Author Topic: New here and a question  (Read 1802 times)

Clodagh

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New here and a question
« on: May 09, 2018, 04:54:31 PM »
Hello all.
By way of introduction I am a long time MMM reader/lurker, first time poster.  In fact, this is my first time posting on any forum ever (fora?) so apologies in advance if I stuff it up. 

I have recently relocated to Scotland via NZ and Canada.  After a year of getting my head around ISAs, SIPPs, etc., (not to mention Scottish accents), I am now ready to get my finances sorted.  I was delighted to see that the MMM forum has a section for the UK.

I have tried to follow the MMM philosophy for a few years now to various degrees of success.  Now that hubby and I own a business it has become even more important to become financially literate.

In a nutshell: we are in our early 50s, with 2 dogs, 1 cat and 3 grown children (on three different continents) all at various stages in their independent lives.  Our business is going really well, and we think we will be happy to carry on working for another 5-10 years or so, but we do want to structure things to stop sooner if we want to/have to.  (We sometimes work full time/sometimes part time Ė itís very flexible so it feels like we are retired in a way).  We have a very small UK pension, but no mortgage.  I have maxed out our ISA contributions (was able to sneak in 17/18 and this year) and now am faced with the rest of our savings sitting in a bank doing virtually nothing.  Our ISAs are with Vanguard and I am very happy dealing with them.  Hubby wants to go down the BTL route; I am baulking at the thought (Brexit fallout, etc.), but I am also quite nervous to put all our savings with one establishment (Vanguard).  I am currently reading a book called I.O.U by John Lanchester (eek!) and now I just want to hide our whole stash under the mattress.
 
I would really appreciate some UK specific advice but also would like to know if anyone else is feeling a wee bit nervous these days given the political climate?  It is probably fair to say that the political climate is always dodgy in some way, but I just donít have a handle on the economy here (like I did in NZ and Canada). 

Thanks all Ė so happy to have found you.
Clodagh

londonstache

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Re: New here and a question
« Reply #1 on: May 10, 2018, 02:29:21 AM »
Thanks all Ė so happy to have found you.
Clodagh

Lovely to meet you too!

The BTL route is slightly fraught with difficulties at the moment as the government is trying to cut down on it by increasing costs, including stamp duties and taxation rates. This is because several people have seen it as a profitable investment, but it is seen to make it harder to get the 1st step on a property ladder as investors buy what would usually be "starter homes".

The one that jumped out at me is "small UK pension". Under the current rules you can invest up to £40,000 per year, plus any contributions that you didn't make up to this £40k limit for the previous two tax years, assuming you were UK residents. So in a best case scenario you could invest £120k. The most efficient route is a SIPP - Self Invested Pension Plan, where you pick the investments (several of us here go for Vanguard funds or ETFs, which might not be a surprise). The caveat is that you must have earnt at least this amount over the years - you cannot invest more than 100% of your income in a pension plan.

This has the huge benefit that you get tax relief - 25% immediately, and if you are higher rate taxpayers, 60% (as presumably 20% and 40% tax has already been deducted). If you are self-employed and on business rates of tax this may differ slightly.

I'm tempted to say this will give you the biggest bang for your buck - given your age you can withdraw it from 55 onwards, so you are getting a massive uplift for a short investment period. If you then wanted to pull it out at 55 and go for something like BTL of course this would be an option too, but I'd personally be tempted to keep it in.

What are your thoughts? Obviously not financial advice etc etc., but that would be my immediate thoughts.

londonstache

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Re: New here and a question
« Reply #2 on: May 10, 2018, 02:32:14 AM »
And on the political climate etc., I would suggest it always looks turbulent - before Brexit we had war in Iraq and Syria, 9/11, recession, dotcom bubbles bursting etc - and investing in a 'buy and hold' pattern was always the right approach. A lot of Mustachians are also contrarians - the more we see nervousness in the market, the more we buy as essentially the market is "on sale". I'm not nervous, but admittedly I have a longer runway - I'm mid 30s and some way off FI.

Zola.

