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sarahbell

The 80k man

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5 minutes ago, Frank Hovis said:

Fair point but VCTs also do this for your current earnings so if you don't want much in them you can start now and start recycling them; in my example above that means £60k in VCTs as five years' worth.

Pension is also only one part of funding your retirement: you have investments, a house.  You can draw on those (albeit via equity release or downsizing for a house) to fund that £60k.

When you go it's not going to make any difference if you have a charge free house or one with a £60k charge upon it and £60k of VCTs.

I was actually looking personally at doing something more radical - big SIPP withdrawals offset by VCTs so that everything bar actual pensions become classed as investment holdings which I can just spend.

That's for some way down the line though as I intend retiring early next year which will leave me with a five year wait before I can touch the SIPP.

For sure, i've all sorts of assets.  

At 46 planning to FIRE at 50 and pull pensions from 58.  I have a gap 50 - 58.  
5 year VCTs whilst i'm still paying 40% look like something i should be paying attention to. 

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1 minute ago, feed said:

For sure, i've all sorts of assets.  

At 46 planning to FIRE at 50 and pull pensions from 58.  I have a gap 50 - 58.  
5 year VCTs whilst i'm still paying 40% look like something i should be paying attention to. 

Couple of flags then for VCTs where they differ to normal shares:

Dividends are tax free and don't even require declaring on your tax return

Unlike ordinary shares VCTs tend to go down in value because they are "eating themself"; this is because as well as paying a standard income dividend of about 2% they also pay big special dividends when they sell individual investments, so returning the money to you rather than holding onto it and reinvesting it.

Their model is to return money to investors via dividends and then do new issues, typically one a year, to meet investor demand for tax saving.

This is their own version of the recycling I referred to above: they give you a chunk of your capital back tax free then you give it back to them and claim more tax relief.

I've done much better with them than normal shareholdings but you have to be clear that your return over your original investment is all of: tax back + cumulative dividends + share price; rather than just looking at the share price as you would with a Blue Chip.

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1 minute ago, sleepwello'nights said:

I've been exploring VCTs. how have you found the providers you deal with. I've done a few broad internet searches but would welcome your thoughts and experiences of the providers you've dealt with. 

I went with a couple of firms recommended in the Telegraph way back when Gordon upped the tax relief rate to 40% (now down to 30%) and it caught my eye.

I've stuck with them ever since as I've had excellent returns but as my research is now about twenty years old I would very much suggest that you DYOR as there could well be better managers out there; I maybe ought to do the same.

I'm not being coy and will PM you the names if you want them but I don't want to post them as my research on VCT managers is twenty years' out of date so I don't want anyone here relying upon it!

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So if I have understood it correctly then someone with a SIPP of £1m could take it all out over a period of time and pay £0 tax. I have included a screen shot, the columns in bold are the the key ones.

Over 10 years you use up all of the SIPP tax free cash, but after year 5 then the VCTs then become available tax free for reinvestment until at about year 15 the SIPP is empty.

Are my assumptions correct ?

 

 

image.thumb.png.460b77af951f33a47facce34b4d7be31.png

 

 

 

 

Edited by Bornagain

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3 minutes ago, Bornagain said:

So if I have understood it correctly then someone with a SIPP of £1m could take it all out over a period of time and pay £0 tax. I have included a screen shot, the columns in bold are the the key ones.

Over 10 years you use up all of the SIPP tax free cash, but after year 5 then the VCTs then become available tax free for reinvestment until at about year 15 the SIPP is empty.

Are my assumptions correct ?

That's definitely how I see it.

There are rules about how much you can take out of a SIPP but IIRC if you have £12k of guaranteed income you can start pulling lumps out as it means you won't leave yourself short.

My motivation is, having had the tax relief on the way in, to not repay it on the way out and also to get the money out of a investment in which the government tends to interfere.

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12 hours ago, whitevanman said:

Petrol, cigs and booze are quite inelastic and also very highly taxed! There still comes a point where increasing taxes reduces revenue i.e. people get smaller cars, smoke polish cigs and start brewing their own. I'm quite sure the Treasury sets duties in order to maximise its income. Government is in the business of increasing its reach and power. Most of the differences between the parties is in spending rather than taxation. Even then the difference is slight.

