SIPP to reduce tax liability on 100K+ earnings

whist

Hello

Ive recently changed jobs and my total income from Salary and Investments has hit the 100K plus mark ( lucky me!) .

In order to reduce my tax liability ie loss of personal allowance , Im thinking of investing in a SIPP. Ive already maxed out on employee pension contribution which employer doubles.

My earnings over 100K would vary depending on how my investments perform and annual bonus but assuming between 10k and 30K over , probably closer to the former.

Im a relatively passive investor but want to be more active to secure a good pension for myself. I have some shares in an ISA and nominee account which monitor occasion ( some are bank shares pre 2008:o) .

I was thinking of putting some money in Bestinvest Sipp by buying some more shares.

Good idea?

AlanP_2

Putting money into SIPP to reduce tax liability is nice if you can afford it.

Not sure I'd go for shares unless I knew what I was doing and had the time and inclination to do lots of research.

My preferred option is funds, where a whole range of "single company shares" are bought as a collective investment by a fund manager as it helps to spread the risk.

Going one step further a range of funds that spread risk geographically and by sector.

There are also managed funds that combine a number of geographic & sector specific funds in one package e.g. Vanguard LifeStrategy, L&G Multi-Index and Blackrock Consensus ranges. These can be a good "fire and forget" starting point.

Have a browse through here on subjects like "portfolio", "allocation" and the like to see further discussion.

Also check out websites like monevator.com

whist

Thanks for the response. I was originally thinking of buying some oil company shares to put in my ISA when the idea came to me to put in a SIPP . A few 000 worth. My thinking, By the time I retire or win the lottery! , oil shares would have gone through a few gyrations .
Additionally, If I go for SIPP, over the next few years i would diversify the portfolio myself with some other sector shares but from research , if I were to go for Funds as well, not sure I would do it via a SIPP, then maybe I would ( I need to do more research - idea came to me only yesterday) but given i have only a few 000 to spare at the moment and i need to do something before April to avoid handing over 000s in tax to the taxman after 2015/16 self assessment .
For some reason , when i think of funds , i think of having to put in lots of money, pay a chunk in fees and charges and incur annual losses and i really want to research this area before getting into it. Ive been dabbling in shares for over 10 years with mixed success. When i have have stuck to FTSE shares, I've mostly done ok.

AlanP_2

You have time to do some research before end of tax year so no rush although you need to allow a good few weeks to get the SIPP open and money paid in to be on the safe side.

How old are you and what is your situation in terms of mortgage, dependents etc as these should influence your approach.

SIPP cannot be accessed until 55+ and that is going up in line with State Pension Age (less 10 years) typically.

It is the investments that are the important element as opposed to what you wrap them in (SIPP, ISA or unwrapped) although tax implications should not be ignored. There has been a lot of talk about limiting tax relief on pension contributions to reduce some / all of the additional benefit higher earners get.

Many people would have the opposite viewpoint to yours I think in terms of Funds v Shares.

whist

Thanks. I'm a few decades from official retirement age and I do have a mortgage but no dependents.

EdSwippet

whist wrote: »

In order to reduce my tax liability ie loss of personal allowance , Im thinking of investing in a SIPP. Ive already maxed out on employee pension contribution which employer doubles.

Assuming that your employer's scheme is DC and that you're reasonably happy with both investment choices and charges in your employer scheme, before opening an external SIPP take a closer look at what happens if you instead increase contributions to your employer's scheme beyond where you get the employer match.

At minimum this saves annual SIPP charges. If your employer offers salary sacrifice you probably get an uplift on contributions relative to a SIPP even without direct employer contribution matching, making it more efficient than the SIPP route.

whist

Great idea. I had thought about that but the pension scheme is like a black hole. I don't know how well it's doing . I can only hope it's doing well. With the Sipp I'll be more in control of my own destiny. For the current tax year I need to do some kind of lump sum investment by end of this financial year . Next year I will be looking to do a combination of things - ie a more balanced portfolio. I certainly have a lot to think about in terms of where to put my money based on the responses a so far so thanks for the input .

neilvw

If your workplace pension is DC you should be getting annual statements including values/performance information?

RickyB2000

Def check out your company scheme as they may have better charges than you would get doing the same thing outside. Depending on frequency of trading and who you are with frequently buying individual shares can get expensive.

Though all company schemes I have seen invest in funds. The default is usually a lifestyle option (switches to bonds as you get older to prep you for buying an annuity), though they usually offer other funds you can invest in (range is often pretty poor).

There is also personal pensions to look at, not much experience myself but I believe they can be cheaper than a SIPP if they can achieve the same goals/service that you specifically need (only you would know that)

Another thing to consider is how your stock picking to date compares to the relevant index, are you likely to beat it or would a cheap index tracker be better? Or a managed fund?

RickyB2000

Another thing to consider with this strategy is the lifetime limit. Doing a bit of modelling on current pension value, likely contributions, time, growth (both in the pension and likely lifetime allowance growth) etc, will you be at risk of exceeding it and what would this make your net tax position. Though you could just take the pension early (this may make a pension other than your employers preferable depending on T&C)

whist

Does anyone know of a website or somewhere I can find a calculator to work out how much I have to put into pension to reduce the liability. For example, if say I earn 115000 in the current tax year and I want to know exactly how much to put in pension to get back down to 100K. I understand this is not as straight forward as 15K. Looks like the government will automatically top up by 20% and I can claim tax relief of some sort in my self assessment at a later date. So if I were top open a SIPP tomorrow for arguments sake, do I pay in 12K or some other amount. Would be good if I can find somewhere to plug in actual numbers once I have added up all my income.
Also do I use my full salary before pension payments and tax and NI deductions to calculate the total income for tax purposes?