where best to invest £180,000?

neilsolaris

Thanks very much kidmugsy for your recommendations. I'll look into those two companies you mentioned.

I know I've left it late, but I've got the chance to make a large one-off payment at the beginning. For comparison purposes, what would the average self-employed 42 year old on a low/medium income have accrued in their pension pot if they started investing early on?! I'm trying to work out what amount to invest initially which would get me in the same position as if I'd invested earlier, whilst hopefully leaving enough to invest as a deposit in a new home in a year or two.

Thanks.

neilsolaris

Sorry to ask so many questions!

If I've understood it correctly, if I apply to be a non UK- resident whilst I'm working abroad, I can only contribute £2880 into a pension scheme per year tax free. Is that correct?

In which case, would I be better of staying as a UK tax payer for the first year whilst I'm abroad, and paying sufficient pension contributions to bring my tax bill down to zero? Or is there some other solution?

Thanks.

TBC15

I think you have to be a UK resident with no income to pay in £2880 per year into a pension.

TBC15

neilsolaris wrote: »

I've got a couple more question to ask please!

I mentioned earlier in this thread that I will be a higher rate tax payer. I made a mistake, that is not right. From January, I'll be working abroad in a tax-free country, for possibly 3 or more years. I'll have a contract, although the employers have stated that it'll be on a self-employed basis. I'm not sure that the distinction between self-employed and employee is too relevant in this instance though. My yearly income will be £54,000 (gross and net).

So my first question is, is there any limit as to what I can invest into a UK pension scheme per year? When people mention pension tax savings, does that simply refer to the offsetting of the gross pension payments against their income tax? If I were working abroad and not paying tax, how would it work in my situation? Would tax savings be irrelevant in my case?

Also, I'm debating whether to start a stakeholders pension, or a SIPP. My concern about the latter is whether I'll make the best decisions, so I'm leaning towards a stakeholders pension at the moment. Does anyone have any further advice for me regarding this please?

Are there any other considerations/advice anyone can give me regarding working abroad and investment decisions? I'm assuming I should arrange to pay NI class 3 contributions in my absence from the UK?

Thanks again.

Unless things have changed you are obliged to pay class 1 contributions for the first year of working abroad. This obligation is not pursued,so people don’t bother paying NI for the first year. After year one pay class2, it’s extremely good value.


Investing in a UK pension during your time abroad would be pretty pointless as you don’t get any tax relief on your contributions.


Quick edit as you will be starting work in January you will be probably be liable for UK tax up to April. So the income for the whole of the tax year (up to £40000) would be able to be put into a pension and get taxrelief.

Please bear in mind I’m not a font of knowledge, more a font of things to possible things to consider.

bowlhead99

neilsolaris wrote: »

I know I've left it late, but I've got the chance to make a large one-off payment at the beginning. For comparison purposes, what would the average self-employed 42 year old on a low/medium income have accrued in their pension pot if they started investing early on?! I'm trying to work out what amount to invest initially which would get me in the same position as if I'd invested earlier, whilst hopefully leaving enough to invest as a deposit in a new home in a year or two.

Thanks.

There is no right answer to this. You sometimes hear a very rough rule of thumb that you should aim to contribute half your age-when-you-start as a percentage of gross salary. Maintain that to retirement and you should do OK. For example someone who starts at 20 should pay 10% forever. Someone who leaves it to 30: 15% forever. Someone who leaves it to 35: 18% forever.

Of course this is very imprecise but it is better than nothing. It may not give you as good a retirement as you'd like, now everyone is living longer. Also, it depends what sort of lifestyle you want. Maybe if you were only on a low salary, you would want to put away a bigger proportion to make up for the fact that you were unlucky with your job but you still wanted as comfortable a retirement as your neighbour.

The real answer is what is the number you need to retire on and work back from there.

But as an example using that rule of thumb, which I guess some people are using. I don't know what a 'low medium salary' is to you or what you are targeting. So I'm just going to say that at 21 you were on £11k and it has increased by £1k a year, so last year as a 41 year old you were on £31k.