Not as demand inelastic as food, which is mostly untaxed, and at worst VAT plus the sugar tax. 

Do all governments seek to maximise their reach and revenues? If so, how do we explain the difference in govt size, spending and revenues across countires. Even within the OECD there are some stark contrasts. Or is it a peculiarity of the British Government? 

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8 minutes ago, Frank Hovis said:

That's definitely how I see it.

There are rules about how much you can take out of a SIPP but IIRC if you have £12k of guaranteed income you can start pulling lumps out as it means you won't leave yourself short.

My motivation is, having had the tax relief on the way in, to not repay it on the way out and also to get the money out of a investment in which the government tends to interfere.

Thanks, I now have a plan.

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8 hours ago, Libspero said:

Hence my previous post suggesting a transaction tax (which was the only sensible way I could see of fulfilling an end goal of making sure nobody could benefit from unearned free gifts while not over complicating the tax system required to implement it)..I thought it might appeal to your overall philosophy.

It is simple, but at 20% it would cripple big ticket transactions but overall it probably could work especially as we move increasingly electronic. I like the simplicity but while it would be a great thing to simplify the tax system to the extent you didn't need to be borderline autistic to pass the CTA my overall gripe is with the scale of the unearned wealth transfer with inheritance and the perpetuity of growing inequality. I'm no communist but inequality leads to all kinds of problems. Some inequality is good but there comes a point when it becomes harmful. 

A transaction tax (the Tobin Tax) was proposed fairly recently by the Labour party but it caused significant umbridge in the Finance sector IIFC. 

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14 minutes ago, Adarmo said:

Not as demand inelastic as food, which is mostly untaxed, and at worst VAT plus the sugar tax. 

Do all governments seek to maximise their reach and revenues? If so, how do we explain the difference in govt size, spending and revenues across countires. Even within the OECD there are some stark contrasts. Or is it a peculiarity of the British Government? 

Seems to be a feature of snowflake countries like the skandies, UK, Germany, France

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8 hours ago, Libspero said:

I’m not sure..  I think it would be a huge disincentive to earn.

As a practical example,  if I know I will be taxed 40% on my earnings, and then the same (or more) on what I leave to my kids,  it suddenly becomes pretty pointless to pass on any wealth..  better to just increase the rate of gifts while alive and then just stop working.

Why would you work past 50 (or 30) if you couldn’t pass your wealth on?  Better to sell the house early, go on a few foreign holidays..  then if you live to a ripe old age just throw yourself at the mercy of the benefit system.   In practical terms if you could force people to stay in the country you would probably just reduce productivity. And probably quite significantly.  Certainly,  and it could just be me, but if I was told I would be taxed a large sum to gift any inheritance to my kids, I would simply leave the country.  Not because my kids are likely to inherit a huge sum (they won’t) but because it just doesn’t feel like a system I would want to be part of.. it feels very oppressive.  

It could be my personal view is massively at odds with those of other parents.. but my guess is that passing wealth from parent to sibling is a very strong protective natural instinct and interfering with that may not be a huge political vote winner.

It would more likely be a disincentive (if any) to gather unearned gains. I think we could agree that by far the cost valuable component of inheritance is a property. Most of the gains there were unearned in the first instance and completely untaxed. Think of this another way, if you believe that tax disincentivises  earnings then would it not be better to tax earned income lower so that people are incentivised to maximise their earnings? 

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5 hours ago, spunko said:

Indeed, if tax on cigs was not relevant then half of all cigarettes smoked in this country would not be imports. 

 

I'm not saying it is not relevant, it is as you clearly state. People drive around on red diesel, people make their own booze and buy dodgy Polish smokes etc etc. Smuggling has existed as long as their have been import duties and taxes. But the fact remains that all governments do not seek  to maximise their revenues.

What you and White Van Man are talking about with respect to the inflection point of higher taxes and lower revenue is the Laffer Curve. It's an intersting theory but the empirical evidence is somewhat mixed. 

