Help! S&S Lifetime LISA, or S&S ISA or Mortgage overpayments!

Sam3007

Hi 
I am 39 and self-employed. I was employed in the past for a couple of years and I have employment pension with AVIVA -  fund value of : £1200 (Aviva pension my future focus growth s6) ! 

I have 13 years of qualifying years for state pension and I am planning to work till late 60s at least. I don't think I will need to access any ISA money before I am 60 but it will be nice to have the flexibility.
My questions are:

Shall I open a S&S Lifetime LISA or an S&S ISA or both?
Is an S&S ISA different from a SIPP? Is my aviva pension a SIPP?

Will I be better off using all or some of extra money to overpay my mortgage by say £4000 annually (LISA limit) and be mortgage free in 17 years instead of 28 years? 

Any help would be appreciated.

regards 

dunstonh

I am 39 and self-employed.

Is that sole trader/partnership or limited company? (it makes a difference when picking tax wrappers)

Is an S&S ISA different from a SIPP? Is my aviva pension a SIPP?

A SIPP is a pension, not an ISA.  So, how tax is handled on contributions and withdrawals differs.    Your Aviva pension is unlikely to be a SIPP.  Most likely a group personal pension or similar.  However, the type of pension doesnt matter. All pension types available to you work the same way.

Will I be better off using all or some of extra money to overpay my mortgage by say £4000 annually (LISA limit) and be mortgage free in 17 years instead of 28 years? 

Your retirement provision is insufficient at the moment.  A rough guide is to have £35k by age 35.  You have £1200 at 39.  It is pretty woeful, to be honest.   So, you have some catching up to do.

Pensions and LISAs are better than S&S ISAs for retirement planning in 90% of cases.   A pension may be better than LISA or vice versa, depending on your self-employment structure.

Paying extra off the mortgage is usually the least effective option financially. Although, some people get a warm feeling about doing it.  When your retirement provision is better you could look to do a bit extra on the mortgage.  However, if the mortgage repayments are affordable, with some room to spare, then there is little point making overpayments.

SMcGill

ALERT: non-expert opinion inc …. At 39 you’re almost out of time for opening a LISA so I’d get that done right now and then take the time and/or advice you need to decide whether this or a SIPP or a personal pension is best for you.

Sam3007

dunstonh said:

I am 39 and self-employed.

Is that sole trader/partnership or limited company? (it makes a difference when picking tax wrappers)

I am sole trader. My mortgage repayments are affordable even if interest rate went up to %4 and my LTV is 70.

If I open a SIPP account, will I be able to transfer the £1200 I have with Aviva to the SIPP pension? and will be the suggested contributions I need to make annually? Thanks 

JoeCrystal

Sam3007 said:

I am sole trader. My mortgage repayments are affordable even if interest rate went up to %4 and my LTV is 70.

If I open a SIPP account, will I be able to transfer the £1200 I have with Aviva to the SIPP pension? and will be the suggested contributions I need to make annually? Thanks 

The appropriate amount of contributions is basically how long the string is, unfortunately. It is based on what kind of retirement income you need and want. There is a handy calculator I like to use: https://www.hl.co.uk/pensions/pension-calculator

But make no mistake, saving up for a pension should ideally take all of your working life, so starting at 39 means you going to have to contribute a lot more now.  It is also worth looking at insuring yourself if an accident or sickness (or worse) happens.

There are tax benefits to having the amount in the pension scheme, especially if your business or life ran into such trouble that you became bankrupt and lost all your ISAs; that would be rather unfortunate! Especially with high inflation, our savings are quickly becoming increasingly worthless. 

Albermarle

If I open a SIPP account, will I be able to transfer the £1200 I have with Aviva to the SIPP pension? and will be the suggested contributions I need to make annually? Thanks 

It is most likely that you could just continue with the Aviva pension, and add new contributions to that. A SIPP is better for more experienced investors, as you have to pick and choose investments from what can be a very large choice.
Personally I would just check with Aviva that they would be happy to accept new contributions, monthly or annually.
Even if their charge was a little higher it will make very little difference whist the amounts involved are so low, and the pension will be simpler to operate.

snowlaser

Assuming you're a 20% taxpayer the LISA is probably better than a SIPP.

