Author Topic: Help moving money from GIA to SIPPs  (Read 7424 times)

shanghaiMMM

  • Stubble
  • **
  • Posts: 189
Help moving money from GIA to SIPPs
« on: July 19, 2021, 04:17:19 AM »
Hi all,

Sorry in advance if this is a straightforward case, but I've just moved back to the UK and I'm not 100% up to speed on the best practices for UK investing. In short, my investments aren't tax optimised. I started investing while I was overseas, so couldn't access SIPPs and now my accounts aren't particularly tax-optimised.

I have moved some money over to ISAs already and will continue to do so each year. Now I'm settling down in the UK and hopefully FIREing here, I need to sort my accounts out. My funds (mainly Vanguard LifeStrategy), for a solid 6 figure NW, are split roughly:

General investment account: 74%
ISA: 20%
Cash: 6%



Cash is higher than usual as I'm moving house soon.

I will be starting full-time work again soon as a teacher. I will be contributing to the teacher pension.

What's my best course of action here? I'm 34 if that helps.

1) Slowly sell from GIA and fund ISA each year
2) Slowly sell from GIA and fund SIPP each year
3) Combination of above?
4) Something else I've not thought of?

Thanks in advance all!




Playing with Fire UK

  • Magnum Stache
  • ******
  • Posts: 3449
Re: Help moving money from GIA to SIPPs
« Reply #1 on: July 19, 2021, 06:55:57 AM »
Hello there! Welcome back!

Some general thoughts and links in no particular order:

Yes, move as much as you can from the GIA into the ISA each year.

You know that you absolutely cannot access the SIPP before you are 57, possibly rising to 58 or higher, yes? Do you have a target age for FIRE? Some thoughts on balancing the SIPP and ISA/GIA in this excellent series. This is not straightforward. You'll be limited to your earned income in the year (or a token amount if you don't have earned income) and limited to £40k per year total pension contributions even if your income is higher. If you have income that is exposed to the higher rate tax bracket this is more efficient to put into the SIPP.

GIA's still have some tax allowances: you have a dividend allowance of £2k and a capital gains allowance of £12.3k per year. You can sell and buy to defuse capital gains within certain limits. I'm unsure what complexity exists with capital gains when you've accumulated some of the gains when overseas. Check this out before selling more from the GIA.

Have you checked out your eligibility for a Lifetime ISA? If you've never owned a home and want to buy a home in the UK they are a great choice and are a decent choice in some other circumstances.

shanghaiMMM

  • Stubble
  • **
  • Posts: 189
Re: Help moving money from GIA to SIPPs
« Reply #2 on: July 20, 2021, 02:43:14 AM »
Hello Playing with Fire,

Thanks for the welcome and for the help!

re: LISA - I opened on last year upon my return as I will indeed want to buy in the not-so-distant future.

re: SIPPS - yes I was aware they're locked until 57/58. But that series looks to be very helpful in getting the correct mix of ISA / SIPP / GIA, thanks.

Additional question: After my teacher pension contributions, I don't envisage that I'll have too much leftover to invest. Maybe a few hundred a month. So can I use my teacher salary (c. £37,000) and put that amount into a SIPP? Even though the money I'd put into the SIPP didn't come from my salary, rather from my GIA.

So for example next financial year, I could:
1) move £20k from my GIA to an ISA
2) move £37k out from my GIA into a SIPP
3) Continue to fund a LISA if necessary?

Cheers!

Playing with Fire UK

  • Magnum Stache
  • ******
  • Posts: 3449
Re: Help moving money from GIA to SIPPs
« Reply #3 on: July 20, 2021, 05:03:33 AM »
You'll be limited to something less than £37k: the government will add back 20% tax (which is a 25% uplift on your contributions) and it's the total amount that goes into all pensions that is measured against your gross salary. HL have a reasonable explanation and calculator. But yes, the money that goes into you SIPP can come from your GIA and doesn't need to be the same money that comes from salary.

The other thing to consider is: if it's possible that you'll hit the higher tax band before FIRE (just over £50k at the moment), it's more tax efficient to contribute salary that has been taxed at the higher rate than 20% or 0%.

shanghaiMMM

  • Stubble
  • **
  • Posts: 189
Re: Help moving money from GIA to SIPPs
« Reply #4 on: July 22, 2021, 02:45:53 AM »

 Some thoughts on balancing the SIPP and ISA/GIA in this excellent series.


Just read all 6 parts of this series in one go and it is indeed excellent! And not straightforward as you said. I'm building a spreadsheet to try and replicate theirs as we speak.

Thanks again PWF, I may well return with follow up questions once I've processed the information further!

PhilB

  • Walrus Stache
  • *******
  • Posts: 5705
Re: Help moving money from GIA to SIPPs
« Reply #5 on: July 27, 2021, 04:33:29 AM »
There's an added complication that the teacher's pension scheme will use up a chunk of your £40k annual allowance each year - more than just the amount you contribute personally.  The amount used up will be the amount of pension rights you accrue in the year x 16 so if you are on £37k in a 1/57th CARE scheme that works out to roughly £10.4k of your £40k annual allowance.