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11 hours ago, dgul said:

I'll simplify the original example.  

Bill owns company which has built up a cash reserve of exactly £1m for his retirement.  He's at the point of retirement and he is the company -- say, he's an actor or something, and the company was just a payments vehicle.

So, Bill creates a new company and lends it £1m (he's not got this yet*, but he will have soon as its the money he'll make from selling his company).  That company then immediately buys the original company for £1m (its value as that is how much cash it has, even though ongoing earnings will be nill), and gives the £1m to the now ex-owner*.  New company immediately consolidates the original company into it.  So, what you've now got is:

  • Original company -- effectively ceased to exist
  • New company -- £1m in cash.  No operational income.  £1m in debt to Bill.
  • Bill -- no new cash, but 'owns' a loan to new company of £1m.

Bill wants to be paid back, so New Company repays him £50k per year for 20 years.  Because it is a loan repayment, there's no tax to pay.

At the 20 year point New Company has no assets or income and is wound up.

There has been tax paid -- the GCT for the original sale -- which is £100k.  Bill had to find that from somewhere.  But that's an overall tax rate of 10% in the end.  If he'd just kept original company dormant, he'd have to pay dividend tax on the payments (beyond tax free rates, etc) -- That'll be more than the 10%.

[* Where does this money come from?  He can't lend it to the new-company to buy original-company, because he's not been paid yet.  I guess the presumption is that he gets a bridging loan, or remortgages the mansion or something.   Or maybe could be 'just done' with a clever solicitor/accountant]

[

A director can just loan the company money at a whim. I can extend a line of credit to you to buy my company and you repay me over time provided we're both happy with that. You don't need the cash for the loan. 

However, in your example you are evading tax since there is already cash in the business and it forms probably all of the balance sheet (if he's an actor). The example I provided is essentially to generate a future cashflow suffering a lower rate of tax from future revenues. 

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4 hours ago, Libspero said:

What I don’t understand is Bill can’t just liquidate/wind-up the original company,  pay £100k CGT (or whatever is owed) then pocket the cash.  Why the added complexity?

I’m sure there’s a good reason..  what stops him doing it?

Because there is only a CGT with Ent.Rel if the company is sold, and if the case is that you're selling a company with £1m in cash in it for £1m it's sort of obvious you're doing it to evade tax which would be very illegal. 

However, if you sell one company to another and the value is based on something other than the value of cash sitting on the balance sheet and you stick to the rules/spirit of the tax code you'd be ok. 

They make the rules to stop people doing just that. They make it complex because accountants go on secondment to HMRC and the Treasury and advise on tax strategy and then they come back into their firms an expert in this area and charge out at £400/hour. 

Personally I hate this set up. There are some fantastically bright people working in tax and legal consultancies effectively doing nothing other than minimising a tax liability. These guys could literally be curing cancer or building fusion reactors or figuring out how to stop odd socks coming out of washing machines. 

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2 hours ago, ILikeCake said:

Over the last few years there has been a massive push on mental health & well being mostly driven by the HSE but it's just box ticking bullshit.  They mainly recommend that you take time to relax, eat healthy and exercise etc but you just don't have the time to do it.  We have posters up everywhere and they just boil my piss.

Ha, yes, we have this where I work. The line is always that poor mental health/wellbeing is the employee's fault, they just didn't manage their time and energy well enough and should have done some mindfulness exercises. The relentless pressure from management to go faster faster faster is never to blame.

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4 hours ago, AlfredTheLittle said:

He can, the original example is just nonsense

You can if you liquidate one company via a Members Voluntary Liquidation. But be very careful.You cannot wind up 2019 Ltd and open 2020 Ltd doing exactly the same thing. You should only consider MVL if you do not intend to carry out any similar trading via a Limited company for a significant period of time. This cannot be used as an avoidance strategy. 

https://www.icaew.com/technical/tax/tax-faculty/taxline/taxline-2019/july-2019/1-company-distributions-in-a-winding-up

The relevant legislation is at s396B and s404A, ITTOIA 2005. It is a targeted anti-avoidance rule (TAAR), which treats distributions made to an individual in respect of share capital in the winding up of a UK resident company as a distribution subject to income tax, rather than subject to capital gains tax, if four conditions are met. Paraphrasing, the conditions are:

Condition A – the individual has at least a 5% interest in the company immediately before the winding up.