In a LISA if you pay in £800 the government adds a 25% bonus (£200) taking it to a £1,000 that is never taxed.

In a SIPP if you pay in £800 you can claim back the 20% tax you paid on this (£200) taking it to a £1,000 - however any pension income you draw will be subject to tax in retirement.

Paying off the mortgage doesn't get a tax benefit, but saves you paying interest.  So it depends really whether the interest you save on your mortgage is better than the tax benefits of the LISA/SIPP.

The Stocks & Shares ISA seems the weakest option, but is the best if you think you might need the money back before retirement.

For the record, I did a little of all of those, spreading my money between a LISA, extra pension contributions and mortgage overpayments.

L9XSS

snowlaser said:

Assuming you're a 20% taxpayer the LISA is probably better than a SIPP.

In a LISA if you pay in £800 the government adds a 25% bonus (£200) taking it to a £1,000 that is never taxed.

In a SIPP if you pay in £800 you can claim back the 20% tax you paid on this (£200) taking it to a £1,000 - however any pension income you draw will be subject to tax in retirement.

Paying off the mortgage doesn't get a tax benefit, but saves you paying interest.  So it depends really whether the interest you save on your mortgage is better than the tax benefits of the LISA/SIPP.

The Stocks & Shares ISA seems the weakest option, but is the best if you think you might need the money back before retirement.

For the record, I did a little of all of those, spreading my money between a LISA, extra pension contributions and mortgage overpayments.

As above, apart from the LISA, I balanced both, overpaying the mortgage to decrease the term by 10 years so that it was paid around 55 years of age and maximising employers % pension contributions through my % contributions and setting up a SIPP. In my mind it was the best strategy.

Albermarle

snowlaser said:

Assuming you're a 20% taxpayer the LISA is probably better than a SIPP.

In a LISA if you pay in £800 the government adds a 25% bonus (£200) taking it to a £1,000 that is never taxed.

In a SIPP if you pay in £800 you can claim back the 20% tax you paid on this (£200) taking it to a £1,000 - however any pension income you draw will be potentially subject to tax in retirement, depending on your tax position/other income at the time.

Paying off the mortgage doesn't get a tax benefit, but saves you paying interest.  So it depends really whether the interest you save on your mortgage is better than the tax benefits of the LISA/SIPP.

The Stocks & Shares ISA seems the weakest option, but is the best if you think you might need the money back before retirement.

For the record, I did a little of all of those, spreading my money between a LISA, extra pension contributions and mortgage overpayments.

See slight correction in bold.

In a SIPP if you pay in £800 you can claim back the 20% tax you paid on this (£200) taking it to a £1,000 

You do not claim back the 20% tax you have paid. You get the tax relief whether you have paid any tax or not (assuming you have enough earnings) Tax relief and how much tax you pay are calculated in different ways, and are not actually directly related to each other.
It might seem a pedantic point, but it can cause confusion if not understood properly. 

Sam3007

Thanks all for your contributions. I will open a LISA account and contact Aviva to see how I can make payments towards my pension with them. One last question please. I usually do my tax return myself at the end of each year, but I am considering getting an accountant.
if, for example, my annual net income was 25K  and in the same year I put 4K into my LISA account and 6K into my Aviva pension. Do I only pay income tax on the remaining balance ... i.e.  25 - (4 + 6) = 15K?

MX5huggy

No! 

The LISA money doesn’t even get mentioned to HMRC, you pay tax on it then the government top ups the LISA account. 

The pension money also doesn’t effect your tax bill (unless you’re a higher rate tax payer). You pay the money into the pension and again the government adds 25% so you need to decide if you want to pay in £4800 that becomes £6000 or £6000 that becomes £7500. But I’m fairly sure there is a pension contributions box on the SA form. 

You’re self employed and accountant may work through that you should benefit from being a limited company then the company can make pension contributions avoiding corporate tax income tax and National insurance. 

While I agree with not focusing on mortgage, your current LTV, outstanding term on any fix etc would influence that discussion.