Which investments to put in an ISA

773567889

Good evening all

I have recently come into a rather large lump sum of money, which I'd like to invest to provide income and growth. It is sufficiently large that it would take many years to squirrel it all away into an ISA.

So I will be investing some within an ISA and most outside, with the aim of gradually moving it across into ISAs year by year.

My question is, which investments would benefit most from being in the ISA, and which can I leave outside?

Does it make sense to go for investments which provide income at the expense of growth, and leave these outside the ISA, while the investments that are expected to grow most get the protection?

Thanks in advance. I realise this is a dilemma that a lot of people would like to have!

kidmugsy

Oh, go on, spoil us; tell us your tax position.

You might also tell us why you are interested in ISAs but not pensions.

773567889

Sorry. Basic rate taxpayer, and will remain so after this added income.

I don't earn a great deal, and any pension contributions would have to come out of this investment income. The advice I've had so far is that it doesn't make sense to take money out out of one investment pot to put it in another. And I would only be getting a basic tax rate credit anyway. But I'd be interested in other views.

If my earned income does increase over the next few years, I suspect that would be the time to start putting it in a pension?

xylophone

Do you have a pension?

773567889

No pension to speak of, other than a tiny final salary pension.

Archi_Bald

We don't know your age either, so we're still a bit in the dark. But assuming you are still at least 15-20 years from retirement:

Why would you want to wait with starting a pension fund? You can get £15K into an ISA and up to your annual salary (but not more than £40K) each year into a pension. Even if your employer does not offer a pension scheme, and even if you are a BR tax payer, putting money into a pension sooner rather than later would make sense.

HMRC give you 20% towards your pension contribution - i.e. to have £40K invested in a pension fund, you just need to put in £32,000 yourself.

You can check just about anywhere, and nobody in their right mind would suggest you defer a pension fund

http://www.theguardian.com/money/2013/dec/14/pension-advice-save-early-big

http://www.confused.com/money/articles/the-key-to-pension-saving-is-to-start-young

http://www.thisismoney.co.uk/money/pensions/article-2387716/Start-pension-saving-early-600-000-better-off.html

Archi_Bald

NB. If you have more than £100K to invest, you should be seeking proper professional advice from an IFA. Find one on unbiased.com, or ask friends / family for recommendations.

773567889

Yep. Will definitely be seeking advice of an IFA. I'm hoping to find one that will work for a fixed fee, rather than a percentage.

I'm in my 30s, so plenty of time left to run, but as one IFA said last week retirement is kind of a 'non-word' in my case. The pot is enough to generate a comfortable, if not extravagant income - enough to keep the wolf from the door - with my other earned income supplementing this. And I expect that to continue after pensionable age.

I will review in 10, 20, 30 years of course. With any luck my earned income will have improved and so will my investments.

But at the moment, I don't see the benefit of a pension in my (very fortunate) position. I would either need to draw more income from investments in these early years, or use up my earned income to pay the contributions.

innovate

773567889 wrote: »

as one IFA said last week retirement is kind of a 'non-word' in my case.

It seems an extremely odd position to take for someone who is able to max their ISA allowance, still has plenty of spare cash to invest, and is looking for long term investments. How did the IFA explain why you should turn down the contribution from HMRC?

innovate

He described it as 'not generally a good idea to take money out of one investment to out it in another'.

this is not the case in your case though, is it? On the premise that you can service both, an ISA (with max contribution) and a SIPP, why would you not do that? If you have £150K, on current ISA limits, it would take you ten years to put it all into an ISA, and longer if you consider the growth of your investment.

Further, the contribution from HMRC would be minimal in my case. 20% on the way into an ISA vs 20% on the way out of a pension.

Your understanding is mainly correct but you are leaving out that you do still get a benefit at BR. The benefit is not as stark as with HRT, but your taxable income gets reduced by the amount you put into a SIPP, and you get 20% free money to invest for many years.

Also, under current legislation, you can get 25% of your SIPP tax free when you come to drawing the pension.

I am of the view that governments of whatever colour will continue to encourage people to make personal provision for their pensions, in accredited pension schemes. Therefore having your investment in a wrapper is always preferable to unwrapped investments. Unless, of course, you expect your capital gains from unwrapped investments to always stay below the CGT allowance.

Faced with a choice, would you put your bold investments or your cautious investments into an ISA?

I suppose if you were consequent, you would put you bold investments into an ISA since you are expecting a big growth (if you aren't, why have the investments?). Personally, I wouldn't mix cautious and bold and instead go for a single risk level I am comfortable with.

wrote:

Would you favour income or accumulation.

do you need income? do you need income from all your investments?

jimjames

65737963 wrote:

Other than pension or not pension, does anyone have a view on the original question. Faced with a choice, would you put your bold investments or your cautious investments into an ISA? Would you favour income or accumulation. (Assuming you have already decided you will be buying a mix of bold and cautious, income and accumulation, and your only choice is which ones to shelter.)

The question doesn't really apply if you can use both pension and ISA but probably more sense to keep income inside tax protected and use cgt allowance for any outside.