Fortunately the teachers' pension uses the same basis for inflationary calculations as the Annual allowance calculation does (CPI at the preceding September) so at least you don't need to worry about that!

shanghaiMMM

  • Stubble
  • **
  • Posts: 189
Re: Help moving money from GIA to SIPPs
« Reply #6 on: July 29, 2021, 03:46:47 AM »
Hi Phil,

Yes, I was wondering that myself. Thanks for confirming!

These are my calculations, are they correct?:

Personal Teacher pension contributions at 8.6%: £3178
Pension match: £10,385
Total: £13,563

So my potential rough annual shift from GIA to pensions/ISA:

GIA -> ISA: £20,000 (as long as Cap Gains isn't an issue)
GIA -> SIPPs: potentially £20,800 (this +20% = £26,000, so + £13,563 = £39,563, just within the £40,000 limit)

EDITED - first example exceeded £40k!


Any leftovers from my actual salary would probably be put into a GIA. (Not my wife's ISA unfortunately, as I believe ISAs are 'look-through' for Americans and US tax purposes).


 
« Last Edit: July 29, 2021, 04:01:04 AM by shanghaiMMM »

PhilB

  • Walrus Stache
  • *******
  • Posts: 5705
Re: Help moving money from GIA to SIPPs
« Reply #7 on: July 29, 2021, 06:12:08 AM »
The Teachers' Pension scheme is Defined Benefit rather than Defined Contribution so the concept of Pension Match doesn't really exist.  You pay what you pay and the employer puts in whatever the actuary says is needed, over and above your personal contributions, to meet the pension promises.  As such the actual contributions that the employer or you makes in any one year are irrelevant for annual allowance purposes, all that matters is the amount of accrued pension rights that you have earned.

You need to ignore both the employer's contributions AND your personal contributions and just look at the extra pension you earned in the year which is 1/57 of your pensionable salary.  Take that number and multiply it by 16 to give the amount of annual allowance you have used:

£37,000 / 57  x 16  = £10,385.96

You can therefore potentially contribute £40,000 - £10,386 = £29,614 gross  / £23,691 net to a SIPP without breaching the Annual Allowance and as that plus your personal contributions to the scheme add up to less than your £37k pensionable salary you pass that test too.

Have you worked in the UK before?  If so are you a member of an existing UK pension scheme?  That might allow you to contribute all of your salary, net of existing contributions, using the carry forward rules.

shanghaiMMM

  • Stubble
  • **
  • Posts: 189
Re: Help moving money from GIA to SIPPs
« Reply #8 on: July 29, 2021, 06:23:09 AM »
OK, I'm with you. Thanks.

I contributed to the teacher pension for 1 year back in 2012 before I moved abroad. I will look into the carry forward rules, I've not heard of that before (as you probably guessed!)

PhilB

  • Walrus Stache
  • *******
  • Posts: 5705
Re: Help moving money from GIA to SIPPs
« Reply #9 on: July 29, 2021, 06:46:32 AM »
That helps.  As you were a member of a UK pension scheme for the years in question, you are allowed to carry forward unused annual allowance from the preceding three years.  As the limit to what you can contribute is the lower of annual allowance and pensionable income that means that for the first three tax years that you are back here earning you can contribute your whole pensionable earnings into a pension scheme - £3,178 into the teachers pension and the rest (gross) into a SIPP.

shanghaiMMM

  • Stubble
  • **
  • Posts: 189
Re: Help moving money from GIA to SIPPs
« Reply #10 on: November 23, 2021, 12:07:04 AM »
Hi again,

Sorry to drag up an old thread. I've started contributing to my SIPP, thanks to the help in here.

I have a question which is probably very basic. But, as my investments in my GIA are already post-tax, is it still worthwhile moving them into SIPPs? As I've already paid the tax on the money, and I'll have to pay tax again when I withdraw at 57 (or whatever age it will be).

Is the benefit (aside from the government 25% uplift) that the money can grow in there without the worry of capital gains?

Thanks, and sorry again if this is a very obvious question!

PhilB

  • Walrus Stache
  • *******
  • Posts: 5705
Re: Help moving money from GIA to SIPPs
« Reply #11 on: November 23, 2021, 01:27:15 AM »
On the assumption that you will have no unused personal allowance in retirement, your options are:

GIA:
All income beyond the dividend allowance (currently £2k pa) taxable.  Capital gains taxable above the allowance (£12.3k pa) when realised.

ISA:
No tax to pay at any point.  Can contribute £20k pa.

SIPP:
£80 going in gets boosted to £100 by govt.  No tax payable whilst within the SIPP.  75% taxed on withdrawal (currently 20%), 25% tax free.  So your £80 becomes £85 and effectively grows tax free.

Basically you end up 6.25% better off using the SIPP vs the ISA, at a cost of locking the money away until 57.

« Last Edit: November 24, 2021, 01:46:19 PM by PhilB »

shanghaiMMM

  • Stubble
  • **
  • Posts: 189
Re: Help moving money from GIA to SIPPs
« Reply #12 on: November 24, 2021, 11:54:51 AM »
Thanks again Phil, I was thinking it was something along those lines.

Now to re-read the Monevator series and figure out my ISA vs SIPP pots!

 

Wow, a phone plan for fifteen bucks!