Author Topic: What to consider about UK taxes?  (Read 1962 times)

Kwill

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What to consider about UK taxes?
« on: July 29, 2017, 02:16:11 PM »
I just saw we have this new UK tax discussion board. What should we consider about UK taxes?

shelivesthedream

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Re: What to consider about UK taxes?
« Reply #1 on: July 29, 2017, 04:03:12 PM »
How exciting! I hope this ends up being more about the UK in general than just taxes, though - there's so much more to us!

Biggest thing for me is SIPP vs ISA if you want to retire before traditional retirement age but not crazy early (like 50, where pension withdrawal is not a million miles away). I kind of feel like ISA is a no brainer, but that's a gut thing rather than really running numbers because I end up confused about the benefit of having the government contribution to your SIPP at this end but being taxed on the other end. Can anyone show me simple but definite numbers on this?

frugledoc

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Re: What to consider about UK taxes?
« Reply #2 on: July 29, 2017, 04:46:52 PM »
How exciting! I hope this ends up being more about the UK in general than just taxes, though - there's so much more to us!

Biggest thing for me is SIPP vs ISA if you want to retire before traditional retirement age but not crazy early (like 50, where pension withdrawal is not a million miles away). I kind of feel like ISA is a no brainer, but that's a gut thing rather than really running numbers because I end up confused about the benefit of having the government contribution to your SIPP at this end but being taxed on the other end. Can anyone show me simple but definite numbers on this?

SIPPs are better for higher rate tax payers.  The benefit for lower rate payers is probably negligible.

Also,  ISAs are great because you don't need to put anything on your tax return, but remember you get 11k/year Capital gains exemption and 5k (dropping to 2k) per year dividend allowance, outside of an ISA.


skip207

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Re: What to consider about UK taxes?
« Reply #3 on: July 30, 2017, 12:43:21 AM »
Eyup.  :)

So, yes I hope we can have general UK chat... I mean stuff like bap, barm, bread cake, roll, stottie.... its serious stuff.  Wars have been started over less.

Moving on..

Personally I think the biggest issue in the UK is the regulations.  The govt wont leave it alone.  We had massive changes to pensions a few years ago.  I expect there will be more to come in the next 5 years.

They are clearly gearing up to do something with BTL / landlords. 

I am sure they will meddle with ISAs at some point as people turn to them instead.

As for me personally I went with a SIPP.   I have been tempted with a S&S ISA but I don't like double exposure.
 
I have some money put to one side in case of a crash, I think I will go with a VLS ISA.  At the moment I don't like the thought of buying at these prices so will see what happens.  I am also waiting to see what happens with brexit.  If nothing happens by this time next year I will use the cash to buy a second rental property.

Playing with Fire UK

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Re: What to consider about UK taxes?
« Reply #4 on: July 30, 2017, 03:14:39 AM »

SIPPs are better for higher rate tax payers.  The benefit for lower rate payers is probably negligible.

I still like pensions for low rate tax payers who get salary sacrifice for the NI benefits, especially if they get a share of the employers NI.

frugledoc

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Re: What to consider about UK taxes?
« Reply #5 on: July 30, 2017, 03:18:14 AM »

SIPPs are better for higher rate tax payers.  The benefit for lower rate payers is probably negligible.

I still like pensions for low rate tax payers who get salary sacrifice for the NI benefits, especially if they get a share of the employers NI.

True.  It is very unfair that salary sacrifice pensions get NI relief and SIPPs don't, but it definitely makes sense to pay into an employer pension even for lower rate earners. 

TartanTallulah

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Re: What to consider about UK taxes?
« Reply #6 on: July 30, 2017, 03:38:49 AM »
The only reason I now have a S&S ISA is that due to workplace circumstances I'm working more this year, which will put my occupational pension contribution and the corresponding employer's contribution up, and I may be flirting with the 40,000 annual limit. Otherwise I would just put the money in my SIPP.

But for money you want to access before your 50s for a purpose other than buying your first property, an ISA does look like a no-brainer at the moment.



UKMustache

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Re: What to consider about UK taxes?
« Reply #7 on: July 30, 2017, 04:49:14 AM »

SIPPs are better for higher rate tax payers.  The benefit for lower rate payers is probably negligible.


