Advice needed - Is a GIA the best option after ISA is utilised?

isayhello

I have utilised an SS ISA fully for this year and then also opened a GIA and started investing in there, it has 100k, I've got a work pension that I contribute the maximum to and get an employer match. I plan each year to move money out of the GIA into the SS ISA and hopefully minimise any CGT or dividend interest.

I've heard of using SIPPs as well but dont understand them fully and not sure if the advantage is great as the tax would have to be paid on the way out in the end and I'd have to wait another 15-20 years to access it, I'm 41. Whereas I can sell from the GIA anytime, but maybe I'm missing something. Any simple examples would be good to understand the options, thanks.

masonic

Are you sure you cannot contribute any more to your work pension? If you are contributing via salary sacrifice, you can keep increasing until you reduce your pay to the minimum wage. This may be more tax efficient than a SIPP (but the fund choice and fees may be a drawback). It will probably be closer to 20 years for you to access a private pension, but if you are retired by that point, you may be able to take out tax free using your personal allowance, and 25% above that can be taken tax free. An ISA is good for funding things before you can access pensions.

The drawback of a GIA is the record keeping and tax reporting requirements, as well as the actual tax you may pay.

ColdIron

A SIPP/pension is very tax efficient, far more so than a GIA. Tax relief on the way in, especially useful if you pay 40% now but expect to pay 20% once retired. 25% tax free on withdrawal so the worst case means you are 6.25% better off. If you retire early you may pay no or very low tax. I retired at 56 and took out £12,000 a year for 10 years entirely untaxed

Contribution limitations may mean you still need your GIA so splitting between GIA/SIPP could be a good balance for you. I certainly wouldn't avoid pensions

EthicsGradient

It does depend on when you want to use the money. With a SIPP, you get the tax advantage when contributing, it can grow free of income tax on dividends, or CGT, 25% comes out tax free, and the rest at your then tax rate - which may be lower than now. But yes, over 15 years before you can access it, so if that may be a problem, it may not be the right route for you.

Are you going to have the income to contribute to ISAs in future years, or would the full 20k/year be able to come from the 100k you now have in the GIA? If the latter, you may be able to sell from it and contribute at a rate that avoids CGT, so that the GIA investments don't attract that much tax (a bit of income tax on dividends is probably inevitable). In which case you'd do OK, and still have access to it all if needed, when you want.

isayhello

ColdIron said:

A SIPP/pension is very tax efficient, far more so than a GIA. Tax relief on the way in, especially useful if you pay 40% now but expect to pay 20% once retired. 25% tax free on withdrawal so the worst case means you are 6.25% better off. If you retire early you may pay no or very low tax. I retired at 56 and took out £12,000 a year for 10 years entirely untaxed

Contribution limitations may mean you still need your GIA so splitting between GIA/SIPP could be a good balance for you. I certainly wouldn't avoid pensions

Can you explain what you mean by 6.25% better off and how you worked that out please?

How did you pay no tax? or was that your only income for the year?

Regarding the contribution limitations, is it a 60k limit for the year if your salary is higher. So I would need to workout how much my company pension will roughly total this year and then subtract e.g. 10k in company pension contributions would mean I can contribute 50K? or a smaller amount but I would get basic/higher tax relief automatically?

Also in the SIPP are the charges generally similar to using cheap trading platforms e.g. trading212, I use iWeb at the moment.

isayhello

EthicsGradient said:

It does depend on when you want to use the money. With a SIPP, you get the tax advantage when contributing, it can grow free of income tax on dividends, or CGT, 25% comes out tax free, and the rest at your then tax rate - which may be lower than now. But yes, over 15 years before you can access it, so if that may be a problem, it may not be the right route for you.

Are you going to have the income to contribute to ISAs in future years, or would the full 20k/year be able to come from the 100k you now have in the GIA? If the latter, you may be able to sell from it and contribute at a rate that avoids CGT, so that the GIA investments don't attract that much tax (a bit of income tax on dividends is probably inevitable). In which case you'd do OK, and still have access to it all if needed, when you want.

Would funds or stocks inside the SIPP not be taxed for dividends or CGT if I sell them? I thought that was only in ISA's, that makes it a bit more interesting.

I hope to be able to keep adding to the ISA or GIA from earnings for the next 10-15 years but I would try to sell from the GIA and then buy immediately in the ISA, I think that would cost me some tax if the fund went above 3k but hopefully not too much.

HHarry

isayhello said:

ColdIron said:

A SIPP/pension is very tax efficient, far more so than a GIA. Tax relief on the way in, especially useful if you pay 40% now but expect to pay 20% once retired. 25% tax free on withdrawal so the worst case means you are 6.25% better off. If you retire early you may pay no or very low tax. I retired at 56 and took out £12,000 a year for 10 years entirely untaxed

Contribution limitations may mean you still need your GIA so splitting between GIA/SIPP could be a good balance for you. I certainly wouldn't avoid pensions

Can you explain what you mean by 6.25% better off and how you worked that out please?

 You earn £100 now, pay 20% tax , you would take home £80.

 You put £100 in your pension.  Later on you can take out £25 tax free, and pay 20% tax on the remaining £75 (which is £15 in tax).  Overall you have £85 in your pocket.  Which is 6.25% more.

kempiejon

isayhello said:

EthicsGradient said:

It does depend on when you want to use the money. With a SIPP, you get the tax advantage when contributing, it can grow free of income tax on dividends, or CGT, 25% comes out tax free, and the rest at your then tax rate - which may be lower than now. But yes, over 15 years before you can access it, so if that may be a problem, it may not be the right route for you.

