Investing after LTA?

Newnoel

I am in my late 40s and my SIPP has recently tipped over £1.2m, due to a bit of luck from getting in early with Scottish Mortgage Investment Trust (SMIT), so the question becomes ... what next in terms of pension planning? I have moved out of SMIT, and into Vanguard Emerging Markets fund

Options:
1)  VCT: high risk, but gives a decent longer term tax free dividend stream, in addition to the 30% up-front tax back. Looking at the Octupus Titan VCT.
2) Buy to Let through a Limited Company: The missus and I have a few BTLs held in our personal names just now, which are being hammered by tax. Does it make sense to continue investment through a Limited Company? As an exit strategy in 10-15 years time, I am thinking of the benefit from the 10% CGT rate from Entreprenurs Relief, if/once the gains in the gains in the company start to mount. 
3) Continue investing in my employers fund. Currently, I put in £20k per year which is matched by my employer. My concern is that both the Tories and Labour seem to have a policy of punishing those who save for pensions so the taxes on pensions are likely to keep rising. 
4) Do nothing

cfw1994

I would say you have won the money game, & anything you do now is a bonus!
General perceived wisdom is to continue funding pensions where matched by employer - any future IHT gain will have been balanced by that free money from your company.  
We clearly don't know your lifestyle/family situation to know whether there are other ideas to throw out.

Beyond that, I'm afraid I have little of use to offer, sorry.  This is a case where I *would* seek financial advice - even as a one-off cost with an IFA (focus on the I) - I would say it looks like you've done well enough to likely not need their ongoing management (& associated fees), but you clearly need some financial guidance.
Get 3 decent sounding ones and have a beauty parade for what they think they can offer you - maybe some of our resident ones here can give some suggestions!

Thrugelmir

If you continue to make the right choices such as investing in SMT. Is tax really an issue?  You can hardly blame the Government of the day for your own success. Make hay while the sun shines. 

Albermarle

Continue investing in my employers fund. Currently, I put in £20k per year which is matched by my employer
If you are getting higher rate tax relief and employer contributions , you still get a positive return after LTA tax .
Unless you are likely to be a higher rate taxpayer in retirement, then the sums do not work out so good.
My concern is that both the Tories and Labour seem to have a policy of punishing those who save for pensions so the taxes on pensions are likely to keep rising. 
The tax relief on pension contributions is a positive incentive to save in a pension . For a higher rate taxpayer the relief is extremely generous . The LTA is effectively a limit on this to stop very wealthy people taking too much advantage of the generous tax relief. It has no effect on the vast majority . Maybe though after Rishi looks to full up the coffers again then maybe taxes will rise on pensions.
4) Do nothing. The question about how to minimise LTA tax comes up regularly on the forum . There are a few strategies to reduce the impact, but they are limited in their effect . The usual conclusion is just to resign your self to paying it knowing that just by the fact you are having to pay it , you are already in a better positions than probably 97% of the population and largely you are only paying back tax relief given to you in the first place.

Steve182

Newnoel said:

I am in my late 40s and my SIPP has recently tipped over £1.2m, due to a bit of luck from getting in early with Scottish Mortgage Investment Trust (SMIT), so the question becomes ... what next in terms of pension planning? I have moved out of SMIT, and into Vanguard Emerging Markets fund

Options:
1)  VCT: high risk, but gives a decent longer term tax free dividend stream, in addition to the 30% up-front tax back. Looking at the Octupus Titan VCT.
2) Buy to Let through a Limited Company: The missus and I have a few BTLs held in our personal names just now, which are being hammered by tax. Does it make sense to continue investment through a Limited Company? As an exit strategy in 10-15 years time, I am thinking of the benefit from the 10% CGT rate from Entreprenurs Relief, if/once the gains in the gains in the company start to mount. 
3) Continue investing in my employers fund. Currently, I put in £20k per year which is matched by my employer. My concern is that both the Tories and Labour seem to have a policy of punishing those who save for pensions so the taxes on pensions are likely to keep rising. 
4) Do nothing

Have you sold out of SMT completely? Why didn't you just take some profit but keep a decent amount invested? Better to make £100K and pay £25K LTA charge on that than to make £50K and pay £12.5K LTA?

Newnoel

THanks all for your comments so far.

Any thoughts on strategies 1 & 2?
 1)  VCT: high risk, but gives a decent longer term tax free dividend stream, in addition to the 30% up-front tax back. Looking at the Octupus Titan VCT.
2) Buy to Let through a Limited Company: The missus and I have a few BTLs held in our personal names just now, which are being hammered by tax. Does it make sense to continue investment through a Limited Company? As an exit strategy in 10-15 years time, I am thinking of the benefit from the 10% CGT rate from Entreprenurs Relief, if/once the gains in the gains in the company start to mount. 

