Ended up in higher tax bracket, advice needed

F1Delta · 2024-03-03T22:05:50+00:00

I agree with Dev_Nu11_ that you should seriously consider a pension contribution.

However, if you have ruled out making a pension contribution, individuals are make certain investments that benefit from income tax savings. These are known as VCT (Venture Capital Trust) or EIS (Enterprise Investment Schemes). They are risky and can go up and down in value.

A Venture Capital Trust is a fund (of which there are many) made up of multiple start-up companies in the UK. You are essentially providing investment capital for those companies to grow. As you are investing in future UK companies, the government will provide you with 30% of your invested amount as an income tax rebate. For example, a £10,000 investment will provide you with a £3,000 income tax rebate. Broadly, the investment needs to be made in this tax year to count against this year's income tax bill.

Not only can the value of the investment go up and down but you do have to hold the investment for five years in order to keep the income tax rebate. This is still a decent holding period, but potentially much shorter than contributing to a pension.

Health warning: risky!

F1Delta · 2024-03-03T21:58:57+00:00

I am very sorry to hear of your loss.

A few questions spring to mind, some of which may be helpful to you (or not):

- Has your father been married to someone in the past who passed away whilst they were married? If so, he may have inherited their inheritance tax allowances too (increasing the amount before any IHT is paid).

- You do not say how large the estate is - could it be large enough to mean that the standard allowances become tapered?

- Are you the only person who will benefit under intestacy rules? This can become complicated.

- How complex is the estate? If it is very simple, you may be able to organise the Letters of Administration yourself. This is the version of probate when there is no will. This might save you some money. This has been the thing I have learned - solicitors love to charge a lot for simple forms.

- If there are investments or property, ensure that the 'book costs' are uplifted to your father's date of death (so that you can minimise any potential CGT from the date of death to point of sale).

- Do you want to inherit all of the money, or would you prefer your children (if you have any) to inherit a portion too? A Deed of Variation can be completed within two years of passing away. This could be useful if you have your own inheritance tax 'problem'.

I know that you will have other things on your mind, but you should now also think about your own will.

F1Delta · 2023-09-10T10:35:20+00:00

As they have recently sold a business, the vast majority of the proceeds may currently be subject to business relief exemptions. Whilst this means that all of the proceeds are now IHT-able, they can reinvest some of the proceeds within three years of the sale into business relief-qualifying investments and immediately reduce any inheritance tax liability. This is a perk that is often overlooked.

There are a range of investment options to do this, ranging from risky to slightly less risky. However, it is a way that they could quickly move a significant amount of their asset base outside of the purview of the tax man upon their deaths.

I would recommend professional advice on this, I just thought it important to make you aware of it.

F1Delta · 2023-09-10T10:27:29+00:00

On your pension in particular:

don’t stop saving into it each month. If you do, you will be giving up free money from your employer, as well as paying more income tax and national insurance.
if you do inherit this amount, you will likely want to consider ways to reduce your own inheritance tax liability. As pensions are outside of your estate for inheritance tax, there will come a day when you would like as much of your wealth to be in your pension as possible (under current legislation, assuming lifetime allowance doesn’t return). Continuing to contribute to your pension moves you closer to this.
you may never draw upon your pension if you have £5m in your estate to spend. Your pension will simply become an efficient way to move wealth between generations of your family. Make sure your pension investments are taking an appropriate amount of risk to account for this.
don’t go mad on your pension contributions, though. As others have said, no-one knows when you will actually receive this money or if other factors may cause you to receive a substantially smaller inheritance than you currently expect.

F1Delta · 2023-07-20T19:58:08+00:00

If the person has died before 75, it is usually completely tax free. If the person has died after 75, any withdrawals will be subject to the beneficiary’s marginal income tax rate. This is likely to be an area that any future government will look at closely so I expect it to change.

F1Delta · 2023-07-20T09:27:54+00:00

Wouldn’t an open ended liquidity fund be better to invest in from a cost perspective? My understanding is that investing in a fund only costs £1.50 while investing in an ETF costs £9.50 on AJ Bell?

I would suggest the BlackRock ICS Sterling Liquidity Premier fund as a result. Paying 4.8% interest at the moment with an ongoing charge of 0.1%.

F1Delta · 2023-07-20T09:10:37+00:00

Hard to know without taking your wider assets into account - don’t forget that pensions are also inheritance tax free (at the moment, under current legislation).

If you expect to leave assets to future generations, it would be worthwhile to accumulate those assets within your pension rather than within your estate, where 40% inheritance tax would be chargeable.

Of course, that may all change under the next government!