Condition B – the company is, or was, at any time in the two years up to the start of the winding up, a close company.

Condition C – at any time in the two years from the date on which the distribution is made the individual, or a partnership or company in which they are involved or a connected person, directly or indirectly, carries on a trade or activity which is the same as, or similar to, that carried on by the company or an effective 51% subsidiary of the company.

Condition D – it is reasonable to assume, having regard to all the circumstances, that the main purpose or one of the main purposes of the winding up is, or forms part of arrangements that are, the avoidance or reduction of an income tax charge.

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3 hours ago, Libspero said:

Yep SIPP seems like a no brainer to me. 

Yes,  there is a risk the rules could change,  but most people who pay in are in the 40% tax band.. it is unlikely you will ever be taxed more than that so it is at worst a zero sum game. 

The age you can access it could get moved back..  but you can always save into an ISA to act as a buffer if you want to retire earlier. 

The government keep talking about stopping people paying as much into SIPPs so they must be worried it's a good deal. 

Why do you think Boris wants to raise the higher tax backet?  because he will raise NI with it so the tax take stays the same/similar while stopping people getting huge tax savings by paying into a SIPP.  He's not being generous you know ;)

Fair points, and also the govt is bothered about having this situation as cashflow negative for them. They';d rather a retirement ISA since no tax relief at source but the tax relief comes later. Another way of robbing the future I guess is one way to look at it. 

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2 hours ago, Frank Hovis said:

This is the standard response to tax saving but there is no need to pay any tax on drawing from your SIPP.

Taking a VCT as it currently stands (30% tax recovered on investment), and rounding personal allowance down to £12k to keep the numbers easy:

If you need £18k cash income:

Draw £30k, taxable £18k, tax £3.6k, net £12k pa + £14.4k after tax = £26.4k.

Put £12k into VCT, tax recovered £3.6k.

Result: £30k out of SIPP turned into £18k cash and £12k in a VCT with zero tax paid. Under current rules you can sell the VCT after five years without losing the tax refund.

Rules may of course change, VCTs used to qualify for 40% tax refund for example, but governments generally want to encourage particular investing and do so with tax breaks. If not VCTs then something similar.

There was a great model in the olden days of using VCTs to gross up your pension contributions, in a sort of different way around to the way you are describing, so money into VCT, get tax refund plus investment back and push into SIPP. However, the rub is getting your investment back. Most VCTs you'll be lucky to not lose the tax relief. We only recommended them for guys with nowhere else to stick their money.. 

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On 22/11/2019 at 11:44, 201p said:

Depends on the job - it could be a real job or an easy not real job.

£80K for 24 hours a week. 10min commute both ways. Sit down desk job or out in the field, your choice if you want to work in a team or on your own. Can be as stressful as you want it to be. Various locations around the UK. Easy going boss or you can be the boss. No targets. No chance of being made redundant.

Sign me up!

True. I remember my first job after uni in mid 2000s. Not much above min wage, worked out at about 1200 per month.. But it was 9-5, easy stuff. Commission if you put in some extra. Double time for evenings/weekends. One guy was clearing nearly 60k a year by doing all the hours available and selling shitloads.

Wouldnt want to do that for long, but he, after pissing away his 20s, was make bankrupt & wanted to get discharged from it as quickly as possible. Good on him, i guess.

 

Wasnt too bad for him actually. He lived 5 mins walk from the office. A mate of mine was making less than 60k (about 40-45k iirc) and had to commute 70 miles to London and back every day, pay 4 grand for a season rail ticket, & was always shattered by the weekend anyway. Officially he only had a 40 hour week & a salary 2.5 times higher than our basic. In reality, take away the commuting hours which meant it was more like a 60 hour week and transport costs and he was barely earning more. 

