Risk allocation across ISA/SIPP/GIA post LTA removal

sofm

Say one is happy with a 60/40 split using cheap trackers, averaged across the whole portfolio...

When LTA was in play, and there was a risk that LTA could be reached, then it seemed broad guidance was to have lower risk holdings in SIPP and higher risk in ISA (and GIA once ISA limit reached).

With LTA removed (and working with the rules in place today, not what might happen after an election), it would seem that this should be switched around:   high risk in SIPP/ISA,  low risk in GIA (to avoid as much CGT as possible).   Or is it more nuanced, e.g. to avoid paying too much IC from the SIPP vs too much CGT/div tax etc.? 

(No IHT consideration)

sofm

I should have done/should do some maths, but should also have mentioned higher rate tax payer currently, and expect basic rate once retired. That skews point 2 for SIPP?

Yes to using all other reasonable tax mitigations you mention (no VCTs :-). That means the only lever I can see is allocation choices within ISA/SIPP/GIA, rather than contribution amounts to them.

Hoenir

Don't let the tail wag the dog.  If you've a great investment idea.  That's going to generate a high return. Why fret about the tax?  Capital gains tax is only payable when he gain is realised. Next tax year you've a £3,000 allowance to utilise. Losses can also be offset to mitigate. 

As recent events have shown. Even investments perceived as low risk. Can be impacted by volatility. 

sofm

Don't let the tail wag the dog.

A good sentiment but here I'm directly asking about allocation strategy rather than investment choice.

Total risk through which trackers to pick is invariant, e.g. bond tracker in GIA and global equity tracker in SIPP is the new way compared with with when LTA was in play?

Hoenir

Bond funds held in a GIA are subject to CGT whereas individual Government Gilts are not. 

EdSwippet

sofm said:

Don't let the tail wag the dog.

A good sentiment but here I'm directly asking about allocation strategy rather than investment choice.

Total risk through which trackers to pick is invariant, e.g. bond tracker in GIA and global equity tracker in SIPP is the new way compared with with when LTA was in play?

The list upthread nicely showed the relative tax (dis)advantages of assorted accounts. To reiterate:

1. You take it out of an ISA, you get £100. 
2. You take it out of your SIPP, you get £60. 
3. You take it out of you GIA, you get £80 if it is a capital gain or £66.75 for dividends and £60 for interest.

The assumption here is 40% marginal tax, and at number 2 you have a SIPP above the LTA, or where you have already taken the maximum 25% tax-free. (Below the LTA and with PCLS still available, you would get £70 rather than £60.)

While the LTA was still a thing, you would have seen a 55% tax rate on SIPP gains in a £1M pension, and you would have got just £45 out of £100 in your SIPP (revised number 2 above). That is, before LTA abolition, an LTA-level SIPP was solidly the least tax-efficient place for gains. After LTA abolition, it is now joint least tax-efficient with taxable interest. Notably however, abolishing the LTA only moves the SIPP from absolute worst to joint worst.

Given this, it doesn't seem like there is any motivation to switch your assets around from how you held them before the LTA went away (of course, without considering what might happen if a future government reinstates it ... or, entirely likely, comes up with something even worse).

For full disclosure, I have a SIPP that is right on the edge of the LTA, and which deliberately holds my stodgy low-growth portfolio ballast for the precise tax reasons outlined above. I have/will change nothing as a result of the LTA going away, because the tax rate needle has not moved outside of the 'tax-inefficient' region.