Hargreaves Lansdown SIPP Recommendation

bowlhead99

Lumphammer1 wrote: »

Does you mother need to sell the fund to release cash to make her withdrawals, or does she hold the majority in cash and just have the £1.2-2.5k holding in the fund?

When she puts the annual 2880 in it generally just stays in cash for a couple of months until the tax relief arrives and then whatever she doesn't take out as a UFPLS is added to the fund holding at that point.

If she already knows when making the contribution how much she's going to be taking out in total and how much will end up being invested, she might just invest that amount in the fund right away out of the initial contribution.

But as most of it is going to be taken out, she doesn't bother spending it all on funds right away, knowing that she'll have to sell later, because the expected investment returns on the whole 2880 in two months is not a huge amount, and primarily because I can't be bothered going through the rigmarole of walking her through an extra transaction - it's a once a year event so she is not overly familiar with how to do everything

Looking at the L & G mixed assets fund, it looks to be a fund of funds, so effectively you are paying fees twice? In any case, as you say, the fees are a minor factor compared with the overall picture.

It's a fund of funds but the underlying funds it uses are mostly index funds so not very expensive. The quoted OCF of about 0.3% includes the fees of both levels.

Many mixed asset funds get their exposure to the various asset types by buying other funds which specialise in the various areas in which the fund wants to participate. The ones that don't, and instead buy direct holdings of individual company equities and corporate and government bonds themselves, will be employing active management decisions to decide which assets to hold, and will end up costing more than the 0.3%.

Lumphammer1

Thank you, bowlhead, you have been really helpful.

I didn't realise that OCF includes fees of all funds.

I will now plough ahead with more confidence.

traceyaj

Hi , I am 55 years old and have no income until I decide to take my local government pension. I invested £2880 in a Hargreaves Lansdown SIPP March 2019. I received the tax top up during May 2019. I realise that I need to keep at least £1000 in the SIPP to keep it open but I am confused as if I take out the £2880 plus tax relief i am not sure as to which tax year I will be be claiming the tax back for (2018/2019) (2019/2020) ? HL would send me my funds but I would be charged emergency tax on it.

If the tax I would claim back is counted as 2018/2019 then maybe I can repeat the investment and gain tax relief for this year also ?

Can anyone please clarify?

ColdIron

I believe the tax relief will be for 2018/19 as that is when you made the contribution. If you are just doing this for the tax relief there is no reason to invest it into funds, you could just leave it as cash

If you want to avoid tax for the UFPLS (you can get it back but it's an inconvenience you could do without) you might consider using drawdown, there is no charge for this. So move the £3,600 into drawdown, take £900 tax free leaving £2,700 in drawdown. Then set up monthly payments of £141.66 ((£2,700 - £1,000) / 12). As this is less than £1,041.66 (personal allowance of £12,500/12) there is no tax to pay and you will leave £1,000 to satisfy the account conditions. Next (this) year do the same but you can increase the monthly payment to £225 (£2,700/12) and still leave £1,000. Rinse and repeat each year

Obviously you didn't do this last year so would have a larger sum involved if you make another £2,880 payment this year and there are fewer than 12 months left, so you would have to re-jig the numbers. But that's the general thrust of the idea

traceyaj

Thanks ColdIron,
Yes the whole idea is to receive the tax relief.
I hadn't looked at Drawdown at all, your explanation is most helpful.