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

masonic

isayhello said:

jimjames said:

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)

I wondered about this but doesn't that mean you're surviving on a very little amount if you keep it within your personal allowance to cover bills, food, holidays etc? 

If you are building up investments in an ISA as well then you can use that for spending above your personal allowance (+25%). Likely in retirement you'll be a homeowner and mortgage free, so that should reduce the bills a bit.

A couple, between them, could be drawing around £30k per year from pensions before anything is taxed.

jimjames

isayhello said:

jimjames said:

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)

I wondered about this but doesn't that mean you're surviving on a very little amount if you keep it within your personal allowance to cover bills, food, holidays etc? 

Not if you have other non taxable funds or partner still working. All income from ISAs is tax free as is interest from savings at the starting rate. You can also use capital to cover your costs, it doesn't have to be income.

kempiejon

isayhello said:

kempiejon said:

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

I see so you could build quite a large pot in the SIPP from growth and dividends then, are there any other big negatives compared to a GIA than not being able to access the money sooner? as this seems to be more appealing now.

SIPP legislation is at the whim of the government and the longer away the access date to more risk of change.
Dividends taken as income are tax differently in a GIA.
There are other foibles to research, the 25% tax free, and tax deferral, inheritance, means tested benefits, bankruptcy. 

DRS1

isayhello said:

AlanP_2 said:

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. 

Thanks for that, i'll try to give an example as I got confused by the income bit. so if I earned 65k and 10k of that went into a pension from my salary, then am I able to add 40k and an extra 8k BR tax relief would be added by the SIPP company? then if I want to claim the extra higher rate relief I need to call HMRC and let them know or it would automatically happen? You would need to claim it - eg do  a Tax return

Also if I can do this for the 3 previous years if it was the same setup, then I could contribute upto 180k - 30k contributions from myself and employer into the work pension so upto 150k? Giving a simple clear example just for my benefit. As mentioned above you can't contribute more than your earnings in a tax year.  So you would need to be earning £180K for that to work
Can I just contribute over this years allowance then into a SIPP and the company would be ok with it, or do you need to declare how much of it is for previous years? If you go over the limits you don't get tax relief on the excess contributions and may get a fine or penalty from HMRC

It seems to be a good way to invest some funds based on previous answers to avoid tax on divs and cgt but also use the GIA for access to funds sooner, so split across both.

My thoughts are in bold above.  I am sure someone will be along to correct me where I have gone wrong.

AlanP_2

DRS1 said:

isayhello said:

AlanP_2 said:

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. 

Thanks for that, i'll try to give an example as I got confused by the income bit. so if I earned 65k and 10k of that went into a pension from my salary, then am I able to add 40k and an extra 8k BR tax relief would be added by the SIPP company? then if I want to claim the extra higher rate relief I need to call HMRC and let them know or it would automatically happen? You would need to claim it - eg do  a Tax return

Also if I can do this for the 3 previous years if it was the same setup, then I could contribute upto 180k - 30k contributions from myself and employer into the work pension so upto 150k? Giving a simple clear example just for my benefit. As mentioned above you can't contribute more than your earnings in a tax year.  So you would need to be earning £180K for that to work
Can I just contribute over this years allowance then into a SIPP and the company would be ok with it, or do you need to declare how much of it is for previous years? If you go over the limits you don't get tax relief on the excess contributions and may get a fine or penalty from HMRC

It seems to be a good way to invest some funds based on previous answers to avoid tax on divs and cgt but also use the GIA for access to funds sooner, so split across both.

My thoughts are in bold above.  I am sure someone will be along to correct me where I have gone wrong.

A few additional thoughts.

You don't have to do a Tax Return for this but would include pension details if doing one for other reasons. Notifying HMRC should be enough to trigger the Hr relief process. Based on experience if the gross contribution is over £10k then HMRC will want something written from the platform to confirm how much has been contributed rather than just taking your word for it. Under £10k they seem happy with your word. 

No idea why this is and given the fact the provider has already claimed BR relief from HMRC against your NI number I'm amazed HMRC can't work out for themselves that there is additional tax relief due.

The company (provider) will let you pay in whatever you want as they are not policing your adherence to HMRC rules. No need to declare anything to anybody but you may need evidence if HMRC ask for it that you have unused AA from previous year's and meet the criteria for using it. 

AlanP_2

fuzzzzy said:

AlanP_2 said:

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.