I disagree.  If you're starting young and get the tax relief up to basic rate, that's just extra money to compound for the next 30-40 years.

If you put 100 into a SIPP (as a basic rate tax payer you're effectively contributing 125) and 100 into an ISA each month for 40 years...
At 65 the SIPP would have 330k and the ISA 264k.

You can take 25% of a pension as a tax free lump sum. 
So here you can withdraw your 82.5k.  This leaves 247k.

Then you can drawdown at 4% (9,900) which is under the personal allowance.  If you'd planned to use ISA's to top this up, it's all tax free but you've still had the relief.

Monkeytennis

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Re: What to consider about UK taxes?
« Reply #8 on: July 30, 2017, 04:54:34 AM »
I think for almost all bands of UK tax payers are better off paying into their pension, I think there are several scenarios / case studies evidencing this.

Rightflyer

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Re: What to consider about UK taxes?
« Reply #9 on: July 30, 2017, 05:49:14 AM »
SIPPs are better for higher rate tax payers.  The benefit for lower rate payers is probably negligible.

I think that is too general a statement.

For instance:

A non-taxpayer can contribute 2880 GBP to a SIPP. The government puts in 720 GBP.

That's a guaranteed  25% return on your money... not really negligible in those terms.

Six is having problems adjusting to his clone status.

Playing with Fire UK

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Re: What to consider about UK taxes?
« Reply #10 on: July 30, 2017, 08:10:50 AM »
The only reason I now have a S&S ISA is that due to workplace circumstances I'm working more this year, which will put my occupational pension contribution and the corresponding employer's contribution up, and I may be flirting with the 40,000 annual limit. Otherwise I would just put the money in my SIPP.

But for money you want to access before your 50s for a purpose other than buying your first property, an ISA does look like a no-brainer at the moment.

Are you out of carry-forward as well?

TartanTallulah

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Re: What to consider about UK taxes?
« Reply #11 on: July 30, 2017, 08:54:53 AM »
The only reason I now have a S&S ISA is that due to workplace circumstances I'm working more this year, which will put my occupational pension contribution and the corresponding employer's contribution up, and I may be flirting with the 40,000 annual limit. Otherwise I would just put the money in my SIPP.

But for money you want to access before your 50s for a purpose other than buying your first property, an ISA does look like a no-brainer at the moment.

Are you out of carry-forward as well?

I'd be very surprised if I didn't have some carry-forward that I could use if I overshot the annual limit. I should find out the actual numbers from my old accounts and get on to it, shouldn't I? It would make sense to put as much as I can into my SIPP for the tax benefit since that's what I plan to live on between 55 and 60, at which point I can take my occupational pension without deductions.



Playing with Fire UK

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Re: What to consider about UK taxes?
« Reply #12 on: July 31, 2017, 12:52:30 AM »
The only reason I now have a S&S ISA is that due to workplace circumstances I'm working more this year, which will put my occupational pension contribution and the corresponding employer's contribution up, and I may be flirting with the 40,000 annual limit. Otherwise I would just put the money in my SIPP.

But for money you want to access before your 50s for a purpose other than buying your first property, an ISA does look like a no-brainer at the moment.

Are you out of carry-forward as well?

I'd be very surprised if I didn't have some carry-forward that I could use if I overshot the annual limit. I should find out the actual numbers from my old accounts and get on to it, shouldn't I? It would make sense to put as much as I can into my SIPP for the tax benefit since that's what I plan to live on between 55 and 60, at which point I can take my occupational pension without deductions.

Unless you might have big expenses / income reduction before our esteemed government allows you to access the SIPP I'd be maxing the SIPP as much as possible.

TartanTallulah

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Re: What to consider about UK taxes?
« Reply #13 on: July 31, 2017, 01:50:40 AM »
The only reason I now have a S&S ISA is that due to workplace circumstances I'm working more this year, which will put my occupational pension contribution and the corresponding employer's contribution up, and I may be flirting with the 40,000 annual limit. Otherwise I would just put the money in my SIPP.

But for money you want to access before your 50s for a purpose other than buying your first property, an ISA does look like a no-brainer at the moment.

