High risk, high reward: A pauper's dream of early retirement.

LL_USS

@barnstar2077 sorry to be not thinking through. I see it elsewhere too people are saying the forum become of interest for people with more money to deal with and it's a fair comment!
Last night I was thinking of a "what if" scenario - how to invest and keep money working....

I started as a pauper a decade ago too, then with luck I worked out some thing extra and now thinking of giving the surplus to my children who went through that hard time with me, and get back to basic.

Sarahspangles

LL_USS regarding investment, I feel if the spare money is not in ISAs or some type of pension account, it's difficult to plan for early retirement as any earnings will be too heavily taxed.

Although someone on a modest pension can earn £6k of savings interest at 0% tax, split between the starter savings band and personal savings allowance. For example you can draw £12,570 from a SIPP plus 25% tax free of £4,190 and receive £6,000 savings interest = £22,760 tax free. If you need more, spend savings and leave a SIPP to draw later.

kempiejon

Sarahspangles said:

LL_USS regarding investment, I feel if the spare money is not in ISAs or some type of pension account, it's difficult to plan for early retirement as any earnings will be too heavily taxed.

Although someone on a modest pension can earn £6k of savings interest at 0% tax, split between the starter savings band and personal savings allowance. For example you can draw £12,570 from a SIPP plus 25% tax free of £4,190 and receive £6,000 savings interest = £22,760 tax free. If you need more, spend savings and leave a SIPP to draw later.

Let's not the tax tail wag the investing dog. Any post-tax return on something is better than zero return, no tax fee. Spare money is useful for expenses and contigency. With current SIPP and ISA limits anyone with enough relevant earnings can shelter* £80k a year. Once you've tucked away £80k there's a one per person £50k allowance in premium bonds all prizes tax free - though at the recent lower prize level perhaps there's not much compared to 20% net from a taxable account. Investments unsheltered still get the dividend £500 and capital gains £3000 allowances annually, Dividends are currently taxed at 8.75%, there are more onerous taxes to pay. Gold soverigns are exempt from tax on capital gains, as are gilts and shortdate low coupon gilts are good for a >3% percent tax free.

It's always difficult to plan, we do the best under prevailing onditions. I will predict there'll be future changes to taxation within (hopefully) the few more decades of political swings for my investment lifetime. I changed tack dramatically following changes in taxation of my investments; keep an eye open, react appropriately.

*often defer in SIPPs, there's an advantage to be abe to contribute and reclaim at a higher rate than during withdrawl on top of the tax free 25%.

LL_USS

Thank you very much @Sarahspangles and @kempiejon - I am not sure what I will do yet but my goodness I have never thought there were so many tax-efficient ways beyond putting money gradually into ISAs. I have copied and pasted the content to my work document so I can digest the information and use what I can. Thanks sooooo much.

@barnstar2077 my apology for using your thread to seek for answers for my case. I'll follow your thread as I am curious to see how it goes for your S&S. Again, good luck !!!!