stevio
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Post by stevio on Mar 18, 2016 15:01:02 GMT
Wouldn't you run into ever decreasing circles as the VCTs only give 30% relief? Depends how much you take out each year. You can pick 50% basic rate and 50% higher rate to exactly match the 30% or not. And include the personal allowance range to do more if desired, or not. Or for more quick withdrawing do it up to 100k taxable and accept the 10% net income tax bill. Or above that if you can deal with the nastiness that starts at 100k. Of course you can redo the VCTs every five years if you have taxable income so that can provide another way to get more than 30%. Main thing is picking VCTs that have suitable risk properties for the individual and not getting top heavy in them vs other investments. For those who'd like an extended holiday out of the UK there's always the Portugal option. Establish residency there, say in the Azores, and opt in to their 0% income tax on foreign pension income. Which includes the taxable portion of a UK pension. Then you can take out three quarters of a million tax free in one tax year. Or more or one lump. You do have to stay outside the UK for several years after doing this or you will be charged by HMRC as if you did it while in the UK. Since this loses you the UK tax wrappers it's not really an option for most but it is one. Don't have to stay resident in Portugal beyond the relevant Portugese tax year. The Azores followed by the channel Islands then back to the UK a few years later wouldn't be too unpleasant for a lot of people. Thanks James, I will need to do my sums, but initially it seemed that you would have to put more and more into VCT's to take out less and less, if you get what I mean! Thanks for your tip on Portugal! I have seen in the past you have detailed good tax efficient ways of drawing down your pension, I think maybe on the MSE forum, what sort of target to aim for etc. I am considering different ways of planning for retirement with differing investments etc and considering a large pension investment. If you have time, would you mind detailing your strategy here for my benefit and maybe others?
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james
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Post by james on Mar 18, 2016 17:14:55 GMT
initially it seemed that you would have to put more and more into VCT's to take out less and less, if you get what I mean! That's right but pretty much by definition any person with this problem can afford it because they will have the 25% tax free lump sum available to them. I don't really think that my own plans are useful since so much is personal, though I have already started to use VCT buying to mostly eliminate my income tax bill even before I reach age 55. I've just accumulated enough in savings and investment income that I have reached the point where I can afford to in effect defer some of my income for five years. I'm also making high pension contributions via salary sacrifice, to the point that my workplace agreed to allow me to ask their developers to change one of my pension contribution levels to exceed the normal limit of no more than 50% of gross pay for that number, overall pension contributions will be in excess of 80% of gross base pay in the coming tax year but done in a way that avoids going under minimum wage. Meanwhile I'm also actively stoozing to also aim to use full ISA allowance and be invested as much as I can in P2P. I'm sufficiently close to being 55 that the pension lock up effect is not very material for me any more. If necessary I'll draw on ISA money to fund pension contributions indirectly but it shouldn't be necessary given my investment income level these days. Not starting VCT use sooner is one of my regrets. All of this helped and/or achieved by living way below what my income would allow. Not doing anything extreme except what I described above, just haven't expanded my spending in line with my income, instead I mostly extended my investing.
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Post by longjohn on Mar 18, 2016 18:31:54 GMT
All of this helped and/or achieved by living way below what my income would allow. Not doing anything extreme except what I described above, just haven't expanded my spending in line with my income, instead I mostly extended my investing. ^ This, more than anything else is the way to long term wealth. John
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james
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Post by james on Mar 18, 2016 21:42:41 GMT
^This, more than anything else is the way to long term wealth. Indeed, or just anything that involves spending significantly less than earnings. I rather like the book The Millionaire Next Door as a way to say what most real millionaires do, vs living what would be called a millionaire lifestyle. It's entirely possible that if I just carried on as I am I'd be a Pound millionaire in less than ten years. But other than that being a tempting number it's not actually a particularly desirable target because it could mean deferring retirement too long. Unless I decided I wanted to emigrate to a place that required a substantial capital investment as a condition of residence. Though actually, unless I increased my spending level, retiring wouldn't delay getting there by that long because spending is so low compared to asset size at this point and around 20% of my total investments is already producing within a few hundred Pounds of my minimum target income level. Though I think a fair bit of that needs to be regarded as opportunities that will go away in the future. It's a nice position to be in.
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stevio
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Post by stevio on Mar 19, 2016 10:15:42 GMT
Was looking at maths of using VCTS, would someone mind sanity checking (maybe james if you have time) my understanding please? For simplicity assumed tax free allowance used up through state pension and that the lower rate tax band was around 40k So, 100k pension 25% tax free allowance of 25k, used to purchase VCT, 30% IT relief on 25k allows 37.5k from pension normally taxed at 20% to be taken tax free The following tax year, there is 37.5k left in pension. Using 25k of the above 37.5k which was drawn from pension tax free, to buy 25k VCTS, allows the remaining 37.5k in the pension to be taken tax free This then totals 50k in VCTS and 50k in cash, all taken without paying any tax The 50k cash can be used at 10k/yr tax free over 5yrs After 5yrs, the VCTS can be cashed in, added to the return from 5yrs, this would be approx 50k again at 10k/yr would last another 5yrs So effectively the entire pension pot 100k taken tax free |
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james
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Post by james on Mar 19, 2016 14:29:51 GMT
£25k VCT purchase qualifies for up to £7,500 relief. £7,500 is the income tax paid at 20% on £37,500. So yes, I agree with you. It's quite common for VCTs to pay tax exempt dividends along the way and the one I mention most does this at about 10% on the post-relief amount, so 10% on £25k - £7.5k.