Are you out of carry-forward as well?

I'd be very surprised if I didn't have some carry-forward that I could use if I overshot the annual limit. I should find out the actual numbers from my old accounts and get on to it, shouldn't I? It would make sense to put as much as I can into my SIPP for the tax benefit since that's what I plan to live on between 55 and 60, at which point I can take my occupational pension without deductions.

Unless you might have big expenses / income reduction before our esteemed government allows you to access the SIPP I'd be maxing the SIPP as much as possible.

I know you're right. I just need to get the numbers and do some simple sums.



poppydog

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Re: What to consider about UK taxes?
« Reply #14 on: July 31, 2017, 02:28:43 AM »
For long term savings, pension vehicles will always win because of the 25% tax free lump sum (or UFPLS) even if the saver remains a standard rate tax payer his/her whole life.  You give up the flexibility of an ISA of course, but there are other advantages of a SIPP (or other pension.)  These include inheritance tax avoidance; not being assessed for social security benefit eligibility; and of course the inability to dip into the funds until aged 55.

skip207

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Re: What to consider about UK taxes?
« Reply #15 on: July 31, 2017, 02:35:19 AM »
All of which can change on the whim of the man / woman at No 10.
I think that's our biggest risk in the UK right now to FIRE.

I hope to fire no matter what as most of my pre SIPP age income will be rental income.  However I am sure the tax position on that will change too at some point.
 

poppydog

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Re: What to consider about UK taxes?
« Reply #16 on: July 31, 2017, 03:54:55 AM »
All of which can change on the whim of the man / woman at No 10.
I think that's our biggest risk in the UK right now to FIRE.

I hope to fire no matter what as most of my pre SIPP age income will be rental income.  However I am sure the tax position on that will change too at some point.

Yes, that's undeniably true.  The government can change the rules on Pensions, ISAs, Taxes at any time.  All you can sensibly do though is plan with the current information I think.  Second guessing future possible changes isn't possible.

skip207

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Re: What to consider about UK taxes?
« Reply #17 on: July 31, 2017, 04:37:34 AM »
Indeed.   I think the risk reduces the closer you are to either SIPP / SP / FIRE etc.

Looks like we might miss the next major overhaul by a couple of years on our SIPP.  Depends how much money the govt find down the back of the sofa!

dreams_and_discoveries

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Re: What to consider about UK taxes?
« Reply #18 on: August 12, 2017, 10:23:08 AM »
All of which can change on the whim of the man / woman at No 10.
I think that's our biggest risk in the UK right now to FIRE.

I hope to fire no matter what as most of my pre SIPP age income will be rental income.  However I am sure the tax position on that will change too at some point.

I agree, but think Brexit will keep them so busy, there will hopefully be no time to tinker with pensions and tax too much - they can't have the policy and admin staff to support that much legislative changes.

ExitViaTheCashRamp

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Re: What to consider about UK taxes?
« Reply #19 on: August 13, 2017, 01:31:23 PM »
The one killer argument for me in pensions in general vs ISA is the benefits consideration in the early years.

Save 50k in your first few years at work. Recession hits, lose job, hard to find a new one.

ISA:  Most of your savings have to be eaten before the state is going to cough up
Pension: Everything safe and state coughs up straight away.

dreams_and_discoveries

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Re: What to consider about UK taxes?
« Reply #20 on: August 16, 2017, 02:37:07 PM »
And if I remember correctly, are you American Kwill?

As if so FATCA makes ISA's not very worthwhile for you, as the US still treats them as taxable, and requires citizens to pay US tax on them...

Kwill

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Re: What to consider about UK taxes?
« Reply #21 on: August 17, 2017, 01:48:46 PM »
And if I remember correctly, are you American Kwill?

As if so FATCA makes ISA's not very worthwhile for you, as the US still treats them as taxable, and requires citizens to pay US tax on them...

Yes, everything is super complicated for me. I'm sure I'll figure it out eventually. One thing is though that with either the foreign earned income exclusion or the tax treaties, the US will probably not end up taxing me much or at all on my UK income. A little bit of interest income isn't going to be enough to put me over the limits; I just need to be sure to report everything correctly.