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44 minutes ago, Darude said:

Ha, yes, we have this where I work. The line is always that poor mental health/wellbeing is the employee's fault, they just didn't manage their time and energy well enough and should have done some mindfulness exercises. The relentless pressure from management to go faster faster faster is never to blame.

It's ridiculous.   Our regional manager is the worst of the lot for expectation and putting pressure on people but seems to think putting his face on a few posters makes everything ok.  He's twice divorced,  never gets to see his kids and has no life outside of work...that's not the sort of life I want.

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2 minutes ago, Adarmo said:

There was a great model in the olden days of using VCTs to gross up your pension contributions, in a sort of different way around to the way you are describing, so money into VCT, get tax refund plus investment back and push into SIPP. However, the rub is getting your investment back. Most VCTs you'll be lucky to not lose the tax relief. We only recommended them for guys with nowhere else to stick their money.. 

 

I've been working on a multiplier effect for years as in use net salary to invest to get the tax back then both go into tax free equity investments and reinvest the returns so I'm now cushioned against downturns.

Roughly instead of, for example, investing £20k net savings this becomes £26k gross by tax recovery and then it's been growing easily at 6% a year tax free across VCT, ISA & SIPP vs 1% in cash deposits.

For twenty years this gives a total of £1,040k against £465k if no tax refunded and cash deposited in cash ISAs so tax free.

In percentage terms of this £1,040k:

  • 45% - would have been accumulated by putting the net into cash ISAs (£465k)
  • 32% - is the additional return from putting into VCTs / equity ISAs and SIPPs (£335k)
  • 12% - is the tax recovered (£126k)
  • 11% - is the income on the tax recovered (£114k)

 

I'm always hitting the annual pension limit as I'm on a DB so that doesn't leave much room in the SIPP.

Although as @Wight Flight has pointed out such saving is only possible because I don't have children; though it still works equally well at £10k a year.

 

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4 hours ago, JoeDavola said:

This can't be emphasized enough. My TC mate in the housing estate has really opened my eyes to the smart way these folks live:

- he's taught himself a load of DIY over the years - joinery, electrical work, car/bike maintenance, so that he never has to pay someone big money to do the work for him. He just re-did his kitchen at virtually no cost.

- When the boiler breaks a council grant comes in to help pay for a new one.

- There is a good sense of community in the estate and everyone knows everyone else's expertise and helps each other out. Bartering or cash in hand.

- No childcare costs because TC's pay for parents to stay at home most of the time and grandparents (who are still young as people have kids young because they're not forging 'careers' till 35) make up the rest.

- Council Tax on the house is about £50 a month...would be double that for a similar sized house if you weren't in an estate.

- Everyone is an expert on how to play the benefits system for what it's worth, including questionable disability benefits

.....so basically you have a community of folk who know how to minimize the amount of money they have to pay to live, minimise the amount time they have to spend in work to fund this, and have a contract with the state where it gives them loads of money every month instead of taking it away.

Sounds like a pretty fucking smart group of people to me. Anyone who looks down their nose on them is an idiot.

This is what I’ve pointed out dozens of times but you’ve put it better 

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2 hours ago, Errol said:

Fiat money has devalued so much it is not even funny.

Henry Ford paid workers at his factory the equivalent of around 80 ounces of gold a year - that's roughly $80,000 dollars today.

In pounds, that would mean a car factory worker taking home more than £80,000 a year.

Fuck

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1 hour ago, Adarmo said:

Not as demand inelastic as food, which is mostly untaxed, and at worst VAT plus the sugar tax. 

Do all governments seek to maximise their reach and revenues? If so, how do we explain the difference in govt size, spending and revenues across countires. Even within the OECD there are some stark contrasts. Or is it a peculiarity of the British Government? 

Reagan slashed taxes in the 80s after Carter's high tax presidency. As you pointed out, the Laffer curve came into play and the extra growth caused by tax cuts meant an increase in government revenues. 

Reagan was a hero to the bureaucratic state because he increased government income which meant government could spend more on war and welfare. The extra income also meant the government had a bigger income to justify more borrowing. Joy for the financial elite.

 

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