Should I take my pension lump sum and invest it in a stocks & shares ISA

Tinkerbell1999

This may well be a very dumb question - but I'm going to ask it anyway. Here goes...

I have a stocks & shares portfolio worth about £200K which has grown by approx 18% in the last 12 months. All are in ISA's, but I haven't used my ISA allowance this year and probably won't be able to next year (from my salary).

I am a director of a small company and pay into a private pension through the company. My pension pot is approx £175K  and has grown by approx 13% in the last 12 months.

My question is:
In view of the upcoming budget and the possibility of stopping the 25% tax free lump sum, should I be withdrawing my 25% tax free lump sum (or part of it) now and investing into stocks and shares using my ISA allowance? Would this protect my lump sum from any tax changes? And are there any reasons I SHOULDN'T be doing this? 
I understand the implications of IHT etc but that doesn't really apply to me atm.

My accountant says he'd probably do it on the grounds of "won't do any harm".
My pension adviser says he'd probably sit tight.
And my broker say's he'd happily invest it for me but that he can't see it happening!
I'm a little confused as to what to do for the best:)

Any help or thoughts very gratefully received.
Many thanks

Mark_d

You should focus on your end goal - do you want £250k cash to spend in 10 years time or are you simply looking for a wealthy retirement?  Don't let the tail wag the dog.

HappyHarry

Taking £20,000 of tax-free cash to invest in an ISA is not likely to do much harm or protect you from any tax changes. The chances of the government removing all entitlement to pension tax-free cash overnight is zero.

Drawing all £200,000 is a different matter. You would be removing £200,000 from a tax-free environment and putting £180,000 of it in a taxable environment. Doing this for no other reason except guessing what may happen in the Budget in a couple off weeks time might be considered presumptuous at best.

Your accountant is probably wrong as having £180,000 of assets that are now taxable will do some harm.
Your pension adviser is probably right if you have no other reason to draw the cash now.
You need a new broker if they are only interested in the amount invested with them and are not discussing your overall finances.

** Edit - Read the OP's post too quickly - I read as the OP had £200,000 of tax-free cash they could withdraw. Will leave my post here anyway.

dunstonh

I have a stocks & shares portfolio worth about £200K which has grown by approx 18% in the last 12 months. All are in ISA's, but I haven't used my ISA allowance this year and probably won't be able to next year (from my salary).

I am a director of a small company and pay into a private pension through the company. My pension pot is approx £175K  and has grown by approx 13% in the last 12 months.

As pensions and ISAs share the same investments at the same cost, the returns should not be something that factors into any decision making.  i.e. the same funds in both ISA and pension will return exactly the same.

In view of the upcoming budget and the possibility of stopping the 25% tax free lump sum, should I be withdrawing my 25% tax free lump sum (or part of it) now and investing into stocks and shares using my ISA allowance?

In general, you would normally say no to that as its all media speculation.    

I'm a little confused as to what to do for the best:)

You wont know what to do for the best but taking 25% is £43,750.  So, you wouldnt be able to put it all in an ISA.   You could use unwrapped, but then you are subject to tax on the interest and dividends and potentially CGT when you bed & ISA next year.    You could use an offshore investment bond if you will have years with zero income (allowing you to draw from the offshore bond wrapper free of tax in those years).

Or you can leave it where it is as nobody is expecting 25% TFC to be abolished.   And not many are expecting it to be reduced and even if they did reduce the current cap a little, you are still nowhere near it.  So, leaving it where it is seems the most sensible option.

bjorn_toby_wilde

Unless I’m very much mistaken, taking the lump sum will mean the rest of your pension pot is crystallised, which will mean that all of that remaining 75% plus any future growth would be taxable when you decide to take it as a pension.

There are numerous threads on here suggesting that there’s virtually no chance of what you’re suggesting actually happening in the budget. My view is it would be a huge shot in the foot for the government to do something that wouldn’t gain them much tax in the short term whilst also disincentivising people from saving into their pensions, making them even more reliant on the state.

Marcon

Tinkerbell1999 said:

In view of the upcoming budget and the possibility of stopping the 25% tax free lump sum, should I be withdrawing my 25% tax free lump sum (or part of it) now and investing into stocks and shares using my ISA allowance? Would this protect my lump sum from any tax changes? And are there any reasons I SHOULDN'T be doing this? 

Acting purely on the basis of ill founded speculation isn't often a good idea.

Tinkerbell1999

dunstonh said:

I have a stocks & shares portfolio worth about £200K which has grown by approx 18% in the last 12 months. All are in ISA's, but I haven't used my ISA allowance this year and probably won't be able to next year (from my salary).

I am a director of a small company and pay into a private pension through the company. My pension pot is approx £175K  and has grown by approx 13% in the last 12 months.

As pensions and ISAs share the same investments at the same cost, the returns should not be something that factors into any decision making.  i.e. the same funds in both ISA and pension will return exactly the same.

In view of the upcoming budget and the possibility of stopping the 25% tax free lump sum, should I be withdrawing my 25% tax free lump sum (or part of it) now and investing into stocks and shares using my ISA allowance?

In general, you would normally say no to that as its all media speculation.    

I'm a little confused as to what to do for the best:)

You wont know what to do for the best but taking 25% is £43,750.  So, you wouldnt be able to put it all in an ISA.   You could use unwrapped, but then you are subject to tax on the interest and dividends and potentially CGT when you bed & ISA next year.    You could use an offshore investment bond if you will have years with zero income (allowing you to draw from the offshore bond wrapper free of tax in those years).

Or you can leave it where it is as nobody is expecting 25% TFC to be abolished.   And not many are expecting it to be reduced and even if they did reduce the current cap a little, you are still nowhere near it.  So, leaving it where it is seems the most sensible option.

Thank you - a helpful perspective

Tinkerbell1999

Marcon said:

Tinkerbell1999 said:

In view of the upcoming budget and the possibility of stopping the 25% tax free lump sum, should I be withdrawing my 25% tax free lump sum (or part of it) now and investing into stocks and shares using my ISA allowance? Would this protect my lump sum from any tax changes? And are there any reasons I SHOULDN'T be doing this? 

Acting purely on the basis of ill founded speculation isn't often a good idea.

Yes - I do understand that - but isn't that exactly what investing in stocks/shares/a pension is all about? we don't actually know what is going to happen but we make a decision based on best knowledge available. Marcon said:

Tinkerbell1999 said:

In view of the upcoming budget and the possibility of stopping the 25% tax free lump sum, should I be withdrawing my 25% tax free lump sum (or part of it) now and investing into stocks and shares using my ISA allowance? Would this protect my lump sum from any tax changes? And are there any reasons I SHOULDN'T be doing this? 

Acting purely on the basis of ill founded speculation isn't often a good idea.

Marcon said:

Tinkerbell1999 said:

In view of the upcoming budget and the possibility of stopping the 25% tax free lump sum, should I be withdrawing my 25% tax free lump sum (or part of it) now and investing into stocks and shares using my ISA allowance? Would this protect my lump sum from any tax changes? And are there any reasons I SHOULDN'T be doing this? 

Acting purely on the basis of ill founded speculation isn't often a good idea.

leosayer

As long as we're speculating, maybe the government could also introduce a limit on the tax shelter benefits of an ISA, a wealth tax on non-pension assets and who knows what else.