SIPP and ISA

littld

I have a S&S ISA and buy my own shares, been getting about a 7% return over the last three or four years. I decided I'd rather pay the tax now than in retirement as I was not earning enough to pay higher rate tax.


That changes this year, so I plan to start a SIPP and invest everything above the higher rate threshold into it, and continue to invest in the ISA for the rest (about £15K a year).


Is this the right balance or would it be cheaper in terms of charges to just put everything into a SIPP?


I'd appreciate any advice on the matter, thank you.

dunstonh

I have a S&S ISA and buy my own shares, been getting about a 7% return over the last three or four years. I decided I'd rather pay the tax now than in retirement as I was not earning enough to pay higher rate tax.

Although the pension would still beat the ISA in following respects:
1 - only 75% of the pension becomes taxable
2 - your personal allowance in retirement will be higher than it is now

Is this the right balance or would it be cheaper in terms of charges to just put everything into a SIPP?

The decent platforms have a single charge that applies to the amount on platform. Not the different wrappers (some don't but that can be part of your research). So, it is the total amount on platform that says what your charges are. Not the SIPP and ISA individually.

kidmugsy

littld wrote: »

I have a S&S ISA and buy my own shares, been getting about a 7% return over the last three or four years. I decided I'd rather pay the tax now than in retirement as I was not earning enough to pay higher rate tax.


That changes this year, so I plan to start a SIPP and invest everything above the higher rate threshold into it, and continue to invest in the ISA for the rest (about £15K a year).

That's what I'd do: use the 40% relief while it's still available.

zagfles

dunstonh wrote: »

2 - your personal allowance in retirement will be higher than it is now

This is rubbish - the govt abolished the higher age allowance a few years ago except for those already getting it (people born before 5 April 1948, ie who are already over 67).

zagfles

littld wrote: »

I have a S&S ISA and buy my own shares, been getting about a 7% return over the last three or four years. I decided I'd rather pay the tax now than in retirement as I was not earning enough to pay higher rate tax.


That changes this year, so I plan to start a SIPP and invest everything above the higher rate threshold into it, and continue to invest in the ISA for the rest (about £15K a year).


Is this the right balance or would it be cheaper in terms of charges to just put everything into a SIPP?


I'd appreciate any advice on the matter, thank you.

Depends how old you are and whether you're likely to need the money before retirement. If you're over 55 it might be better to put as much as you can into the pension as you have access to it now if you need it.

Just watch out for the limits (£40k annual allowance, and max 100% of earned income), and the rules about withdrawing more than the 25% TFLS could reduce your annual allowance.

dunstonh

zagfles wrote: »

This is rubbish - the govt abolished the higher age allowance a few years ago except for those already getting it (people born before 5 April 1948, ie who are already over 67).

Its not rubbish. Personal allowance is increased in most annual budgets.

2000 it was £4385
2005 it was £4895
2010 it was £6475
2015 it is £10,600
2017 it is planned to be £11000

Only twice since 2000 has it failed to be increased.

zagfles

dunstonh wrote: »

Its not rubbish. Personal allowance is increased in most annual budgets.

2000 it was £4385
2005 it was £4895
2010 it was £6475
2015 it is £10,600
2017 it is planned to be £11000

Only twice since 2000 has it failed to be increased.

Past performance isn't a guide to future performance. Besides the personal allowance for people aged 75+ hasn't increased since 2012. The new govt could easily freeze it as they did for those over 75.

So stating it will be higher is pure guesswork.

littld

zagfles wrote: »

Depends how old you are and whether you're likely to need the money before retirement. If you're over 55 it might be better to put as much as you can into the pension as you have access to it now if you need it.

Just watch out for the limits (£40k annual allowance, and max 100% of earned income), and the rules about withdrawing more than the 25% TFLS could reduce your annual allowance.

Not sure about needing it before retirement. Expect to retire at 67 and am currently 43 so a lot can happen by then.

Good_bad_and_ugly

zagfles wrote: »

Past performance isn't a guide to future performance. Besides the personal allowance for people aged 75+ hasn't increased since 2012. The new govt could easily freeze it as they did for those over 75.

So stating it will be higher is pure guesswork.

I'm inclined to agree. Unilaterally saying it will change is at best, speculative. It was only a few years ago of course, that the pension lifetime allowance increased to £1,800,000. I would advise caution if you intend to base a devision on a premise that could easily change - truth is, no one knows! That caveat must be added to Dunstonh's impressions.

Good_bad_and_ugly

littld wrote: »

I have a S&S ISA and buy my own shares, been getting about a 7% return over the last three or four years. I decided I'd rather pay the tax now than in retirement as I was not earning enough to pay higher rate tax.


That changes this year, so I plan to start a SIPP and invest everything above the higher rate threshold into it, and continue to invest in the ISA for the rest (about £15K a year).


Is this the right balance or would it be cheaper in terms of charges to just put everything into a SIPP?


I'd appreciate any advice on the matter, thank you.

That would depend on by how much you breach the higher rate level and what the disposition of your funds and tax wrappers will be. In principle, and taking into account your personal circumstances, capitalising on tax relief is always a good idea.

zagfles

littld wrote: »

Not sure about needing it before retirement. Expect to retire at 67 and am currently 43 so a lot can happen by then.

The main advantage of the ISA is you can get at it before you're 55. This can also be a disadvantage for instance if you need to claim means tested benefits you'd have to declare it.

The pension is likely to be tax advantageous, even without higher rate relief, as you get 25% tax free when you take it out.