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Re: New here and a question
« Reply #3 on: May 10, 2018, 05:57:50 AM »
Thanks all Ė so happy to have found you.
Clodagh

Lovely to meet you too!

The BTL route is slightly fraught with difficulties at the moment as the government is trying to cut down on it by increasing costs, including stamp duties and taxation rates. This is because several people have seen it as a profitable investment, but it is seen to make it harder to get the 1st step on a property ladder as investors buy what would usually be "starter homes".

The one that jumped out at me is "small UK pension". Under the current rules you can invest up to £40,000 per year, plus any contributions that you didn't make up to this £40k limit for the previous two tax years, assuming you were UK residents. So in a best case scenario you could invest £120k. The most efficient route is a SIPP - Self Invested Pension Plan, where you pick the investments (several of us here go for Vanguard funds or ETFs, which might not be a surprise). The caveat is that you must have earnt at least this amount over the years - you cannot invest more than 100% of your income in a pension plan.

This has the huge benefit that you get tax relief - 25% immediately, and if you are higher rate taxpayers, 60% (as presumably 20% and 40% tax has already been deducted). If you are self-employed and on business rates of tax this may differ slightly.

I'm tempted to say this will give you the biggest bang for your buck - given your age you can withdraw it from 55 onwards, so you are getting a massive uplift for a short investment period. If you then wanted to pull it out at 55 and go for something like BTL of course this would be an option too, but I'd personally be tempted to keep it in.

What are your thoughts? Obviously not financial advice etc etc., but that would be my immediate thoughts.

its 57 now is it not, and soon to be 58?

dashuk

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Re: New here and a question
« Reply #4 on: May 10, 2018, 06:00:28 AM »


its 57 now is it not, and soon to be 58?

55, rising to 57 from 2028.

Zola.

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Re: New here and a question
« Reply #5 on: May 10, 2018, 06:19:39 AM »


its 57 now is it not, and soon to be 58?

55, rising to 57 from 2028.

I am 33, by the time I get to that age (heres hoping!), it will probably be well into the 60s.

Makes me think I may be better off investing the money more in a S&S ISA, at least then you know you can use it at 55.

londonstache

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Re: New here and a question
« Reply #6 on: May 10, 2018, 07:02:01 AM »


its 57 now is it not, and soon to be 58?

55, rising to 57 from 2028.

Which given that you are both in your 50s (OP) makes it a fairly attractive investment.

dashuk

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Re: New here and a question
« Reply #7 on: May 10, 2018, 08:51:22 AM »


its 57 now is it not, and soon to be 58?

55, rising to 57 from 2028.

I am 33, by the time I get to that age (heres hoping!), it will probably be well into the 60s.

Makes me think I may be better off investing the money more in a S&S ISA, at least then you know you can use it at 55.

Likewise (36). It's a tricky one.

- there's a massive amount of free money involved in private pensions - company contributions, tax free on the way in, and for us in practice on the way out, because our lifestyle is way within 2x personal allowance.
- there's a fair amount of free money involved in LISAs, effectively tax-free in and out for a standard rate taxpayer with the govt bonus.

But... I'm not 57 until 2039, and like you, would be surprised if I could access my pension then.

For the OP though, it's a known 55, and the return from the income tax refund is likely way better than any other return over that short period - although I'd politely query the working behind the 60% number above ;)

londonstache

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Re: New here and a question
« Reply #8 on: May 10, 2018, 10:22:53 AM »
For the OP though, it's a known 55, and the return from the income tax refund is likely way better than any other return over that short period - although I'd politely query the working behind the 60% number above ;)

Cost of making a £10,000 pension contribution:

Basic rate (20%)  - £8,000 paid, effective % boost = 25%
Higher-rate (40%) - £6,000 paid, effective % boost = 67%

Happy to help :)

dashuk

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Re: New here and a question
« Reply #9 on: May 10, 2018, 12:37:26 PM »
Should know better than to doubt people's maths on here. Was just the way you presented it (because 20% and 40% has been paid, you get 60%) that made me go "hang on, that's not how it works". Shutting up now. ;)

Clodagh

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Re: New here and a question
« Reply #10 on: May 11, 2018, 02:27:14 AM »
Many thanks for your comments, londonstache!  Food for thought.  I will definitely read up on UK pensions but as we take such a minimal salary from the company I'm not sure, at our age, that it is worth it.  I liked your comment about being contrarian - a good reminder to keep my head about me during these turbulent times.
-Clodagh

cerat0n1a

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Re: New here and a question
« Reply #11 on: May 11, 2018, 03:38:22 AM »
I will definitely read up on UK pensions but as we take such a minimal salary from the company I'm not sure, at our age, that it is worth it.

