Tax-relief Driven Investment

[Frank Hovis]

This is picking up on a post from Paddles in the BTLers lose 90% of their cash thread, but I thought it deserved its own heading.

I base my investment decisions on many things (but don't want to get drawn into the gold vs oil etc. debate here....) but my main driver is saving tax. Over the years it's been mainly additional pension contributions but a few years ago there was top rate tax relief on VCTs so I went into those as well.

Most of my investments are tax free in their returns (ISAs, NSI index linked etc.) but this only matters in the long term, it just pales beside the opportunity to buy £100 of investments for £60 and make an immediate 66% return.

This is just so good I put in enough each year to keep below 40% each year and am thinking of cutting more into the next band. I'm not that excited by pensions but the tax saving is incredible.

I also object to paying taxes to the current shower of shysters in power.

Anybody else do this, and this being HPC, does anybody take it even further and pay no tax?

Any other tips people have also appreciated.

[VeryMeanReversion]

This is just so good I put in enough each year to keep below 40% each year and am thinking of cutting more into the next band. I'm not that excited by pensions but the tax saving is incredible.

I do something similar. All income in the 40% band goes into pension, mostly cash funds for now.

It's not as good as it appears though. Although you can get 25% back as cash when 50/55, the rest is subject to annuity (rubbish) or drawdown (expensive). Either way, the 75% wil be taxed as income eventually unless you retire abroad.

(Recycling the 25% back into the pension is now prohibited but you can pay more in advance instead and use the 25% to maintain the higher payment and that is legal.)

Whilst renting, I'll carry on with this plan but after buying, all the money will go to paying off the mortgage asap. I think that is the best possible return for excess income. When that is complete, back to the pension again.

See if you employer will do a salary sacrifice agreement so they reduce your salary and increase the company contribution. This saves NI for both parties (mostly the employer) but you may be able to split that.

VMR.

[rettah]

Absolutely. Anyone who is a higher rate tax payer and does not have a proper pension fund is IMHO bonkers as the tax benefit is so huge. I now have a SIPP as the returns in a "managed" pension fund were laughable. More risk possibly going down this route but potentially far better returns. I think now is a great time to be doing this as many shares are on their knees. Also put the full amount into ISA each year.

[pppeter]

Pensions are taxed on the way out rather than the way in so there's no tax efficiency in loading up on pensions to the extent that what you get out is taxed the same as it went in. Problem is, we don't know what the tax situation will be when we retire.

[rettah]

There still is a huge benefit. 40% tax relief on payements in now, zero tax on any capital gain. The likely tax when you retire will be at the lower rate unless you have made huge payments or got huge returns.

[CrashConnoisseur]

Any thoughts on which company to go with for a SIPP?

[Frank Hovis]

There still is a huge benefit. 40% tax relief on payements in now, zero tax on any capital gain. The likely tax when you retire will be at the lower rate unless you have made huge payments or got huge returns.

What he said. I'm not after a massive pension. I'm deferring income so I end up saving the differential between higher and lower rate tax. Plus it's money that would be just going into other investments anyway.

As for SIPPS I've been looking at Hargreaves Lansdown as I'm happy with them. I need to spend more time going into it but expect I'll be going with them and stopping AVCs soon.

[AteMoose]

What he said. I'm not after a massive pension. I'm deferring income so I end up saving the differential between higher and lower rate tax. Plus it's money that would be just going into other investments anyway.

As for SIPPS I've been looking at Hargreaves Lansdown as I'm happy with them. I need to spend more time going into it but expect I'll be going with them and stopping AVCs soon.

ditto

[rettah]

I have my SIPP with Hargreaves Lansdown who I have found to be very good and keep you informed of progress if you're transferring. I also have ISA and sharedealing accounts with Barclays who are great for online but not so good if you need to speak to someone. I still make AVCs as my company adds 10% on my contributions and I can always transfer to my SIPP at a later date. My SIPP and ISA are only a top up as I have a final salary pension so I'm not so worried about the additonal risk that a SIPP can have. I guess I'm a believer of having a balanced approach to investment and not having all you eggs in one basket.