My point was you can't just take £75k out and pop it in an ISA because the allowance is 20k a year. But I agree with the principle.
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Pension fund performance - do you monitor yours, how is it doing, do you actively change it?
- Thread starter danlightbulb
- Start date
Soldato
take 75k out... stick what ever you can into the the isa, yes I know there's a limit... some of it in a general investment account and some of it into premium bonds..
I know that most finfluencers promote draw down and not taking the 25% tax free at the start, but most of them don't point out the fact that the market can do down. So the tax free amount can strink as well as grow.
Taking the money out the most with the least tax is harder than getting the money in there in the first place... lol
Soldato
Think i have one gov one in the UK, and a 401K here. Once I get through some challenging financial stuff going on at the moment (bah), I'll be looking to up my contributions further and invest in other ways as I was too darn stupid (or didn't earn enough) to invest and be smart with money when I was younger.
Soldato
There's also the thought that at some point a government might decide that the 25% tax free is a little too generous and start fiddling with it...
I haven't 100% decided yet, but taking the full 25% is quite tempting.
Soldato
Compounded for few years that'll be 2%
Initiated a transfer from L&G to vanguard on the 12th June. Yesterday L&G online is now saying the pension is being held in cash, i.e. they have sold the units that I held in their fund. So hopefully it'll only be a few days before the cash transfers.
Doing some fag packet sums here on state pension. So I have already paid in enough to get a full state pension when I go on the gov pension forecast webpage, 11.5K. I won't be claiming state pension for another 10+ years, so for my fag packet calc, is the 11.5k number they give now what an existing 67 year old pension is claiming now, such that when I come to claim it, it will be 11.5K+ whatever inflation adjustments between now and then? I am thinking it must be, but just checking.
Soldato
Because you have all the years required for the maximum state pension, you'll get paid whatever the maximum is at the time of payment. It's £11.5k now, but that'll change (based on the triple lock) between now and when you retire, and continue to change after you retire.
So I've got some shares in a GIA that have done pretty well. I expect them to increase further.
If I sell a chunk, I'll have a CGT liability. I'm currently just under the 40% income tax threshold, so the CGT will effectively all be charged at 20%.
I've maxed out my ISA allowance already.
I'm trying to minimise tax. I have a thought that perhaps a SIPP might be useful to help this. I'm in my 60s, in full time employment and not accessing any state/personal pensions.
Let me know if it's plain wrong or not good planning.
1) Sell enough shares from the GIA for lets say £30k profit which would result in a £6K CGT liability (ignoring the small CGT relief).
2) Put the £30K profit into a SIPP in the same tax year (Assume I'm still within my pension contribution allowance).
3) Gov will add 20% to the SIPP for basic rate tax
4) Buy the same shares within the SIPP that I sold from the GIA.
Ignoring the performance of the shares, I end-up with them held in a SIPP +20%. Assuming I'm paying 20% CGT on the GIA sale, I'm basically neutral in cash (albeit I need the cash to pay the CGT as the equivalent amount is now in the SIPP).
Should the shares improve further, 25% of the further profits will be tax free. The SIPP shares fall under pension rules/income tax in the future, Not CGT. (good or bad not sure).
At the end of tax year, will the amount put into the pension effectively raise my 10% CGT ceiling so that I pay 10% CGT on the share sale instead of 20%, i.e. save £3K in CGT ?
If I sell a chunk, I'll have a CGT liability. I'm currently just under the 40% income tax threshold, so the CGT will effectively all be charged at 20%.
I've maxed out my ISA allowance already.
I'm trying to minimise tax. I have a thought that perhaps a SIPP might be useful to help this. I'm in my 60s, in full time employment and not accessing any state/personal pensions.
Let me know if it's plain wrong or not good planning.
1) Sell enough shares from the GIA for lets say £30k profit which would result in a £6K CGT liability (ignoring the small CGT relief).
2) Put the £30K profit into a SIPP in the same tax year (Assume I'm still within my pension contribution allowance).
3) Gov will add 20% to the SIPP for basic rate tax
4) Buy the same shares within the SIPP that I sold from the GIA.
Ignoring the performance of the shares, I end-up with them held in a SIPP +20%. Assuming I'm paying 20% CGT on the GIA sale, I'm basically neutral in cash (albeit I need the cash to pay the CGT as the equivalent amount is now in the SIPP).
Should the shares improve further, 25% of the further profits will be tax free. The SIPP shares fall under pension rules/income tax in the future, Not CGT. (good or bad not sure).
At the end of tax year, will the amount put into the pension effectively raise my 10% CGT ceiling so that I pay 10% CGT on the share sale instead of 20%, i.e. save £3K in CGT ?
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Soldato
Alternatively just sell enough each year to keep under the £3K CGT allowance and use that to fund whatever else you want to do, presumably you can do that for quite a few years and no additional tax would be due if you stick below the threshold for that.
You may want to speak to a qualified FA though to decide the best course of action, for me it's simple, cash, ISA, SIPP, but nearing pension age the dynamics shift.
