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How to Potentially make £1000 p.a. under new Budget Proposals


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THIS IS NOT FINANCIAL ADVICE - ALWAYS SEEK INDEPENDENT QUALIFIED ADVICE BEFORE MAKING ANY INVESTMENTS.

 

I have played around with some numbers on a spreadsheet taking into account the proposed pension changes announced by Osborne in the recent budget.

 

There are some stackers that are possibly investing in metals because they feel it will be financially astute.

Some of you might have spare fiat earning nothing in the bank or under the bed.

Some might have a non-earning spouse at home or young children and would like to save for them so this might be worth taking further with qualified financial advisors.

Don't take my post here as 100% correct - it might be - but I am not liable if I have got it wrong.

 

For this example I assume you are a non-earner and pay little to no tax.

 

1. Open a SIPP before April 5 ( to qualify for this tax year ) - it is free of charge.
I suggest www.h-l.co.uk

 

2. Deposit £2,880 and the government will add £720 making your investment £3,660

 

3. Deposit £2,880 again after April 6th - anytime in the new tax year to April 2015

 

4. Convert your cash into UK Equities, High Dividend Yielding with dividends automatically re-invested.
Use the HL on-line method as easy and very efficient.
Select a fund(s) from their Wealth 150 recommendations.

 

5. Repeat this process for the next 6 years or until your portfolio has reached £30,000 in value.
Assuming a pessimistic growth rate of only 4.5% you will have £30k in 2020

 

6. Take the full £30k as a cash lump sum. ( does not apply to children or anyone not aged 55+ )
The first 25% is tax free and the balance subject to your marginal tax rate - 20% currently
Assuming your personal allowance is £10,500 that means you will pay £2,400 tax only, leaving £27,600 in your hand.

 

This means that by feeding your SIPP £2,880 per annum for about 7 years you will gain £7,440 at least for a total investment from your cash of £20,160. Put another way for each year you invest £2,880 of your money you gain £1,000 after tax so a return some might say of 34%.

 

However, as with any investment you must be aware of all the risks and if stock markets/ funds etc collapse then you could loose a lot of money but this is true for stacking silver.

 

I posted this to share some thoughts in the hope some of you might benefit or give it some thought.
As my wife is a non taxpayer I am definitely going ahead this weekend.

The reason for suggesting starting now is that we are ending the tax year 2013/14 and you can make a start in this tax year otherwise loose out and start in the new tax year a few days later.

 

Once again - as I am not a qualified financial person I take no responsibility whatsoever for the content in this post and recommend you do your own research before making any decisions.

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The only thing I dislike about this plan is converting cash to UK equities.

Given the fact we are overdue for a depression, if we were to go into a deep recession or depression within the next 6 years, the portfolio would loose a lot of it's value.

My posts are my personal opinions, they do not constitute advice or financial advice.

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Very interesting Pete,I went down a different route, for the last 30 years or so I have been interested and invested in equities always making my own decisions, brokers often have vested interests which do not necessarily coincide with yours.

 

I have taken advantage of ISAS and have invested the maximum each year and reinvested the dividends back into it up until about 2 years ago. Most of my heavyweight shares pay dividends quarterly which is very useful.

 

The thing I like about ISAS they are very flexible and you have total control and are tax free when you cash them in and can withdraw funds anytime you wish, the only draw back is if you say withdraw 50K you cannot put it back, you can only put the current years allowance in . So you have to think carefully if you make a big withdrawal as you lose your tax free status.

 

One more plus point re ISAS you do not have to put them on your tax return so it saves you paperwork.

 

I AM NOT OFFERING ANY ADVICE TO ANYONE ON HERE THESE ARE MY OWN CIRCUMSTANCES, AS ALWAYS DYOR

The problem with common sense is, its not that common.

 

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Just for clarification - if you convert your cash into equities you are in full control of choice, timing etc. and can switch funds at any time.

ISAs are great and you can buy exactly the same funds but the SIPP route adds a chunk of free cash by way of tax relief. If you don't even pay tax, the state adds it as if you were so giving you something for nothing. The SIPP will grow tax free like the ISA and my suggestion was to feed the SIPP to get the free top-ups every year until you decided you wanted to take the cash. With the new budget proposals you will be able to take all the cash as long as the value of your pot is £30,000 or less. If you bought the same funds in your ISA you would not have gained from the tax relief. If you can do both then even better. The only caveat on the SIPP is you must be 55 or older to make the withdrawal and possibly 60 to take the full £30k - not sure ?

Please ensure you take professional advice prior to making any investments as comments made on this forum are for suggestions only and cannot be construed as offering financial advice.

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  • 2 weeks later...

So Pete what you are saying, if you are younger than 49 adjust the amount you put in to arrive at the £30,000 when you are 55.

 

 Also another point people have to keep in mind is the employment status of the country will over the years get worse.  People are working less hours for less pay and relying on Gov handouts now (tax credits). My friend a bank worker lost his job, went through all of his savings and ended up working for Tesco (16 hours a week) only after being on DWP for 4 weeks.   So in 10 - 15 years wages will probably be lower again leaving more of the working population not being able to look after themselves eg housing, food and bills let alone afford to invest for pensions.   

 

If you have good employment prospects SIPP's and ISAS's are a really good way to go.   

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  • 11 months later...

ISA's fall under the Bail-In regulations so you will become last in the queue of creditors. Be sure to have that exit strategy out of them just in case. But short term they are very good. Negative interest rate potential should also be watched, ISA's aren't taxable.

Negative interest rates perform the same solution as taxation but without the label of tax. Keep an eye on that over the coming years. This applies to all savings so think about that as a just in case thought process. ISA's perform a great job currently.

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With pension freedom day looming, for anyone aged 55 or over you will be able to take all of your pension pot as you choose.

If you don't have a pension or perhaps your spouse is not earning, open a SIPP and get the generous tax benefit added. Keep your SIPP in cash if you don't want to risk equities but at the end of the day this is free cash that beats the best savings rates many times over. I believe it is possible in some SIPPs to hold silver & gold so you would also get tax relief added to your stack but maybe the provider of such a SIPP has charges - I have not investigated as it is of no interest to me. Just food for thought in these times of low interest rates.

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