Investing £250k for growth

Hoot_2

Dh6 said:

You mention tax relief on the ISA, are you understanding this correctly?

The ISA wrapper means you pay no tax on any investment gains.

Paying into a pension benefits from ‘tax relief” whereby the government boosts your contribution by 25%. 

If I was you I’d be contributing it all to a pension as you can access it in 5 years and you’d be up 25% before you started.

I’m 34 and also self employed btw.

Thanks DH

Yes, I meant zero tax on gains not relief. Thanks for the correction.

Also I'm not really understanding the pensions. If I were to put the entire sum into a pension, would the tax relief be on the whole amount? 

Albermarle said:

So when you invest £250K in non pension funds , why do you think you will have more control than if you invested in funds via a pension 

Doesn't a pension pay out a monthly sum? If it were in ISA's I could control the amount I took out or move somewhere else if desired?

I'm listening and open to suggestions.

Thanks for everyones input so far

MX5huggy

Pensions changed in 2016, you can take your money out flexibly you don’t have buy an annuity (very few people do now) that provides an “income”. So you can take the whole lot in one go if you wanted the problem with this you would be taxed as if you earned that huge sum in the year you take it so people take what they need / can afford keeping tax thresholds in mind. 

You won’t be able to put into a pension £250k in one go. It depends on what you and your wife earn, please tell us ball park at least what you both earn in a year. If it helps I earn £27k and contribute about 30% to pension and not much to ISA and what is in ISA will probably move to pension once retirement is within sight because it’s better value. 

Hoot_2

I average 40k per year give or take. My wife only around 6k. My income will probably reduce when we move so Im guessing my contributions into a pension would reduce in line with what I earn?

Our pot is shared so I wouldn't put it all into a pension if we decide to go that route. I'd certainly consider putting the initial 40k in and topping it up to maybe 100k. 

colsten

Hoot_2 said:

Doesn't a pension pay out a monthly sum? If it were in ISA's I could control the amount I took out or move somewhere else if desired?

Once you are 55/57, you can take 25% of your pension tax-free. The rest you can drawdown in variable sums, or convert into an annuity which would pay regular monthly sums for a defined period. You could also combine these options.

Your drawdown and annuity sums count as taxable income, as does your state pension. How much tax you pay, and whether you'll pay any at all, depends on your total taxable income. A pension is very attractive for those who are HR tax payers in their working life and expect to be BR tax payers once retired because they get higher rate tax relief on pension contributions. It makes less of a difference if you are a BR tax payer already and expect to be once once retired. For BR tax payers, ISAs might be equally attractive from a tax point of view. 

You can also have both, and ISA and a pension. Both will have annual contribution limits - ISA is currently £20k, pension is 100% of your relevant UK earnings (up to the annual allowance) or £3,600 gross, whichever is higher. The annual allowance limit for the current tax year is £40,000. So in either case, you are most unlikely to be able to place £250k-£300k in one financial year, not even if you and your wife each max out all your contribution limits. In addition to your ISAs/pensions/Premium Bonds, you could consider an unwrapped investment for the sums you cannot put into ISAs/pensions/Premium Bonds, and gradually feed the money into ISAs/pensions from there. Unwrapped investments are subject to Capital Gains tax but you have a huge annual allowance so I would say that if you had to pay any CGT, it would be due to extraordinary growth of your investments.

You can have the exact same portfolio (of funds etc) in an ISA, a pension or an unwrapped investment account. Equally, you can choose to have different portfolios.

You might find this helpful: 
https://www.citizensadvice.org.uk/debt-and-money/pensions/nearing-retirement/preparing-your-finances-for-retirement/

https://www.citizensadvice.org.uk/debt-and-money/pensions/nearing-retirement/what-you-can-do-with-your-pension-pot/