You may want to speak to a qualified FA though to decide the best course of action, for me it's simple, cash, ISA, SIPP, but nearing pension age the dynamics shift.
How much will you get back that's not profit from the sale and what will you do with it (ie the initial capital invested that gave you your 30k profit)?
Soldato
Hows about you setup your current work place pension to pay in x amount, say 30k a year. This is possible as long as you don't breach the pension allowance and remain above the percentage limit (for me I think it's 9% of my total salary), leaving you with £12,500 allowance before it starts getting taxed.. Setup your pension payment so any new money goes into the shares/trackers that you would have purchased anyway.
This will also drop your tax bracket down to the 20% income tax threshold and your capital gains tax to 10/18% once you take over 3k of capital gains...
then sell as much shares as you need to live off say 30k a year as long as its under 50k so you don't have to fill in paper work. which is still cheaper than paying income tax and NI on your income.
For me, SIPPs are useful if you don't have a work place pension, or if it sucks and you can't change it.. even with existing money/shares, I would prefer to take the money from my salary and spend the exisit money/shares. I will just be making extra work for myself opening a SIPP.
Soldato
SIPP is a good way to combine old DC pensions where they have no real benefits to keeping them where they are, especially if you change jobs often.
My workplace pension with SL has a minimum yearly fee of about 0.7% (and this is discounted apparently) no matter what fund options I pick.
I moved my two old workplace pensions I had with them over to Vanguard which charges a platform fee of 0.15% and a fund fee (which varies but my current ex UK one is 0.14%) so less than 0.3% instead of 0.7%+.
My workplace pension with SL has a minimum yearly fee of about 0.7% (and this is discounted apparently) no matter what fund options I pick.
I moved my two old workplace pensions I had with them over to Vanguard which charges a platform fee of 0.15% and a fund fee (which varies but my current ex UK one is 0.14%) so less than 0.3% instead of 0.7%+.
I'm fortunate enough to have (at least for me) a shedload of these shares, which I'm averaging around a x7 return, so £3K a year isn't going to put a dent in things. What I'm looking is to basically crystalise as tax efficiently as possible a decent chunk, but ultimately retain them in a way that is a bit more tax efficient for potential future profits. I've already allocated my ISAs for this purpose. Getting 20% tax relief for a £30K SIPP contribution seems a nice way of neutralising the 20% CGT payment, and if the pension contribution means my 20% CGT becomes 10%, it would make it pretty tax efficient.
Selling £35K, ballpark £30K would be profit.
My workplace uses nest for its pension, Other than the statutory requirement, my employer isn't interested in helping staff do anything else, so its 6% employee 3% employer or whatever the requirement is, and that's that unfortunately. And anyway NEST isn't really a great provider in my opinion.
I have recently transfered a private pension to vanguard. However, these are Oz based shares and I'm only aware of 1 company in the UK that allows online trading of Oz shares within a SIPP. So this would be a SIPP with that company to facilitate what I am suggesting.
Is my assertion correct that at the end of the tax year, a £30K investment into a pension will raise my CGT 10% ceiling appropriately, so that if I am a basic rate taxpayer then the pension investment will mean my CGT liability on the £30K profit share disposal will be 10%, not 20% ? (assuming no other financial complications), or am I misunderstanding how that works ?
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Soldato
it's why I think it might be worth talking an IFA if you haven't yet, because anyone advising what you do probably isn't able to look at what else you're doing.
You'll pay tax to sell them, if you can deposit back into SIPP you'll get all of that back probably, maybe some extra, but then you'll pay tax later to withdraw from SIPP as well, so not sure it wins like you may think it does. I am not sure what the rules on SIPP payments are like at 60.
I can deposit like £60K a year or something into my SIPP, which I'll basically never hit unless I get some kind of inheritance, but it gets more complicated for you than it does for me!
I'm avoiding GIA accounts myself doing what I can in my ISA so I avoid this kind of issue
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Soldato
I feel for you for having nest pension, is there no chance that you will swap jobs or/and providers?
CGT and income tax are two sperate things, your income tax bracket affects your CGT rate but not the other way round.
For example, if you had zero taxable income, your first £12,500 from capital gains will still be taxed after 3k.
Capital Gains Tax: what you pay it on, rates and allowances
What Capital Gains Tax (CGT) is, how to work it out, current CGT rates and how to pay.
If you pay basic rate Income Tax
If you’re a basic rate taxpayer, the rate you pay depends on the size of your gain, your taxable income and whether your gain is from residential property or other assets.
- Work out how much taxable income you have - this is your income minus your Personal Allowance and any other Income Tax reliefs you’re entitled to.
- Work out your total taxable gains.
- Deduct your tax-free allowance from your total taxable gains.
- Add this amount to your taxable income.
- If this amount is within the basic Income Tax band, you’ll pay 10% on your gains (or 18% on residential property and carried interest). You’ll pay 20% on any amount above the basic tax rate (or 24% on residential property and 28% on carried interest).
so basically it's your salary + gains > than £37,700 then it's 20% if it's less then it's 10%
Example
Your taxable income (your income minus your Personal Allowance and any Income Tax reliefs) is £20,000 and your taxable gains are £12,600. Your gains are not from residential property.