Newnoel

Steve182 said:

Newnoel said:

I am in my late 40s and my SIPP has recently tipped over £1.2m, due to a bit of luck from getting in early with Scottish Mortgage Investment Trust (SMIT), so the question becomes ... what next in terms of pension planning? I have moved out of SMIT, and into Vanguard Emerging Markets fund

Options:
1)  VCT: high risk, but gives a decent longer term tax free dividend stream, in addition to the 30% up-front tax back. Looking at the Octupus Titan VCT.
2) Buy to Let through a Limited Company: The missus and I have a few BTLs held in our personal names just now, which are being hammered by tax. Does it make sense to continue investment through a Limited Company? As an exit strategy in 10-15 years time, I am thinking of the benefit from the 10% CGT rate from Entreprenurs Relief, if/once the gains in the gains in the company start to mount. 
3) Continue investing in my employers fund. Currently, I put in £20k per year which is matched by my employer. My concern is that both the Tories and Labour seem to have a policy of punishing those who save for pensions so the taxes on pensions are likely to keep rising. 
4) Do nothing

Have you sold out of SMT completely? Why didn't you just take some profit but keep a decent amount invested? Better to make £100K and pay £25K LTA charge on that than to make £50K and pay £12.5K LTA?

Just a periodic rebalancing that I do every few months. My SMIT exposure has gone up from about 15% to 30%. I want to reduce my risk to "big tech", which may still have some way to run - so will keep about 50% of my current holding

My own sense is that Emerging Markets are undervalued, and will benefit from QE and the change in the US administration, so I am moving about £200k from SMIT to a low cost passive Emerging Markets fund. Personally, I like Vanguards low cost offerings.

Newnoel

Albermarle said:

... question about how to minimise LTA tax comes up regularly on the forum . There are a few strategies to reduce the impact, but they are limited in their effect . 

Strategies such as ??

cfw1994

Newnoel said:

Albermarle said:

... question about how to minimise LTA tax comes up regularly on the forum . There are a few strategies to reduce the impact, but they are limited in their effect . 

Strategies such as ??

Well, he did follow that with

The usual conclusion is just to resign your self to paying it knowing that just by the fact you are having to pay it , you are already in a better positions than probably 97% of the population and largely you are only paying back tax relief given to you in the first place.

I think if you can see it looming on the horizon, crystallising it is about the only thing you can effectively do, then take out any growth as income before the second test at 75.   Pretty well what I have been doing (made a little more challenging by the addition of 2 ‘small’ DB pensions to account for in the 10 years ahead which make up around 20% of the LTA....I am a black belt Excel Wizard tracking this stuff )

If you are already over it, well, you are in a better position than the vast majority of fellow humans.  Only keep contributing if your company match it, that way any punitive tax costs in the future will essentially have been paid by their ‘donations’.

randompenitent

I've just retired, over the LTA by 10% or so, depending on when you look.

If I'd not retired, I'd continue to contribute to my pension - as others have pointed out, employer contributions make it worthwhile.
I've never looked at VCTs closely so I can't comment other than noting that the charges seem high and the only people guaranteed to make money from them are the managers of the funds. BTL has never appealed personally - lumpy and illiquid investments subject to all sorts of potential downsides if government decides to change the rules.

My approach is to extract as much of the tax-free lump sum from my pension as possible. I don't need the cash but getting it out of the pension tax free will allow me to reinvest most of it in a normal (i.e. not tax-protected) investment account where it will go into low-cost index trackers.  If I end up paying capital gains tax as a result, that's probably still better than being bitten by the LTA plus income tax.  I'll reserve some of the lump sum to fund ISAs for the next few years.
With the residual pension, I'll use flexible drawdown to extract periodic income as needed, and at a rate sufficient to prevent it from growing further so as to minimise the Age 75 BCE.

caveman8006

Albermarle said:

Continue investing in my employers fund. Currently, I put in £20k per year which is matched by my employer
If you are getting higher rate tax relief and employer contributions , you still get a positive return after LTA tax .
Unless you are likely to be a higher rate taxpayer in retirement, then the sums do not work out so good.

Just to point out (the obvious) that a SIPP of £1.2m and growing will on its own likely generate returns that will exceed the basic rate allowance when you put it into drawdown. So, even with matched contributions from your employer, there will not be much advantage (if any) in continuing to contribute. You may be much better off trying to get your employer to offer you some or all of the pension contribution as a taxable income and then investing it straight into ISAs or other investments.