The 50k Question. PB or Trading Account?

Flatulentoldgoat

I have a 50k lump sum in PB's which is a useful tax free wrapper. I have maxed out my ISA contributions for this year and I'm happy contributing to my pension via my LISA which is also maxed for this year. I have a SIPP which I could throw more money at but I would rather keep my money a bit more liquid.

Short to medium term (I've been saying this for years) I'm looking to buy so accessibility is key.

PB's are pretty poor, my luck has been shocking my whole life. Whereas my invested money is doing well (contradiction alert) I'm considering dropping a good chunk of the 50k in a trading account. But is it worth it? I presume I wouldn't have any tax to do the cash deposit. My concern is that I would probably exceed my investments interest allowance (1k) if I tried touching it and it's value rose. Let's presume I dropped 50k in a trading account and it went up by £2000 in a year. I wanted to take it out. The dividends allowance would be 1000, after which as a BR tax payer I'd have to pay the 12.5% on the remaining 1000 so would end up with £750. £250 down on tax.

I know this is an incoherent ramble, but to cut to the chase is a trading account worth it in my circumstances?

Flatulentoldgoat

Just realized I need to wait 12 months before I can utilize my LISA for a purchase. I'm hoping to buy sooner! What if I have a LISA and a SIPP? Can I combine them somehow? Any thoughts?

eskbanker

Flatulentoldgoat said:

I'm considering dropping a good chunk of the 50k in a trading account. But is it worth it? I presume I wouldn't have any tax to do the cash deposit. My concern is that I would probably exceed my investments interest allowance (1k) if I tried touching it and it's value rose. Let's presume I dropped 50k in a trading account and it went up by £2000 in a year. I wanted to take it out. The dividends allowance would be 1000, after which as a BR tax payer I'd have to pay the 12.5% on the remaining 1000 so would end up with £750. £250 down on tax.

I know this is an incoherent ramble, but to cut to the chase is a trading account worth it in my circumstances?

You're mixing up growth/dividends/interest and also types of taxation there!

If you achieved growth of £2K on an unwrapped £50K investment then the only applicable tax would be capital gains tax, but since you have an annual CGT allowance of £12,300, there wouldn't be any payable.

Your £1K 'interest allowance' (actually a nil-rate band) only relates to savings rather than investments, unless you choose very low equity content fixed income investments whose returns are characterised as interest rather than dividends.  Unsurprisingly your dividend 'allowance' (also a nil-rate band) only applies to dividends paid out by your investments, but your scenario doesn't really identify earnings as a separate entity from growth.

The well-used phrase 'don't let the tax tail wag the investment dog' applies here though - both income tax and CGT can and should be optimised where possible, but they're relatively peripheral compared with the principle of investing, so you need to identify what it is you're trying to achieve by investing first and how best to meet those objectives, before getting into the details of any taxation....

eskbanker

Flatulentoldgoat said:

Just realized I need to wait 12 months before I can utilize my LISA for a purchase. I'm hoping to buy sooner! What if I have a LISA and a SIPP? Can I combine them somehow? Any thoughts?

No, LISAs and SIPPs are entirely different vehicles, that aren't interchangeable in any way - in any case, your SIPP can't be accessed until you're at least 55 (maybe later depending on how old you are now) whereas if you have a LISA you must be no older than your early forties, despite the name....

Thrugelmir

Flatulentoldgoat said:

Just realized I need to wait 12 months before I can utilize my LISA for a purchase. I'm hoping to buy sooner!

Then speculating on the markets most likely isn't for you. 

Flatulentoldgoat

eskbanker said:

Flatulentoldgoat said:

Just realized I need to wait 12 months before I can utilize my LISA for a purchase. I'm hoping to buy sooner! What if I have a LISA and a SIPP? Can I combine them somehow? Any thoughts?