First, deduct the Capital Gains tax-free allowance from your taxable gain. For the 2024 to 2025 tax year the allowance is £3,000, which leaves £9,600 to pay tax on.
Add this to your taxable income. Because the combined amount of £29,600 is less than £37,700 (the basic rate band for the 2024 to 2025 tax year), you pay Capital Gains Tax at 10%.
This means you’ll pay £960 in Capital Gains Tax.
@slinxy
Thanks for your response. I did find that page. However it isn't clear from that, that pension contributions are not considered taxable income. For the purposes of CGT, HMRC gives you relief based on your pension contributions. That is likely covered under the "minus any income tax reliefs" bit.
So if you are paying into a pension the calculation isn't simply "salary + gains > than £37,700 then it's 20% if it's less then it's 10%", its more like "salary-pension contributions +gains > £37,700....."
The CGT calculation on their website also doesn't mention it.
see here on the HMRC community forum, where the responding confirms that any pension contributions should be added to the basic rate band to determine whether you pay CGT at 10% or 20%.
And more fully explained in this article
"You can bring your CGT bill down by gifting assets to your partner before you make a disposal or by increasing your pension contributions."
www.sjp.co.uk
Thanks for your response. I did find that page. However it isn't clear from that, that pension contributions are not considered taxable income. For the purposes of CGT, HMRC gives you relief based on your pension contributions. That is likely covered under the "minus any income tax reliefs" bit.
So if you are paying into a pension the calculation isn't simply "salary + gains > than £37,700 then it's 20% if it's less then it's 10%", its more like "salary-pension contributions +gains > £37,700....."
The CGT calculation on their website also doesn't mention it.
see here on the HMRC community forum, where the responding confirms that any pension contributions should be added to the basic rate band to determine whether you pay CGT at 10% or 20%.
And more fully explained in this article
"You can bring your CGT bill down by gifting assets to your partner before you make a disposal or by increasing your pension contributions."
Getting on top of Capital Gains Tax
To reflect the new tax year, this article has been updated Getting on top of Capital Gains Tax (CGT) is an important part of managing your money and assets as tax-efficiently as possible.
www.sjp.co.uk
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Soldato
Is your pension sal sacrifice or "normal"
Sal sacrifice is excluded from salary which is why many places moved to it. As its not salary it saves tax and isn't considered salary for calculations.
I tend to agree with Hippo here. You have a specific situation that there may be ways round that an IFA would know and your best placed linking it to a simple financial review.
It probably requires a multi year approach.
Sal sacrifice is excluded from salary which is why many places moved to it. As its not salary it saves tax and isn't considered salary for calculations.
I tend to agree with Hippo here. You have a specific situation that there may be ways round that an IFA would know and your best placed linking it to a simple financial review.
It probably requires a multi year approach.
Soldato
@slinxy
Thanks for your response. I did find that page. However it isn't clear from that, that pension contributions are not considered taxable income. For the purposes of CGT, HMRC gives you relief based on your pension contributions. That is likely covered under the "minus any income tax reliefs" bit.
So if you are paying into a pension the calculation isn't simply "salary + gains > than £37,700 then it's 20% if it's less then it's 10%", its more like "salary-pension contributions +gains > £37,700....."
The CGT calculation on their website also doesn't mention it.
see here on the HMRC community forum, where the responding confirms that any pension contributions should be added to the basic rate band to determine whether you pay CGT at 10% or 20%.
And more fully explained in this article
"You can bring your CGT bill down by gifting assets to your partner before you make a disposal or by increasing your pension contributions."
Getting on top of Capital Gains Tax
To reflect the new tax year, this article has been updated Getting on top of Capital Gains Tax (CGT) is an important part of managing your money and assets as tax-efficiently as possible.
Without throw out extact numbers and your situation, we are only taking theory.. and yes if your affairs are complex or you're in doubt... go see a IFA.
The amount you pay into a salary sacrifice pension schemes are not considered as taxable income... as the money is taken from your pay before tax and ni.
Normal pension schemes are tax and NI before the money is taken out and your pension company should be claiming the tax amount back (but not your NI) for you like in a SIPP.
basically by using captial gains instead of taxable income, it gives you an extra £3,000 towards your "tax free allowance"...
what you need to consider is that by using salary sac to pay into your pension, your missing the 10% NI tax as well.. something a SIPP won't give you
I too have a load of shares in a GIA via work, and I tend to cash out on them as soon as they are income tax free, taking out the amount that is capital gains tax free.
but I reinvest it in a ISA stocks and shares, as they should have already been taxed the once, hell if I'm sticking into a SIPP and running the risk of it getting taxed on the way out again. if possible, start to withdraw the capital gains tax free allowance from the pot.. it may take a few years and you may get hit by mulitple transaction fees but it's tax free.
if you start throwing another person's tax allowance in to the mix, there's plenty of stuff you can do... like put all your higher taxed salary into a pension and not pay into theirs at all... as you would be getting better tax relief.