax payer and then move some of the money into SIPP when you become a higher rate payer to get a higher tax relief?

Both pension and ISA get tax free growth and can have the same investments and same charges. So, the only difference is the tax and maturity process.

Tax relief going in puts the pension fund as a larger amount. So, death before retirement sees a larger amount paid out than an ISA. Get to retirement and you get 25% tax free with the rest taxable. If you have 40% relief going in and only pay 20% tax taking it out (and only 75% of the amount as 25% is tax free) then you end up with a larger amount than the ISA.

You have to be wary of amounts and timing but for many, pension could easily be more attractive