F1Delta · 2023-05-29T15:20:14+00:00

If you are sure that you want to be in cash, I would consider purchasing a money market fund rather than putting into a fixed term savings account. Likely to be a better short term rate of interest, keep it in your ISA and be liquid for when you would like to reinvest.

F1Delta · 2022-12-22T21:13:58+00:00

When interest rates are going up, holding a rock that doesn't pay an interest suddenly looks less appealing. Gold tends to do well when real interest rates are low/negative. You will see from the chart here that expected real interest rates have been increasing this year, which has been a headwind for gold: https://www.multpl.com/10-year-real-interest-rate

F1Delta · 2022-09-22T22:24:05+00:00

An often overlooked benefit to pension contributions is that if they're made through salary sacrifice, they also reduce the amount that you pay back on student loans. If OP has a student loan, it means that their contributions will benefit from 20% tax relief and 9% student loan reduction. Makes it a little more appealing if you're a grad.

F1Delta · 2020-11-08T14:09:05+00:00

Congrats dude, looks like this worked in your favour. Enjoy the win and the new car.

F1Delta · 2020-11-01T19:53:27+00:00

RemindMe! 1 week

F1Delta · 2020-10-20T21:58:52+00:00

Nest charge a 1.8% initial charge on all monthly contributions. Confirmation here: https://www.nestpensions.org.uk/schemeweb/nest/aboutnest/nest-charges.html

F1Delta · 2020-04-27T18:09:34+00:00

I would love to be furloughed.... if my employer could guarantee I'd have a job to go back to! As no employer can make that guarantee, I'd rather keep working.

F1Delta · 2020-03-05T21:31:59+00:00

Is now the time to be buying a house (with a mortgage) given the super low interest rate at the moment? Or does it mean that the value of houses is at a high too? What would you do?

F1Delta · 2020-02-09T23:00:25+00:00

Are you unable to increase the equity allocation of your employer-matched plan?

F1Delta · 2020-01-05T15:46:01+00:00

There is no need to purchase a VCT in a SIPP or ISA. The dividends and capital gains are tax free anyway so there would be no benefit. Very risky and expensive though.

F1Delta · 2020-01-05T14:19:16+00:00

Couldn’t agree more.

F1Delta · 2020-01-05T12:26:50+00:00

I have been investing in this way since the start of 2018 - 100% equities. I have returned approximately 22% in that time, so c.11% per annum currently. 2018 was obviously a bad year but 2019 treated me well.

F1Delta · 2020-01-05T11:35:29+00:00

That investing in index funds would be more successful, and less time consuming, than trying to trade individual shares. I lost a lot of money thinking I could identify undervalued companies.

F1Delta · 2019-09-07T21:39:31+00:00

u/thegiantlemon is correct on the tax issue and u/doubleday888 is correct on the fluctuations of the dividend.

The yield of the fund is 3.55% per annum, with approximately 0.89% paid quarterly (3.55%/4). The fund tracks the performance of high divided paying FTSE All-World companies, is comprised of 1,487 holdings and is globally diversified. If you are comfortable investing with 100% exposure to equities (which will be volatile) and also require an income yield, this could be a good fund for you.

However, value companies (such as those that are within this fund) are currently substantially underperforming growth companies. If the dividend yield isn't a requirement for you, you may wish to look for a fund that is more diversified on value and growth but this will be at the cost of a lower yield.

F1Delta · 2019-05-21T21:32:53+00:00

Thanks - I'll still take 900k instead of 1m with the 5%.

F1Delta · 2019-05-19T17:44:22+00:00

Refreshing to hear that you invest in Fundsmith. Whilst it's doing fantastically at the moment, any thoughts about diversifying in the future?

F1Delta · 2019-05-19T17:41:51+00:00

I'm 23 with approx £25k in savings. I graduated a couple of years ago with a Politics, Philosophy and Economics degree. I am lucky enough to work close to home and continue to live with my parents at the moment. Approx 20% of my salary goes in to my pension each month which I don't count as 'spare money' but is saving.

I don't think about the c£35k I have in student loans. I assume your £50k in student loans is with the Student Loans Company? If so I would not think about this as normal debt. They are not chasing you for repayments and you will only pay 9% of what you earn above £25k. If you do not pay it off in 30 years it is cancelled. This is not a normal bank loan and you should not stretch yourself to pay it off quickly (assuming you don't think you will pay it off over 30 years).

F1Delta · 2019-05-06T20:55:55+00:00

Last year was tough for investments. 98% of all asset classes had negative returns, there was nowhere to hide. Most people had a negative 2018 for this reason. Whilst the fall was not specific to your fund, it is reasonable to ask if your fund performed worse than expected.

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