Then if we say that starting at age 21 you should have put 10% away (10 being about half your age). So in the first year you put 1100 away, next year 1200, then 1300 and so on up to last year at age 41 when you were on £31k, you put away 3100.

Lets assume your mixed bag of investments, with quite a lot of it invested in equites, delivered annualised returns of 7% a year.

So, the 3100 you put in last year would be worth 3100 x 1.07 = 3317. And the 3000 you put in the year before would be worth 3000 x 1.07 x 1.07 = 3434. And the 2900 you put in the year before would be worth 2900 x 1.07 x 1.07 x 1.07 =3552. You can keep going back until you get to the £1100 you put in at age 21 which is now worth £1100 plus 7% compounded for 21 years = 4554 (basically at 7% growth, you pretty much double the value every decade- so that really old money will have more than quadrupled).

When you add all this up, you get the grand total of.... drumroll... £89.3k. That is all your contributions, plus growth, that you made from age 21 to 41. You should also put in the £4100 for this year which would still be worth £4100 as it hasn't grown yet. So, £93.4k.

I have no idea whether that is the average pot of someone in your profession at your age. Many people who are self employed don't bother with pensions because they spend all their money on their business and there is no employer scheme reminding them to contribute. But your profession or your rate of pay now shouldn't really matter. Your goal shouldn't be to keep pace with a colleague or a peer in a rival company or what some rich person has or what some poor person has - you simply need to have enough for what you need.

neilsolaris

TBC15 wrote: »

Unless things have changed you are obliged to pay class 1 contributions for the first year of working abroad. This obligation is not pursued,so people don’t bother paying NI for the first year. After year one pay class2, it’s extremely good value.


Investing in a UK pension during your time abroad would be pretty pointless as you don’t get any tax relief on your contributions.


Quick edit as you will be starting work in January you will be probably be liable for UK tax up to April. So the income for the whole of the tax year (up to £40000) would be able to be put into a pension and get taxrelief.

Please bear in mind I’m not a font of knowledge, more a font of things to possible things to consider.

Thanks very much for your advice. At the moment I'm paying class 2 national insurance, because I'm self employed. As I understand it I'll continue to be self employed in Doha, so is class 1 relevant to me? However, I thought I'd need to pay class 3 national insurance whilst out of the country to protect my state pension entitlement. Have I got this wrong?

I'll have a research to see if my Doha earnings for January to March will need to be taxed in the UK, as you suggest. That might not be a bad thing though, because it could mean that at least I could start a pension now and make a sizable contribution in year 1.

Thanks again.

neilsolaris

bowlhead99 wrote: »

There is no right answer to this. You sometimes hear a very rough rule of thumb that you should aim to contribute half your age-when-you-start as a percentage of gross salary. Maintain that to retirement and you should do OK. For example someone who starts at 20 should pay 10% forever. Someone who leaves it to 30: 15% forever. Someone who leaves it to 35: 18% forever.

Of course this is very imprecise but it is better than nothing. It may not give you as good a retirement as you'd like, now everyone is living longer. Also, it depends what sort of lifestyle you want. Maybe if you were only on a low salary, you would want to put away a bigger proportion to make up for the fact that you were unlucky with your job but you still wanted as comfortable a retirement as your neighbour.

The real answer is what is the number you need to retire on and work back from there.

But as an example using that rule of thumb, which I guess some people are using. I don't know what a 'low medium salary' is to you or what you are targeting. So I'm just going to say that at 21 you were on £11k and it has increased by £1k a year, so last year as a 41 year old you were on £31k.

Then if we say that starting at age 21 you should have put 10% away (10 being about half your age). So in the first year you put 1100 away, next year 1200, then 1300 and so on up to last year at age 41 when you were on £31k, you put away 3100.

Lets assume your mixed bag of investments, with quite a lot of it invested in equites, delivered annualised returns of 7% a year.

