Late 20s - right investment priorities??

ftbuyer14

Hi everyone,

I have been deliberating on where to invest some money before the end of the this tax year but I think I'm going in circles so would greatly appreciate a fresh perspective on my situation.

Age 29; Homeowner (no mortgage)
x2 small investment properties (£50k 4% mortgage remaining; yields 8-10%)
Savings (~1% interest easy-access)=£36k
S&S ISA (started last year) = £10k invested; currently 3.99% return - have full 20k allowance remaining for this year.
SIPP (again started last year) = £14k approx; no contributions made this year yet.

Salary 2018/19: £63k (but will drop to ~45-50k from next year)
NEST Pension: only £1400 in combined ER and EE contributions this year; but will be rejoining much better pension scheme from next year.

Short-medium term plans: Hoping to get married in next couple of years and move up the housing ladder soon after.
Long term: Would like to be in the position to be able to retire early 50s.

Now my question, is where should I be investing my money before the end of this tax year.
My initial plan was to invest in my SIPP so as to essentially get my higher rate tax down to almost zero; so by my calculations if I invest £12k in my SIPP (with tax contributions will boost it to a £15k pension and I will get £3k back in my tax return, thereby reducing my net contribution to £9k).
But then the more I thought about it, am I crazy to be putting/tying away this much cash in my SIPP and should I maybe look more towards S&S ISA again.. But I find it hard to ignore the great tax benefits offered by the SIPP.

I would appreciate any comments/opinions/advice on my situation; if you think I'm going about this completely wrong and should be investing elsewhere, I would love to hear!

Thanks

pjcox2005

I think it's a spot on as a decision.


You're relatively set already with home, BTL and small ISA so could raise money if you really had to but given a higher earner should be fine.


The tax saving on the pension is significant given the high rate tax saving, and putting it in early locks it away for retirement. The high rate tax saving is often muted as being removed so may not be around in future.


You also look weak in terms of retirement funds so this helps restore balance. Really struggling to see a negative about your plan.

ftbuyer14

pjcox2005 wrote: »

I think it's a spot on as a decision.


You're relatively set already with home, BTL and small ISA so could raise money if you really had to but given a higher earner should be fine.


The tax saving on the pension is significant given the high rate tax saving, and putting it in early locks it away for retirement. The high rate tax saving is often muted as being removed so may not be around in future.


You also look weak in terms of retirement funds so this helps restore balance. Really struggling to see a negative about your plan.

Thanks for your input; much appreciated.

Yeah I had heard rumours for a while now about potential changes to pension tax savings so probably is best to avail of it while I can.

steampowered

Remember that pensions have a life time allowance. With your financial position it sounds like you'll be hitting that easily.

For that reason, I'd max out the ISA.

You'll lose the tax benefits of this year's ISA if you don't invest in this tax year; but not the benefit of being able to invest in the pension.

S&S ISA will also be much more accessible if you need access in a few years time.

ftbuyer14

steampowered wrote: »

Remember that pensions have a life time allowance. With your financial position it sounds like you'll be hitting that easily.

Thanks for your advice.
You've touched on a lot of the reasons why I'm not 100% certain on the SIPP route. I've been reading a lot about people getting hit by the pension LTA changes and facing quite large tax bills. But then could I just reduce down my contributions at a later stage?

steampowered wrote: »

You'll lose the tax benefits of this year's ISA if you don't invest in this tax year; but not the benefit of being able to invest in the pension.

Of course, but then if I don't invest in my SIPP this year, I'll not get the benefit of the higher rate contributions tax relief either.

Alistair31

ftbuyer14 wrote: »

Of course, but then if I don't invest in my SIPP this year, I'll not get the benefit of the higher rate contributions tax relief either.

You could still benefit from same in next financial year whereas ISA allowance doesn’t carry over.

Mr.Saver

To me, 36k in cash as an emergency fund is pretty high. But I don't know your budgets. How many months can you live on this amount of cash? If your answer is anything above one year, you are definitely over doing it.

If you intend to keep the 36k as easy accessible cash, then get 20k out from your cash savings accounts that has the lowest interest, and put them into the TESCO cash ISA that pays 1.44% interest. This is still easy access, so no problem as an emergency fund. Otherwise, SIPP and S&S ISA is the way to go.

Not sure the "£12k" you talked about is from the above cash savings or a separate fund. If it's separate, pay it into pension with no doubt. Otherwise, think about take some out from your cash savings and put them into your pension before 5 April, and then you can rebuild your cash pot in the next tax year. Since you are far away from the LTA right now, better to get the 40% tax relief while you can.

ftbuyer14

Alistair31 wrote: »

You could still benefit from same in next financial year whereas ISA allowance doesn’t carry over.

Oh I didn't realise this was the case; how exactly does that work? Is it to do with using up unused allowances from previous 3 years? (I vaguely remember reading something like that before but could be confusing it with something else). Would you still benefit from the higher rate contribution tax relief? As I've said my salary will be a bit lower for next few years so wouldn't be really hitting the higher tax band too much.

ftbuyer14

Mr.Saver wrote: »

To me, 36k in cash as an emergency fund is pretty high. But I don't know your budgets. How many months can you live on this amount of cash? If your answer is anything above one year, you are definitely over doing it.

If you intend to keep the 36k as easy accessible cash, then get 20k out from your cash savings accounts that has the lowest interest, and put them into the TESCO cash ISA that pays 1.44% interest. This is still easy access, so no problem as an emergency fund. Otherwise, SIPP and S&S ISA is the way to go.

Not sure the "£12k" you talked about is from the above cash savings or a separate fund. If it's separate, pay it into pension with no doubt. Otherwise, think about take some out from your cash savings and put them into your pension before 5 April, and then you can rebuild your cash pot in the next tax year. Since you are far away from the LTA right now, better to get the 40% tax relief while you can.

Yeah the 12k would be coming from that 36k (currently 18k is at 1% and the other half is 0.6%). I agree, the 36k is much too much to have in an emergency cash fund. I would looking to invest approx half of it now before the deadline.

Mr.Saver

ftbuyer14 wrote: »

You could still benefit from same in next financial year whereas ISA allowance doesn’t carry over.

Oh I didn't realise this was the case; how exactly does that work? Is it to do with using up unused allowances from previous 3 years? (I vaguely remember reading something like that before but could be confusing it with something else). Would you still benefit from the higher rate contribution tax relief? As I've said my salary will be a bit lower for next few years so wouldn't be really hitting the higher tax band too much.

No, you won't. The higher rate tax relief cannot carry over. Only the annual allowance can carry over, but this doesn't give you any tax relief.