Even if you don't have any salary at all, it can be worth it. If you don't make enough to pay income tax, you can still contribute up to £2880 per year and get tax relief as if you were a basic rate payer (i.e your pension would be credited with £3600, which you can then take out from age 55.) It's a much bigger benefit to higher rate taxpayers though, as Londonstache has demonstrated, particularly when you factor in that no national insurance would be payable on pension contributions made by your company too.

PhilB

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Re: New here and a question
« Reply #12 on: May 11, 2018, 10:57:09 AM »
For the OP though, it's a known 55, and the return from the income tax refund is likely way better than any other return over that short period - although I'd politely query the working behind the 60% number above ;)

Cost of making a £10,000 pension contribution:

Basic rate (20%)  - £8,000 paid, effective % boost = 25%
Higher-rate (40%) - £6,000 paid, effective % boost = 67%

Happy to help :)
Of course, if you already using your PA in retirement, by the time you have paid tax on withdrawal that boost drops to 41.67% for a HRT payer and a measly 6.25% for a basic rate payer - which really makes you question their value for a basic rate taxpayer unless they are getting employer match or saving NI via sal sac.

Clodagh

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Re: New here and a question
« Reply #13 on: May 12, 2018, 01:54:41 AM »
Wow - cerat0n1a!  I didn't realise what a good deal pensions are for low/no tax paying people.  Thank you for this information!  Will spend the weekend working on this for sure.

-Clodagh

never give up

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Re: New here and a question
« Reply #14 on: May 13, 2018, 03:41:08 AM »
Hi Clodagh. Welcome. Congratulations on getting your head around Scottish accents so quickly :-)
I assume your plan is to stay in the UK long term hence looking at UK pensions? With children in three different continents do you have a grasp of what your travel budget needs to look like? I guess this could significantly impact the amount you need to retire on.

I too am not a fan of BTL. Fidelity, Hargreaves and others will allow you to invest in Vanguard funds or similar funds if you didnít want to invest just with Vanguard directly and spread things around a bit.

Monevator is a good UK financial site and on the UK tax board are a list of UK FIRE bloggers.

The political climate is difficult isnít it? It always has been and always will be. There will always be something going on. However I must admit that Brexit is probably a bit more extreme than the normal level of political uncertainty. For me itís just another reason why FI is so important and emphasises how much of our lives is out of our control.

It sounds as though you have a nice work/life balance and I wish you luck with your plans.

Clodagh

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Re: New here and a question
« Reply #15 on: May 15, 2018, 07:46:24 AM »
Thanks for your reply, Never give up.
Yes, we are here permanently - I have put my foot down :).  We do have a hefty travel budget and it will only increase if/when grandchildren appear but we don't really spend on anything else.  Luckily our business does take us to far flung places so we can usually tack on a visit here or there.
I've pretty much calmed myself down since the last time I wrote in.  Brexit is clearly not disappearing and the proverbial will keep hitting the fan.  I just have to keep calm and keep investing!  I'm excited about the pension ideas at Hargreaves - it will be good to spread things around a bit.  And I will just keep reading this forum and all the UK based blogs I can to glean from everyone's experience and expertise.  Many thanks again and good luck to you too - I read your journal- sounds like you are on your way!

ExitViaTheCashRamp

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Re: New here and a question
« Reply #16 on: May 15, 2018, 10:35:22 AM »
One big warning for you OH, Scottish law is NOT always the same as English law - there are significant differences where it comes to landlording. So when researching, make sure you are reading about Scottish law.

