Strategy to minimize LTA and income tax.

anselld

sandsy wrote: »

Why don't you crystallise only what you can invest into ISAs each year? ie. crystallise £160k this year, take out 25% (£40k) for ISAs then start drawing down from the remaining £120k as required, up to 40% limit.

Do the same in following years. I reckon you'll be fully crystallised before the end of year 6, and within the LTA assuming your current growth and inflation assumptions.

The OP is also concerned about the second LTA test and 75 so it is not simply a question of crystallising within the LTA.

If they consume the whole LTA in the process of crystallising then all growth after that point must be withdrawn as income to avoid the 75 LTA test. Such withdrawal may not be possible within the 40% limit.

MK62

sandsy wrote: »

Why don't you crystallise only what you can invest into ISAs each year? ie. crystallise £160k this year, take out 25% (£40k) for ISAs then start drawing down from the remaining £120k as required, up to 40% limit.

Do the same in following years. I reckon you'll be fully crystallised before the end of year 6, and within the LTA assuming your current growth and inflation assumptions.

This is what I would do too I think - it achieves the goals while leaving options open...
You could also look at the pros and cons of using UFPLS vs drawdown for the income, in terms of LTA testing and income tax.

Personally I wouldn't want to risk approaching my 75th birthday with a bunch of heavyweight financial decisions to make, so I'd probably want to keep it all as simple as possible, and have it all sorted by 70 at the latest (well as much as can be anyway).....but that's just me....

AnotherJoe

Reluctantpensioner wrote: »

OEIC:
Fund assets are held in safekeeping on investors behalf by a trustee or depositary.

If an authorised investment firm goes into default, your assets are protected.

You continue to own your investment and the fund!'s assets are still invested as before.

As said by another poster, there are multiple issues being exposed by Beaufort. Until seeing that unravel, my opinion would have been the same as yours, it's all protected, nothing to see here, etc etc.

Here are the issues;

First its not as protected as thought because the company doing the clean up is charging huge fees to unravel the mess and those fees come from investors money. Eg your money. It's certainly looking like they could easily lose 20% or more of their overall pot value for example.. so even if your funds are kept separately the insolvency company is quite happy to access some of that money to pay for giving it back to you.

Second is the delay. It wouldn't surprise me if it took a year or two to unravel this mess. If you have all your pension unavailable for that time that's not good place to be financially or emotionally.

Third, that's fine about it being segregated if the company is doing what it should. If it's doing something illegal, very unlikely with a large company more likely witha small one, that all goes out of the window.

I don't know where your number of 17 came from, is it £50k x 17 = your £850k? That would keep it 100% safe. On the other extreme, 1 is all eggs in one basket.

In your case, transferring,from what I recall, two pensions, I'd just be pragmatic and put it in two different SIPPs. It's not much more complex and won't cost you any extra*

FWIW my SIPPs are across two pensions, through happenstance, and I had been thinking about moving it into one but it was hard to see much benefit and Beaufort has made me realise keeping it in two is a pragmatic and better approach. I would say 2-3 is likely the optimum balance between 100% protection and keeping admin simple. If you happened to have 3 DCs to transfer I'd probably be inclined to transfer to 3.

*Because even if charges are slightly higher all that will happen is the people you leave it to in your will will get a bit less, it won't affect you

kidmugsy

Reluctantpensioner wrote: »

So you recommend I split across 17 different investment companies? Are there 17?

Don't be dim. Even splitting it across four or five would enormously reduce your risks.

The_Doc

http://monevator.com/even-brokers-can-fail-you/

For that amount of money, it would make sense to split it across two SIPP providers. Then optimise your fund/stock selection accordingly. I use HL and Fidelity. I use HL for Investment Trusts and ETFs and Fidelity for funds. Keep the maximum per fund manager to around 50K.

goRt

anselld wrote: »

Have you factored the index linking of LTA with RPI? Every time you move to drawdown or take UFPLS you consume some LTA which from that point forward in not index linked.
B.

LTA is index linked to CPI so 3% would be too high, 2% would be a safer planning assumption

There's an article somewhere that demonstrates those with large funds will rapidly eat the LTA allowance using the UFPLS route (OP assumes 60% over 11 years) and PCLS is the better/safer strategy.

Personally, I've gone for the PCLS route and manage my drawdown vs. other taxable items to stay below the 40% threshold (although the 55% above LTA is a greater worry to be addressed a few years before 75 should there be a pending issue)

jamesd

The modified first strategy suggested by sandsy looks like a good base, since it removes money from the pot for initial LTA calculation fairly rapidly and avoids CGT hassles with ISA use.

It's probably not optimal for the age 75 test on growth, though. That one seems far simpler by crystallising it all in one go since you have a single starting point to manage. Also might make it easy to get ahead by withdrawing more than the growth, at least using your full basic rate band.

What I suggest you do is simplify the longer term age 75 bit by taking the maximum tax free lump sum now. Then manage the CGT by using similar tracker funds. Move into ISA each year and bed and breakfast from income to accumulation units or another brand to use your remaining CGT allowance.

You can do VCT buying to reduce the likely income tax effect if they are to your taste.