I am planning to leave London (and the UK) in 5-10 years (low 30s). I was wondering how useful (in the long run) would be reducing my taxable income by using the 20k investing ISA and contributing to my pension if I end up leaving the country.
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I’d say max out the ISA but drip feed it monthly to smooth volatility and choose a low fee provider. It can be always be redeemed.
Pension can be very attractive especially if your employer is matching your contributions which (depending on your tax bucket) can be tax deductible. Issue is you won’t see your £ until you are 55. I think about it as a long term illiquid asset vs other short term liabilities (eg buying a property): maybe you are better off keeping the cash for a deposit.
Maxing out your ISA does not reduce your taxable income. The part of an ISA that isn't taxable is the INTEREST/RETURNS not the contributions. Virtually the only way to reduce your taxable income is contribute to a SIPP or workplace pension.
Not entirely true.
The UK has a few investment schemes where tax credits are given: VCT (Venture Capital Trust), EIS & SEIS (Enterprise Investment Scheme and Seed Enterprise Investment Scheme)
Scheme Maximum annual investment you can claim relief on — Percentage of investment on which you can claim — Tax relief on income from dividends
EIS £1 million 30% No
SEIS £100,000 50% No
SITR £1 million 30% No
VCT £200,000 30% Yes
Some of these also offer you tax relief if you lose money on those investments.
Source:
https://www.gov.uk/guidance/venture-capital-schemes-tax-relief-for-inve…
Have heard about this but I don't really know any start ups to invest in
My view is stay clear of these schemes offered through funds as they charge astronomical fees for the limited value they add. If you want to benefit from EIS I’d simply go on Crowdcube and invest in the project you like the most. The shares you receive will come with an EIS-compliant certificate.
Yes but would it be worth it? If I leave the uk I won't be eligible for an ISA and I don't know what happens then
Touche but there are caveats with all of these: minimum holding periods (VCTs require a 5 year holding period or you lose tax benefits), high risk (no point saving tax if you lose all your money anyway), and high illiquidity. They don't make the most ideal store of value just for tax saving incentives.
ISA contributions are post-tax rather than pre-tax and if you're planning to leave the UK, you'll need to sell your ISA holdings prior to leaving to get the tax benefits of it (mainly no capital gains). Once your tax resident in another jurisdiction, you'll pay tax on dividends / capital gains based on the rules under that jurisdiction even if the investments are still held in an ISA. You get the benefits of pension pre-tax, so I'd max your contributions out on this as you can typically transfer pension balance from one jurisdiction to another. If you think you'll stay longer than 10 years, I'd max ISA first then pension.
Thanks! Just to be clear, if I see myself leaving in 10 years (or less) it would be better to max out the pension no?
Yes, max pension then ISA.If I remember correctly, you need to contribute £32K to pension to get £40K total, so over course of 10 years this will be c. £80K free money. To get the benefit of an ISA, your investments need to generate a decent return. If your horizon was 20-30 years this makes sense, but given it's less than 10 years your chances of significant capital appreciation are limited (taking into account current valuations and economic / political backdrop). So my order of allocating money would be max pension -> max ISA (40/60 fund or similar) for purpose of house purchase deposit -> whatever's left for general savings.
Duplicate
Bump. Also planning to leave the UK but in 5 years
I made the decision not to max pension but to use the standard ISA (which is free and redeemable whenever). Also no help to buy ISAs etc. I won't be tying my money in the UK unless I know I am there for the long term (quite unsure at the moment), key reason being it must be a hassle to get your money out even when you are 55 (and who knows how regulations will change in 30 years), and transferring your pension assets is super tough depending on the country if you want to consolidate everything where you are working.
Also depending on your work pension you might only be able to access truly ass funds/ETFs, so tax benefits somewhat negated by tying your money in subpar investments.
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