 If one of you is not taking full advantage of your tax free allowance, you can transfer a small portion of it to the other spouse.

 Some other 'free' money ideas, these take a bit of effort though:

1) The UK banks are often competing for business, there is easy cash to be had switching your current account between them. If doesn't even have to be a 'real' current account ! Simply get a brand new bank account in your local high street, attach a couple of direct debits to it -- ideally something not critical like insurance or council tax, then switch to say Halifax bank for a free £75. Then when they cough up, switch to say First Direct bank for another £125, then to Marks & Spencer (run by HSBC) for another £125 gift voucher... there is a lot of easy money to be hoovered up. There is no effect on your credit rating or similar.

2) For your cash buffer, many of the banks have loss leading, inflation equalling current accounts that AND above inflation 'regular savers'. Getting 4% on £20,000 cash if very doable with a bit of work.

3) Stoozing money - get a credit card with a long 0% promotional rate -- like 3 years. Max it out as quick as you can with purchases you would normally make and only pay the minimum monthly payments on it. Save the cash you would have spent in the loss leading products in (3) -- more free money ! Pay off card in full when promotion ends (or transfer it to a another card !) I usually have £10-12k on my cards saved in interest bearing accounts earning 3-4%... for the past 15 years or so. Easily made £5,000 in interest using someone elses money.

 
« Last Edit: May 15, 2018, 10:44:40 AM by ExitViaTheCashRamp »

never give up

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Re: New here and a question
« Reply #17 on: May 15, 2018, 02:50:00 PM »
Thanks Clodagh. Yes on my way (markets, political uncertainty, job security and incompetence permitting). A permanent move makes it easier to plan with certainty. It sounds as though you have a good grasp of your budget so Iím sure youíll soon work out the best way to invest for your needs.

Uksaver

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Re: New here and a question
« Reply #18 on: May 20, 2018, 02:37:05 AM »
Thanks all Ė so happy to have found you.
Clodagh
The one that jumped out at me is "small UK pension". Under the current rules you can invest up to £40,000 per year, plus any contributions that you didn't make up to this £40k limit for the previous two tax years, assuming you were UK residents. So in a best case scenario you could invest £120k. The most efficient route is a SIPP - Self Invested Pension Plan, where you pick the investments (several of us here go for Vanguard funds or ETFs, which might not be a surprise). The caveat is that you must have earnt at least this amount over the years - you cannot invest more than 100% of your income in a pension plan.

Be careful with this one.  Using up your pension contribution limits from previous tax years, if under utilised (known as carry forward), can only be done by the OP if the OP was a member of a qualifying pension scheme in those previous tax years.

skip207

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Re: New here and a question
« Reply #19 on: May 26, 2018, 09:16:16 AM »
My advice, given your age and intention to retire within 10 yrs would be to use as much of your SIPP pot as possible and then fill as much of your ISA as possible.  Thats £60k per tax year each. 

Also make sure you are ticking the boxes to qualify for SP.

Then you can look at property etc but I would keep a balance portfolio.  Property in the UK can be expensive and rents are very much area specific.  Consider buying "south of the wall" too. 

Also tread carefully with "proper" buy to let (I.e borroiwng money to invest it in property) as I personally feel that lending money to become a landlord is different now and costs and interest rates are going up.  In the last 10 years it made some sense but not as attractive now IMHO.

ck425

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Re: New here and a question
« Reply #20 on: July 09, 2018, 10:21:44 AM »
Hi, Welcome to Scotland!! Where about are you based? I personally grew up in Dundee/Glasgow, went to uni in St Andrews and currently live in Edinburgh, so I know the central belt fairly well. :)

As others have said SIPP sounds perfect for you. That said I wouldn't automatically dismiss BTL. While there has been a tax crackdown on it (and possible more to go), in terms of housing costs Scotland is notable behind the rest of the UK, but quickly catching up. This is partially due to an exodus north, particularly with Londoners coming to Edinburgh.

hred17

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Re: New here and a question
« Reply #21 on: July 09, 2018, 10:31:13 AM »
PTF.