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mike
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Post by mike on Mar 20, 2016 9:52:51 GMT
£25k VCT purchase qualifies for up to £7,500 relief. £7,500 is the income tax paid at 20% on £37,500. So yes, I agree with you. It's quite common for VCTs to pay tax exempt dividends along the way and the one I mention most does this at about 10% on the post-relief amount, so 10% on £25k - £7.5k. which VCT is that?
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james
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Post by james on Mar 20, 2016 15:37:11 GMT
£25k VCT purchase qualifies for up to £7,500 relief. £7,500 is the income tax paid at 20% on £37,500. So yes, I agree with you. It's quite common for VCTs to pay tax exempt dividends along the way and the one I mention most does this at about 10% on the post-relief amount, so 10% on £25k - £7.5k. which VCT is that? Albion VCT, in part because it's fully asset backed. The 2015/2016 current offer has been fully subscribed and it's no longer available until perhaps November when a new offer might be made. Second choice in their range might be the Crown Place VCT that is about 50% asset backed and expected to pay out 11.16% on the same after tax relief basis. However, for total return there are other VCTs that are likely to do better. These are just for those who want the combination of asset-backed and high tax exempt dividend payouts while holding.
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mike
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Post by mike on Mar 20, 2016 19:29:11 GMT
Thanks James
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james
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Post by james on Mar 20, 2016 20:57:53 GMT
Oh, one thing more worth mentioning. Before deciding to go with Crown Place, do have a look at page 3 of the Investor Guide where total returns of their various VCTs over the last five years are reported. For convenience here are rough numbers picked from estimating what the bar chart shows: 34%: Albion Enterprise VCT 33%: Kings Arms Yard VCT 30%: Albion Development VCT 28%: Crown Place VCT 18%: Albion Venture Capital Trust 15%: Albion Tech and General VCT This isn't me saying what to expect in the future, just illustrating that dividends and secured investing is not what has produced the higher total return. And other VCTs are around, though maybe not with subscription available, that have higher historic total returns. What I haven't done there is try to take into account the time value of money, since the Albion and Crown Place VCTs both distribute money now on an assured (well, expected) schedule faster than the others. This matters for P2P investors because P2P makes more than these VCTs do, so the sooner you get the money back to reinvest in P2P the better. |
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stevio
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Post by stevio on Mar 28, 2016 17:56:29 GMT
Oh, one thing more worth mentioning. Before deciding to go with Crown Place, do have a look at page 3 of the Investor Guide where total returns of their various VCTs over the last five years are reported. For convenience here are rough numbers picked from estimating what the bar chart shows: 34%: Albion Enterprise VCT 33%: Kings Arms Yard VCT 30%: Albion Development VCT 28%: Crown Place VCT 18%: Albion Venture Capital Trust 15%: Albion Tech and General VCT This isn't me saying what to expect in the future, just illustrating that dividends and secured investing is not what has produced the higher total return. And other VCTs are around, though maybe not with subscription available, that have higher historic total returns. What I haven't done there is try to take into account the time value of money, since the Albion and Crown Place VCTs both distribute money now on an assured (well, expected) schedule faster than the others. This matters for P2P investors because P2P makes more than these VCTs do, so the sooner you get the money back to reinvest in P2P the better. Can you still contribute to these say this week prior to the end of the tax year?
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james
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Post by james on Mar 29, 2016 0:15:43 GMT
Can you still contribute to these say this week prior to the end of the tax year? No. All offers are now full for this year. Next offers will probably be announced around November. Last year the answer would have been yes because there was still a fair bit available. There are still some open VCT offers from other places that could be interesting but I won't be making any suggestions from them.
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stevio
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Post by stevio on Feb 8, 2018 21:26:07 GMT
Resurecting thread!
I was reading that if a 40 year olds pension investment was to conceivably double every 10yrs, then £350k could be £700k in 10yrs, then £1.05M in another 5yrs, taking them over the LA at 55. That's without any contributions during those 15yrs, showing that even a relatively small pot could easily grow over the LA
So is the only option to prevent this to limit contributions? What if using pension contributions to reduce current tax band? Or as nearly every worker has now, an employer contributes too?
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jonah
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Post by jonah on Feb 8, 2018 21:58:37 GMT
LTA now rises in line with inflation. So 1.03m from April this year. The point is valid though, but most people in the uk have a lot less than 350k in their pension @ 40. Don’t forget an occasional market correction, e.g. this week!
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stevio
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Post by stevio on Feb 9, 2018 7:10:07 GMT
LTA now rises in line with inflation. So 1.03m from April this year. The point is valid though, but most people in the uk have a lot less than 350k in their pension @ 40. Don’t forget an occasional market correction, e.g. this week! Thanks jonah Yes, I realize this wont affect the majority, but what action can be taken for those it does affect? mrclondon bracknellboy you both mentioned you might need to take action, did you end up doing this or seeking financial advice?
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