So, the 3100 you put in last year would be worth 3100 x 1.07 = 3317. And the 3000 you put in the year before would be worth 3000 x 1.07 x 1.07 = 3434. And the 2900 you put in the year before would be worth 2900 x 1.07 x 1.07 x 1.07 =3552. You can keep going back until you get to the £1100 you put in at age 21 which is now worth £1100 plus 7% compounded for 21 years = 4554 (basically at 7% growth, you pretty much double the value every decade- so that really old money will have more than quadrupled).

When you add all this up, you get the grand total of.... drumroll... £89.3k. That is all your contributions, plus growth, that you made from age 21 to 41. You should also put in the £4100 for this year which would still be worth £4100 as it hasn't grown yet. So, £93.4k.

I have no idea whether that is the average pot of someone in your profession at your age. Many people who are self employed don't bother with pensions because they spend all their money on their business and there is no employer scheme reminding them to contribute. But your profession or your rate of pay now shouldn't really matter. Your goal shouldn't be to keep pace with a colleague or a peer in a rival company or what some rich person has or what some poor person has - you simply need to have enough for what you need.

Thanks so much for working that all out for me!

So I'm thinking in my situation, I can't get a much of a tax benefit from pension contributions whilst working in a tax free country, unless I opt to remain as a UK tax payer. However, I'll probably be better off in the long run taking advantage of the zero rate tax in Doha, if I'm able to.

In which case, I guess it's a case of working out the best places to invest my current inheritance and future earnings, and then when I come back to the UK, invest as much as possible against future UK earnings into a pension. I won't benefit from compound interest on the pension, but if I reinvest any returns from my initial investments, then that's effectively compounded, isn't it (albeit after paying tax on the investment income)? Does my logic sound right?

One other question. If I apply to be a non UK tax payer, do I have to pay tax on my ISA interest?

Many thanks.

bowlhead99

It would seem sensible to not be UK tax resident for the next 3 years if you have that option, rather than being UK tax resident to allow you to make pension contributions and then having to pay tax on all your remaining worldwide income at UK marginal rates, when you could get a zero marginal rate by not being UK tax resident.

If you're going abroad to work you ought to be able to get 'split year' treatment for your tax year of departure so that you're effectively non resident from when you leave in Jan, and only resident here until December. As you have 9 months of earnings in the UK this year you should be able to put all of it into a pension while you're still resident here. The normal allowance is 'only' £40kpa, but you haven't used any of your pension allowances last year or the year before, so pretty much whatever you can earn in the UK during this tax year is likely to fit into your total allowance.

So, if you have access to the cash and can live without it for the next 15 years or so, open that pension account and throw a lot into it this year.

If I apply to be a non UK tax payer, do I have to pay tax on my ISA interest?

You won't pay any UK tax on your ISA interest, because you never pay UK tax on UK ISAs. You are allowed to keep ISAs while you're a non resident, you just can't subscribe any more money to them.

Even if your money was not in ISAs but just in bank savings accounts, you probably wouldn't pay any UK tax on the interest from next year on, because you'll have a nice big annual income allowance of £10k a year nil rate in the UK which you aren't using once you stop running your business here. So unless you had half a million quid earning a couple of percent a year, the income being earned wouldn't exceed the annual allowance.

I guess the question is whether you pay any tax in the country where you're resident, on your UK interest. Many countries where you might become resident would tax on your worldwide income, just like the UK does when you're resident here. However, if you're in Qatar for the whole time, and they don't have an income tax for individuals, I guess that answers the question.

neilsolaris

Thanks very much bowlhead99, that's really made things a lot clearer for me! I had forgotten about the unused personal allowance.

I'm on a very low income (up until now), so unfortunately I won't be able to invest anywhere close to £40,000. If my taxable profit is likely to be £10,000 for this tax year, and the profit before tax allowable expenses has been deducted about £14,000, if I do not claim any expenses this year, could I make a pension contribution of £11,200 (14,000 x 80%)? This is the area I'm still not 100% sure about.

Many thanks for your help.