Self employed sipp or isa

mose_2

Early 40’s no pension. 20k in s&s isa with a target to try and reach 100k+ in 15/20 years. Is a sipp or isa the better place? Obv no employer contributions. Thinking maybe have both 70% sipp 30% isa? 

Kim1965

If you wish to retire at age 57 +, then pension. More tax efficient

dunstonh

Is a sipp or isa the better place?

I don't know if a SIPP is the better place but the pension tax wrapper certainly beats ISA for retirement planning.

mose_2

dunstonh said:

Is a sipp or isa the better place?

I don't know if a SIPP is the better place but the pension tax wrapper certainly beats ISA for retirement planning.

Can you explain why? 20% tax now or later works out the same No? Is it just the 25% tax free that makes it the better deal? 

Dazed_and_C0nfused

If you are a basic rate taxpayer now and will be in retirement you get an immediate 7.18% benefit from the pension at the moment over the ISA, irrespective of investment returns.

Say you add £4,000 then until 05 April 2024 (drops slightly after that) the pension company will add £1,000 in basic rate tax relief giving you a pension fund of £5,000.

If you taken the pension after 5 April 2023 you will be able to take 25% TFLS and pay 19% tax on the balance giving you a net return of £4,287.50 (£1,250 TFLS + £3,037.50 pension (net of basic rate tax)).

If you had put £4,000 into an ISA you would have £4,000 back.

Once pension tax relief and the basic rate are aligned again post April 2024 the benefit will drop to just under 6%.

Kim1965

mose_2 said:

Early 40’s no pension. 20k in s&s isa with a target to try and reach 100k+ in 15/20 years. Is a sipp or isa the better place? Obv no employer contributions. Thinking maybe have both 70% sipp 30% isa? 

Wouldnt you put all contributions into a sipp and at retirement move the 25% tax free lump sum into an ISA?? 

Albermarle

IN addition to Dazed and Confused comments, if you did retire at 57 (for example) and had no other taxable income, then as well as the 25% tax free, you could take up to your personal tax allowance (currently £12570)  of taxable money and not pay any tax on it each year.
So you would retain the full tax relief you got in the first place. You could do this until you got other taxable income such as the State Pension.

NedS

Albermarle said:

IN addition to Dazed and Confused comments, if you did retire at 57 (for example) and had no other taxable income, then as well as the 25% tax free, you could take up to your personal tax allowance (currently £12570)  of taxable money and not pay any tax on it each year.
So you would retain the full tax relief you got in the first place. You could do this until you got other taxable income such as the State Pension.

And if part of a couple where two personal allowances are available they could retire at 57 and draw £16760 each (£33,520 combined) per year of income without paying any tax, including the 25% tax free amount for 10 years until state pensions and other DB pensions may kick in.

squirrelpie

Kim1965 said:

at retirement move the 25% tax free lump sum into an ISA?? 

Why would you do that move?

Beddie

mose_2 said:

Early 40’s no pension. 20k in s&s isa with a target to try and reach 100k+ in 15/20 years. Is a sipp or isa the better place? Obv no employer contributions. Thinking maybe have both 70% sipp 30% isa? 

I've had a similar dilemma before and split it between the two, as you suggested. To me, it's nice to have some options, not just at retirement, for my investments. Tax relief is just one factor to consider.