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Paul_Herring

Deleted_User wrote: »

How can he put 2M into tax sheltered accounts? Isn’t the lifetime limit on pension contributions just over 1M?

Per person...

One-off:
Premium bonds £50k

Per year:
EIS £1m
SEIS £100K
VCT £200K
Pension £40K (presuming sufficient salary, plus any usable carry-forward.)
ISAs £20K

I'm sure there are other schemes out there.

[Deleted User]

Paul_Herring wrote: »

Per person...

One-off:
Premium bonds £50k

Per year:
EIS £1m
SEIS £100K
VCT £200K
Pension £40K (presuming sufficient salary, plus any usable carry-forward.)
ISAs £20K

I'm sure there are other schemes out there.

Right. He just needs to set up a qualifying business. Until then the vast majority of his money is in a taxable account and taxation is an important consideration. OP wants to retire once he comes into the money, so there won’t be a salary

Paul_Herring

Right. He just needs to set up a qualifying business.

What on earth for?

jamesd

Deleted_User wrote: »

I don’t accept that VTI or APL are only “for US investors”. I am not, I have hundreds of thousands in VTI and have no complaints.

UK investors are able to buy them but generally don't. Usually they won't even be one of the funds offered in say the workplace pensions that are likely to be the only investments for much of the population.

Deleted_User wrote: »

If I understand you correctly, your point is that most of the world market cap isn’t available to UK index investors if they use products recommended by IFAs. If true, it’s a really good reason to avoid IFAs and read a couple of good books instead.

You don't avoid UK funds just because you don't use an IFA. No IFA and the usual pension or ISA is still going to be in UK funds.

Most of the world's market cap isn't owned by UK investors. They can and do invest in most markets, whether with an IFA or not.

jamesd

BritishInvestor wrote: »

Using leverage will lead to greater drawdowns - why not take more (unleveraged) equity exposure (and less bond) if this is the goal?

That doesn't get you to the 110% invested desire that you may have while preserving the risk mixture of the underlying investments with the same equity:bond spit. Which seems to be the sort of thing that investment trusts go for. Though levrage can vary over time based on market conditions or cost.

BritishInvestor wrote: »

Some people (I see this quite often with DFMs) claim alpha as they have a greater risk adjusted return than the "market". When Q4 2018 happened their growth & small cap tilts, HY bond and Emerging leanings burnt them - the large drawdowns implied risk adjusted return is a poor measure, IMO.

If they genuinely are delivering alpha the drawdown shouldn't be higher than others at comparable risk. But see next paragraph.

Drawdown worries me because there's systematic short termism built into the system. The events of 2008 long ago vanished from the five year performance normally used in marketing. Even from required performance and risk measures. Way too many people are likely to think that bull market performance and volatility are normal and not appreciate the real drawdown potential of their investments.

For others, this drawdown is about the drop in value of an investment during a big market drop, like 40-50% for equities overall or 60-80% for smaller companies. It's not about income drawdown but this drawdown is part of sequence of returns risk. When an IFA is trying to find your risk tolerance a large part of what they are trying to do is work out the maximum drawdown you can handle.

BritishInvestor wrote: »

When you say higher alpha, you imply there is such a thing (in modern, more efficient markets (my opinion)), but analysis proves genuine alpha is very, very rare. This is to be expected as there are lots of equally bright people attempting to find an edge - how many people genuinely have one?

Alpha is there but I think that it's easier to reduce exposure to negative alpha at times: in the passive world by not buying FTSE trackers charging 1% or even 1.5%, say. While the US market, if we ignore factors, seems pretty efficient there are plenty of others. Even when trying there are still those workplace pensions and their limited choices to consider.

jamesd

greenglide wrote: »

And passive funds never buy and sell?...Or an I missing something?

It's more of an issue in the US where each year you are subject to capital gains tax on the trades made by your funds during the year. Since the US also has a higher capital gains tax on things held for less than a year this tends to penalise trading and reward buy and hold approaches. It's very different from the UK system where the CGT is calculated only when you sell the fund itself.

Passives have to buy and sell based on investor money movements into and out of a fund as well as index changes.

jamesd

Deleted_User wrote: »

Besides, US domiciled ETFs use financial tools available to them to eliminate taxable events.

That was one of their design goals and part of what helped to drive their adoption in the US. Not a factor in the UK but they still have useful properties like rapid trading except in times of high market stress.

Linton

Deleted_User wrote: »

Active funds are more impacted by taxes because they keep buying and selling and every sale is a taxable event, regardless of how long you held the stock (although tax may be different depending on duration).

.......

In the US, not the UK.

....
(Ref US ETFs) Never had capital gains unless I sold shares.

...
but trackers tend to be far more tax efficient than active funds.

In the UK no-one pays capital gains tax on any fund unless they sell units/shares. In terms of tax efficiency trackers are exactly the same as active funds.


Yes, the US is different, but I believe the OP is investing in the UK.

michaels

Paul_Herring wrote: »

Per person...

One-off:
Premium bonds £50k

Per year:
EIS £1m
SEIS £100K
VCT £200K
Pension £40K (presuming sufficient salary, plus any usable carry-forward.)
ISAs £20K

I'm sure there are other schemes out there.

What would happen if they put it all into a pension completely blowing any allowances, what tax would be payable?

Paul_Herring

michaels wrote: »

What would happen if they put it all into a pension completely blowing any allowances, what tax would be payable?

Presuming they don't receive any tax relief not due (which would need to be repaid if it was,) then 25% or 55% tax on anything over the lifetime allowance, plus any usual income tax due, when it comes to withdraw it.

Most certainly, doing that is not in the slightest bit tax efficient.