I'm a dual-citizen (hubs is British) and we plan to return to the UK and settle in Scotland permanently within the next 3-5 years. We are in our early 40s so this is very relevant to us as well for future planning.

cobson

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Re: New here and a question
« Reply #22 on: July 10, 2018, 09:12:26 AM »
For UK specific financial info and advice, I recommend you take a look at the Money Saving Expert site:

https://forums.moneysavingexpert.com/index.php

They aren't necessarily focused on frugality to the same degree as MMM, but they know their stuff, especially on the Pensions board (they had a recent thread discussing MMM here: https://forums.moneysavingexpert.com/showthread.php?t=5859719).
« Last Edit: July 10, 2018, 09:37:42 AM by cobson »

Clodagh

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Re: New here and a question
« Reply #23 on: July 13, 2018, 06:48:18 AM »
Hi, Welcome to Scotland!! Where about are you based? I personally grew up in Dundee/Glasgow, went to uni in St Andrews and currently live in Edinburgh, so I know the central belt fairly well. :)

As others have said SIPP sounds perfect for you. That said I wouldn't automatically dismiss BTL. While there has been a tax crackdown on it (and possible more to go), in terms of housing costs Scotland is notable behind the rest of the UK, but quickly catching up. This is partially due to an exodus north, particularly with Londoners coming to Edinburgh.


Hiya,
Thanks for replying.  We live in Stirlingshire which is a lovely area of Scotland.  It's so handy for exploring and it's filled with sweet villages and heaps of history.   I'm still working on getting the SIPP organised but have parked the BTL idea for the minute (although I still drool over properties in Glasgow and Edinburgh) mostly because I'm not sure I want to have the responsibility of it while we are so busy with our business.  I'll keep looking though as it would be nice to have a completely different income stream down the road.  I'm buying my first ETFs with Vanguard that are outside an ISA - the money has been sitting there but for some reason I'm nervous so have put it off a bit.  But I'm going to do it - today!!!


ck425

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Re: New here and a question
« Reply #24 on: July 13, 2018, 11:43:01 AM »
Hi, Welcome to Scotland!! Where about are you based? I personally grew up in Dundee/Glasgow, went to uni in St Andrews and currently live in Edinburgh, so I know the central belt fairly well. :)

As others have said SIPP sounds perfect for you. That said I wouldn't automatically dismiss BTL. While there has been a tax crackdown on it (and possible more to go), in terms of housing costs Scotland is notable behind the rest of the UK, but quickly catching up. This is partially due to an exodus north, particularly with Londoners coming to Edinburgh.


Hiya,
Thanks for replying.  We live in Stirlingshire which is a lovely area of Scotland.  It's so handy for exploring and it's filled with sweet villages and heaps of history.   I'm still working on getting the SIPP organised but have parked the BTL idea for the minute (although I still drool over properties in Glasgow and Edinburgh) mostly because I'm not sure I want to have the responsibility of it while we are so busy with our business.  I'll keep looking though as it would be nice to have a completely different income stream down the road.  I'm buying my first ETFs with Vanguard that are outside an ISA - the money has been sitting there but for some reason I'm nervous so have put it off a bit.  But I'm going to do it - today!!!

Very nice. I've a friend who moved to Stirling recently and speaks highly of it. Vanguard are launching a SIPP soon so I'd sign up for their emails. On the BTL front, consider Stirling itself if you ever do it, rather than Glasgow or Edinburgh. Stirling has the lowest average income to average property price ratio in the UK, so more room to grow than almost anywhere else.

poppydog

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Re: New here and a question
« Reply #25 on: July 15, 2018, 03:00:22 AM »
For our retirement income portfolio, I shied away from direct investment in property as there is too much focus on the performance of one or a few properties, as well as the risk of poor tenants, vacancies, maintenance etc.

About 10% of our assets are invested in income producing Property Investment Trusts, where consistent yields of 5-7% are possible without any active involvement.

Property focussed OEICs and Unit Trusts are also available, but I prefer ITs for long term buy and hold.  There are pros and cons though so itís important to do some research.