Are you going to have the income to contribute to ISAs in future years, or would the full 20k/year be able to come from the 100k you now have in the GIA? If the latter, you may be able to sell from it and contribute at a rate that avoids CGT, so that the GIA investments don't attract that much tax (a bit of income tax on dividends is probably inevitable). In which case you'd do OK, and still have access to it all if needed, when you want.

Would funds or stocks inside the SIPP not be taxed for dividends or CGT if I sell them? I thought that was only in ISA's, that makes it a bit more interesting.

I hope to be able to keep adding to the ISA or GIA from earnings for the next 10-15 years but I would try to sell from the GIA and then buy immediately in the ISA, I think that would cost me some tax if the fund went above 3k but hopefully not too much.

Assets within the SIPP like ISA are exempted from capital gains and dividend tax. You pay income tax when you withdraw from the SIPP.

friolento

kempiejon said:

isayhello said:

EthicsGradient said:

It does depend on when you want to use the money. With a SIPP, you get the tax advantage when contributing, it can grow free of income tax on dividends, or CGT, 25% comes out tax free, and the rest at your then tax rate - which may be lower than now. But yes, over 15 years before you can access it, so if that may be a problem, it may not be the right route for you.

Are you going to have the income to contribute to ISAs in future years, or would the full 20k/year be able to come from the 100k you now have in the GIA? If the latter, you may be able to sell from it and contribute at a rate that avoids CGT, so that the GIA investments don't attract that much tax (a bit of income tax on dividends is probably inevitable). In which case you'd do OK, and still have access to it all if needed, when you want.

Would funds or stocks inside the SIPP not be taxed for dividends or CGT if I sell them? I thought that was only in ISA's, that makes it a bit more interesting.

I hope to be able to keep adding to the ISA or GIA from earnings for the next 10-15 years but I would try to sell from the GIA and then buy immediately in the ISA, I think that would cost me some tax if the fund went above 3k but hopefully not too much.

Assets within the SIPP like ISA are exempted from capital gains and dividend tax. You pay income tax when you withdraw from the SIPP.

You still get 25% tax free

jimjames

kempiejon said:

isayhello said:

EthicsGradient said:

It does depend on when you want to use the money. With a SIPP, you get the tax advantage when contributing, it can grow free of income tax on dividends, or CGT, 25% comes out tax free, and the rest at your then tax rate - which may be lower than now. But yes, over 15 years before you can access it, so if that may be a problem, it may not be the right route for you.

Are you going to have the income to contribute to ISAs in future years, or would the full 20k/year be able to come from the 100k you now have in the GIA? If the latter, you may be able to sell from it and contribute at a rate that avoids CGT, so that the GIA investments don't attract that much tax (a bit of income tax on dividends is probably inevitable). In which case you'd do OK, and still have access to it all if needed, when you want.

Would funds or stocks inside the SIPP not be taxed for dividends or CGT if I sell them? I thought that was only in ISA's, that makes it a bit more interesting.

I hope to be able to keep adding to the ISA or GIA from earnings for the next 10-15 years but I would try to sell from the GIA and then buy immediately in the ISA, I think that would cost me some tax if the fund went above 3k but hopefully not too much.

Assets within the SIPP like ISA are exempted from capital gains and dividend tax. You pay income tax when you withdraw from the SIPP.

You also don't have to pay income tax if you're using your personal allowance for the pension (as per ColdIron above)

AlanP_2

Regarding the contribution limitations, is it a 60k limit for the year if your salary is higher. So I would need to workout how much my company pension will roughly total this year and then subtract e.g. 10k in company pension contributions would mean I can contribute 50K? or a smaller amount but I would get basic/higher tax relief automatically?

Unpicking this as there are multiple aspects in that paragraph.

There are TWO contribution limits you need to be aware of:

1) Income Limit - You cannot contribute more than your salary in a year basically. This includes the basic rate tax relief added if it is a Relief at Source scheme but DOES NOT include employer contributions. As both "normal" employer contributions and Salary Sacrifice contributions are paid by the employer they do not get included in this limit.

2) Annual Allowance - HMRC limit of £60k of contributions (defined Benefit schemes have a special calculation but I am assuming you have a Defined Contribution work scheme) to a pension scheme per tax year. This DOES include employer contributions as well as the ones included in point 1. However if you were a member of a pension scheme in previous years you can use up to 3 years worth of Carry Forward of any unused AA from those periods.

It is up to you to calculate, track and manage contributions against both limits. HMRC will no doubt catch up eventually if you go over but who needs the hassle?

How much you can contribute over and above current contributions to your employer scheme and how much and the process for tax relief, both BR and HR, is applied depends on the structure of the pension you are using.

Some use Relief at Source where contributions come out of taxed income and the pension admin company add BR tax relief to all contributions and reclaim it from HMRC on your behalf. If you are a HR taxpayer you need to liaise with HMRC to claim the difference between HR and BR relief.

A new SIPP that you opened with say ii, HL, Fidelity, Vanguard would use this method. Some employer schemes do and some don't so you would need to look at your payslips / employer pension portal to work out what is going on.

Some employer schemes use Net Pay where contributions come out before any income tax calculation is done. This method would automatically give you tax relief at the appropriate rate whether that be 40%, 20% or even 0% if you earned less than your personal allowance and contributed to an employer pension. 

Some employer schemes use Salary Sacrifice which is like Net Pay but with the added benefit of an NI saving as well as a tax saving.