What to do once maxxed out annual pension and ISA limits....

PaulPension

If you have a partner have you considered contributing to their pension and/or ISA if they have some spare headroom left ?

GeoffTF

billy2shots said:

In this scenario it's actually far easier to have the income version of certain holdings as it makes the calculation easier. 

That is true for UK domiciled OEICs and Unit Trusts. For Vanguard's Ireland based ETFs, you have to declare the Excess Reportable Income for both the income and accumulation versions. With the income version, you have to separately account for the distributed dividend income. In both cases you can add the Excess Reportable Income to the base cost. The accumulation version is easier in that case. The accumulating versions avoid foreign exchange charges on converting dollar dividends to pounds, but have wider market spreads.

Vanguard's Ireland based OEICs use full equalisation and have different tax rules.

Thrugelmir

PaulPension said:

Just to add to MX5huggy’s post on VCTs (Venture Capital Trusts), these can be a very tax efficient investment if you’ve used your £20K/annum ISA allowance and £40K/annum pension tax free contribution.

Investments in VCTs qualify for up to 30% tax relief if you hold the VCT for a minimum of 5 years. Any less and the tax relief is clawed back.

However, you do need to be aware that VCTs are required to invest in small enterprise sort of companies that are higher risk of you loosing money. An advantage is that any dividends are tax free, as is any capital gain when you sell the VCT. You basically get all these tax advantages in return for investing in smaller enterprise companies.

There are also EIS (Enterprise Investment Scheme) and SEIS (Seed Enterprise Investment Scheme) which offer similar tax advantages, again with more risk and some slightly different rules.

Never let the tail wag the dog. There's much discussion about tax benefits but little about the underlying investments nor the management charges levied. Always understand what you are investing in and the risks you are exposed to. Complacency abounds in this low cost debt environment. . 

talexuser

I sell whatever I want to rebalance, even if not needed, every tax year up to 12300 to rebase the value in the GIA. I don't need the money now (except to transfer 20k to ISA and max to SIPP) and it is just reinvested in the GIA, but if I didn't do this and one day wanted a large sale the base for the CTG calculation would be so low a large tax grab would follow. So the selling/buying fees. even with stamp duty included are worth it in the long run.

talexuser

Thrugelmir said:

Never let the tail wag the dog. There's much discussion about tax benefits but little about the underlying investments nor the management charges levied. 

Wise words. My next step "should" be VCTs, but I don't understand them and have not got the time to learn. Bad enough keeping tabs on the existing funds and ITs, managers, performance, trends, changes etc etc.

Alexland

Deleted_User said:

IMHO, it's a fair assumption that the higher management charges for VCT/EIS/SEIS will at least cancel out the tax saved.

Maybe, maybe not. I'm giving VCT a chance for the first time this tax year and with the tax rebate and dividends I should have around 40% of my money back before the end of next tax year. Even assuming 3% setup fee, 2% returned capital in dividends and eventually selling at a 10% discount the investment should still be worth 85% after the first year so if it cost 60% that's an over 40% initial return for the higher fees to eat into the underlying investment performance during the next 4 years.

Deleted_User said:
(And personally, I'd rather be paying HM Treasury than some investment managers .)

But the investment managers are doing something reasonably useful - ensuring new capital is allocated to small businesses with the best prospects to use it to grow the UK economy. HM Treasury might just waste the money.

Alexland

It might not be an obvious win but its also not a fair assumption that the higher management charges will at least cancel out the tax saved which is the point I was replying to. I don't expect VCTs will ever be more than a few percent of our net worth but they are an interesting option for those that can get their head around the cashfows and can see how the initial headstart can create a multiplying effect on gains and dividends. As you say the rules on new qualifying VCT holdings have been tightened up and the general consensus is this will expose investors to more risk but it's not clear yet if that will generally translate into higher reward or lower performance.

Thrugelmir

Primary issues with VCT's are potential illiquidity of the underlying stock,  the companies invested in either going bust or failing to turn a profit. Often the dividends paid out can be in form of capital realised.  There's some slick operators out there who could sell sand to the Arabs. Suck very intelligent (wealthy) people in to parting with sizable sums of money. Never ceased to surprise me how gullible people can be once the £ signs get flashing. The very opposite of Dragons Den. 

solidpro

Thanks for all the replies. My head starts to boil inside once I've read a third acronym I don't understand... I do have a partner and we're fully using their side of allowances too. I think I'll look into a GIA. It's always going to be a small thing - essentially the scraps (in context) of what's left over after paying private pensions and ISAs.

It's not applicable in this case but it's a sign of the times that in the 3 page thread, nobody suggested overpaying a mortgage!

InvesterJones

solidpro said:

It's not applicable in this case but it's a sign of the times that in the 3 page thread, nobody suggested overpaying a mortgage!

I guess we assume you're already doing the numbers game and have taken interest rates on loans vs potential investment return after tax into consideration. Currently most mortgages have such low interest rates that investments may do better. Reducing debts wins out on risk however