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SIPP or Stocks & Shares ISA
I have been left 74K approx. There may be a little more. I'm 63 and not got much of a private pension. I've found the advice confusing but should I get a SIPP rather than a stocks and shares ISA at my age? I understand I have to pay in over 2 years so need to put some money into something else until I can get that far. I have 2 children - if I buy a SIPP will they get the money if I die before I need it or what. Or do I buy a SIPP and a stocks and shares ISA? Not sure where to get advice as not had any money before and I obviously want to try and keep fees down.
Comments
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Both a SIPP and a S&S ISA are a convenient way of investing, without having to worry about tax on capital growth or dividends. However investing is for the longer term, so if you are likely to need the money in the next few years, neither maybe the best solution. Both of them are inheritable by your children.
With the ISA you are limited to adding £20K per tax year.
With a SIPP/pension there is a tax advantage as you get tax relief on the contributions, and although you may pay tax when you withdraw, overall there is still a tax benefit. However you are limited as to how much you can add by your current earnings ( which are ?)
Fees for both are similar, but the most important thing is what investments you choose for either.
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I wasn't planning to put earnings in to it - just the inheritance monies. How do I find out what investments to choose? As I dont have much pension I do need to try and make it work for me as well.
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Money is fungible, it doesn't matter where the contribution comes from, but you are still limited by your relevant uk earnings for the amount you can get tax relief on for Pensions.
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Your level of earnings limit how much you can add to a pension, regardless of the source of the money.
Pension tax relief | MoneyHelper
Regarding choosing investments you need to do some reading. You can start here.
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I earn 40K at the minute.
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I earn 40K at the minute. Thank you for the link.
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So the maximum you can add to a pension is £32K this tax year and HMRC, will add £8K basic rate tax relief.
It does not matter how much tax you actually pay.
Are you a PAYE employee? If so do you not have a workplace pension ? Or are you self employed maybe ?
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Just to emphasise Albermarle's point, if you have contributed to a pension in this tax year, that will reduce the amount you can put into a pension from your inheritance.
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I do have a work based pension but I've not had it for long so it's not very much. I was a stay at home mum for quite a few years and went back to work following divorce. So I also have a hefty mortgage.
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So to find the maximum you can add to a pension. You need to subtract from £40K, your estimated workplace pension contributions this tax year ( including tax relief on them ) . The multiply that figure by 0.8 and that is the amount you can add to a pension this tax year in addition to your workplace pension contributions.
If you have a hefty mortgage, then it might be a better idea to use at least some of the £74K to reduce the amount owed.
It depends what you mean by 'hefty' - what the interest rate is and if the provider allows you to make extra payments.
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