Just to jump in with a question here as I contribute to a work DC pension and had been thinking about opening a SIPP before the end of the tax year, but was unsure about exactly how much I could contribute. I contribute to my work pension through salary sacrifice and pay in the maximum I can that allows me to be paid at least the minimum wage. Does that mean that I would be able to contribute the full amount that I expect to see on my P60 to a SIPP this tax year? (The 60k limit won't be applicable to me as I would be nowhere near it).

Yes you can, but it would be the GROSS contribution remember that would be compared to the limit so take 20% off the P60 amount to get to the net figure.

isayhello

dunstonh said:

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

Sometimes yes. Sometimes no.

Pension wrapper should be considered (its better than ISA for most people who are not touching the money until 57+)
offshore bond and onshore bond are the other wrappers.   These have been largely out of play with the higher CGT allowance and lower CGT band.  But with the lower CGT allowance and higher tax rate, they have come back into play again.  But typically for larger investors.

Thanks, is this the same as gilts? where can I find out more about the offshore and onshore ones you mean? thanks.

isayhello

Albermarle said:

OP - 
Very likely your workplace pension is a Defined Contribution ( DC) type .
A Sipp is also a DC pension.
So legally and tax wise they both operate the same way.
Differences will be in the fee/charges structure and the range of investments on offer.

As explained in a previous post there can be advantages to adding more to your work pension, depending on how your employer takes your contributions from your salary. 

My job finishes in about 2 months, so until I get the next one I may look into a SIPP. Do the fees and charges typically match well against using a GIA.

isayhello

masonic said:

isayhello said:

jimjames said:

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)

I wondered about this but doesn't that mean you're surviving on a very little amount if you keep it within your personal allowance to cover bills, food, holidays etc? 

If you are building up investments in an ISA as well then you can use that for spending above your personal allowance (+25%). Likely in retirement you'll be a homeowner and mortgage free, so that should reduce the bills a bit.

A couple, between them, could be drawing around £30k per year from pensions before anything is taxed.

Just to understand, do you mean that 30k would be made up of state pension and personal pension? there would be income tax on that though right?

The bit you mentioned about spending from the ISA, would that be taxable income too or not?

isayhello

AlanP_2 said:

DRS1 said:

isayhello said:

AlanP_2 said:

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. 

Thanks for that, i'll try to give an example as I got confused by the income bit. so if I earned 65k and 10k of that went into a pension from my salary, then am I able to add 40k and an extra 8k BR tax relief would be added by the SIPP company? then if I want to claim the extra higher rate relief I need to call HMRC and let them know or it would automatically happen? You would need to claim it - eg do  a Tax return

Also if I can do this for the 3 previous years if it was the same setup, then I could contribute upto 180k - 30k contributions from myself and employer into the work pension so upto 150k? Giving a simple clear example just for my benefit. As mentioned above you can't contribute more than your earnings in a tax year.  So you would need to be earning £180K for that to work
Can I just contribute over this years allowance then into a SIPP and the company would be ok with it, or do you need to declare how much of it is for previous years? If you go over the limits you don't get tax relief on the excess contributions and may get a fine or penalty from HMRC

It seems to be a good way to invest some funds based on previous answers to avoid tax on divs and cgt but also use the GIA for access to funds sooner, so split across both.

My thoughts are in bold above.  I am sure someone will be along to correct me where I have gone wrong.

A few additional thoughts.

You don't have to do a Tax Return for this but would include pension details if doing one for other reasons. Notifying HMRC should be enough to trigger the Hr relief process. Based on experience if the gross contribution is over £10k then HMRC will want something written from the platform to confirm how much has been contributed rather than just taking your word for it. Under £10k they seem happy with your word. 

No idea why this is and given the fact the provider has already claimed BR relief from HMRC against your NI number I'm amazed HMRC can't work out for themselves that there is additional tax relief due.

The company (provider) will let you pay in whatever you want as they are not policing your adherence to HMRC rules. No need to declare anything to anybody but you may need evidence if HMRC ask for it that you have unused AA from previous year's and meet the criteria for using it. 

Thanks, so including the current year and 3 previous years, if you earn more than 60k you could contribute upto 240k including all the BR and HR relief you're entitled to. So if you did pay more than 60k in at any time, it is allowed and the platform wont stop you, and if you then contact HMRC and explain what you've done then they should be able to apply the HR directly into the pot in the platform? Seems straightforward and I may give it ago.