No, LISAs and SIPPs are entirely different vehicles, that aren't interchangeable in any way - in any case, your SIPP can't be accessed until you're at least 55 (maybe later depending on how old you are now) whereas if you have a LISA you must be no older than your early forties, despite the name....

I'm really in a bind then! What should I do. Would like to buy this year, just took out a LISA having stupidly not realized I needed a full 12 months before I can use it. Will likely use my H2B if my plans are realized. 4K down the drain until I'm 60 or want to lose  25% to get it out...

eskbanker

Flatulentoldgoat said:

eskbanker said:

Flatulentoldgoat said:

Just realized I need to wait 12 months before I can utilize my LISA for a purchase. I'm hoping to buy sooner! What if I have a LISA and a SIPP? Can I combine them somehow? Any thoughts?

No, LISAs and SIPPs are entirely different vehicles, that aren't interchangeable in any way - in any case, your SIPP can't be accessed until you're at least 55 (maybe later depending on how old you are now) whereas if you have a LISA you must be no older than your early forties, despite the name....

I'm really in a bind then! What should I do. Would like to buy this year, just took out a LISA having stupidly not realized I needed a full 12 months before I can use it. Will likely use my H2B if my plans are realized. 4K down the drain until I'm 60 or want to lose  25% to get it out...

One thing you should definitely do, in the light of various comments above, is to spend more time looking before you leap!  There is so much readily-accessible information in the public domain, including forums like this as well as definitive and authoritative data, so it's not difficult to avoid the situation where you put your money into something you don't understand.

On the specific question of the LISA, the withdrawal penalty is currently (temporarily) 20% of the amount withdrawn, which means that you don't lose anything as this effectively just reverses the bonus added by the government, so if you paid £4K in and want to take it out prematurely, you get your same £4K back.

Flatulentoldgoat

eskbanker said:

Flatulentoldgoat said:

eskbanker said:

Flatulentoldgoat said:

Just realized I need to wait 12 months before I can utilize my LISA for a purchase. I'm hoping to buy sooner! What if I have a LISA and a SIPP? Can I combine them somehow? Any thoughts?

No, LISAs and SIPPs are entirely different vehicles, that aren't interchangeable in any way - in any case, your SIPP can't be accessed until you're at least 55 (maybe later depending on how old you are now) whereas if you have a LISA you must be no older than your early forties, despite the name....

I'm really in a bind then! What should I do. Would like to buy this year, just took out a LISA having stupidly not realized I needed a full 12 months before I can use it. Will likely use my H2B if my plans are realized. 4K down the drain until I'm 60 or want to lose  25% to get it out...

One thing you should definitely do, in the light of various comments above, is to spend more time looking before you leap!  There is so much readily-accessible information in the public domain, including forums like this as well as definitive and authoritative data, so it's not difficult to avoid the situation where you put your money into something you don't understand.

On the specific question of the LISA, the withdrawal penalty is currently (temporarily) 20% of the amount withdrawn, which means that you don't lose anything as this effectively just reverses the bonus added by the government, so if you paid £4K in and want to take it out prematurely, you get your same £4K back.

Got it, just realized that. Presumably I'll need to wait until I get the 1k bonus. Whereas if I try and withdraw now, I'll be down £800?

LISA = £4000 now. Wait till bonus (1000) 4000 + 1000 = 5000. 20%-5000 = 4000?

Please do correct me

eskbanker

Flatulentoldgoat said:
Presumably I'll need to wait until I get the 1k bonus. Whereas if I try and withdraw now, I'll be down £800?

LISA = £4000 now. Wait till bonus (1000) 4000 + 1000 = 5000. 20%-5000 = 4000?

Please do correct me

You can go ahead without waiting if you wish but that would entail two withdrawals, as you can only withdraw what's in the account, so if you still only have £4K in there (ahead of the arrival of the bonus) then you can only withdraw that £4K, which would give you a net £3.2K after the penalty is applied.  Once the bonus is paid, you could then withdraw that £1K, which would also be penalised down to £800.