It is a little bit of a meandering and private rant. Be happy to skip it!
A new yr, a wobbly inventory market, and naturally a
younger not-so-young investor’s ideas flip in the direction of topping up his SIPP.
And as I contemplated how massive a lump sum to shock and awe the boys down at Hargreaves Lansdown with, two components got here to thoughts:
- From April, dividends will likely be taxed extra closely.
- Pensions are going to be revised once more within the March Finances, too, and it’s unlikely that Monevator readers’ many wise ideas will likely be within the driving seat.
I’ve been self-employed for many of my working life, however I’ve solely been arrange as a Restricted Firm for a few third of it.
And to be sincere, my earnings have solely actually been large enough to make a lot distinction how I paid myself for the final 4 or 5 years.
(Earlier than then I used to be totally on borderline artist-in-a-garret charges, no less than in comparison with my standard London pals).
Now if I do nothing from April, the brand new dividend tax charges imply my tax invoice will likely be round £2,000 increased than it could have been underneath the outdated system – because of a 6% rise in my efficient tax price.
We debated whether or not this was honest when the change got here in, so let’s put that to at least one aspect.
What pursuits me now’s how I discover myself responding.
I’ll say immediately that I’m not a really cash motivated individual.
Which may strike you as an insane remark to make, provided that I run a private finance web site and spend half my days clucking over my ever-growing nest egg.
But it surely’s kind of true.
I’ve by no means adopted any line of labor for the pay examine, actually (as my employers from my 20s would little doubt gleefully affirm).
And I don’t spend a lot cash, both.
In truth I in all probability appear to be a little bit of catastrophe to a few of my friends.
What issues to me is freedom to do what I like – or extra precisely to keep away from doing what I don’t like.
That’s why I’m self-employed, and why I far want to do business from home.
It’s additionally my motivation for investing: I discover the whole lot about standard work suffocating.
I don’t need a freedom fund or perhaps a f***-you fund.
It’s extra like a survival fund for me.
You’re having a half!
Given my ambivalence in the direction of slaving away for mere cash, taxation is a vexing situation.
With out eager to get political (my post-Thatcher reflections have been a greater place for that, and even – contrarily – my lament about revenue inequality) I’m glad paying roughly 20% or so in revenue taxes.
And I suppose I can dwell with 25-30%.
Any extra tax than that and I strongly suspect I’m simply supporting different folks’s life-style decisions, relatively than the necessities of State and a worthwhile security web.
Sadly, add collectively company tax and the brand new dividend tax and I will likely be paying an efficient 46% tax price on any revenue over £43,000 or so – and in actuality I’ll be paying it properly earlier than then, given my portfolio nonetheless has unsheltered financial savings, bonds, and equities outdoors of my ISAs and SIPP, the place any money returned will register as revenue.
Now £43,000 may strike a few of you as plenty of revenue, relying on how and the place you reside.
However belief me it’s very mediocre amongst my friends in London.
But striving to spice up my revenue – solely handy over virtually half of the additional to the Authorities?
I discover the thought fairly demotivating.
Confused future pensioner
One apparent resolution is to direct all of the would-be higher-rated revenue into my SIPP as a substitute.
As I say, I’m not within the mega-earner class or something prefer it. So this might successfully shelter (or no less than postpone) a very good swathe of my revenue from the brand new dividend tax meat cleaver.
However sadly, that’s the place these upcoming pension modifications begin to fear me.
Might George Osborne usher in new restrictions, and even retrospective measures?
It wouldn’t shock me in any respect.
Friday’s off – tax-free
I’ve loads of different ideas swirling round about all this.
For instance, it makes clear but once more how a lot better it could be to personal my own residence from a tax perspective.
Whereas I desperately attempt to develop my funding portfolio as tax-efficiently as I can and to maintain manageable the tax tackle my revenue that in any case has to pay the hire, my pals who personal their very own locations see their (lottery successful) tax-free capital good points roll up yr after yr after yr.
After all they’re not paying tax on the imputed hire ingredient of their residence fairness, both.
After which they bewilderingly declare that their £750,000-£1 million property is just not a monetary asset, simply to additional annoy me.
Dwelling possession on this nation actually is the killer tax break that retains giving.
However with London costs having moved from excessive to insane to “oh, so that is what my grandmother meant when she stated flinched at 50p for a bag of chips that used to value a ha’penny”, that’s for an additional day.
No, I’m considering I ought to merely overlook about incomes extra money.
As an alternative I may hold my life-style prices low and pay myself with free time.
Sure it should delay monetary independence by a number of years.
However given the upcoming tax whack and the unsheltered property I’m already struggling to tuck away into ISAs annually, not by a lot as it’d.
And better of all?
They don’t tax free time.
Notice: Considerate responses about the way you personally tackle these conundrums very welcome, however advert hominem assaults declaring that since I earn greater than you or your cousin Nigel I needs to be glad I don’t pay 80% tax charges will in all probability be deleted.