An elephant in the room is interest rates. Use Cash ISA when IR is high, but property when IR is low (leveraging). Yes, I know people have socks and shares ISAs, but if you are working I would suggest you make extra AVCs and get the extra tax relief (instant 20% uplift minimum), and put that into equity in your pension (I see no point in a stocks and shares ISAs if you can do the same within a pension wrapper).
I notice Dave Ramsay over in the US always encourages overpayment of mortgage before maxing out on other related US investments. I was intrigued with this since mathematical it make little sense Shiv he seems to admit. However the reason seems to be related to powerful psychological reasons Shiv I understand. I prefer to invest first due to the cheap money on offer for mortgage purposes.
I was hoping I'd find an answer as to when UK Student finance should enter the question, but it didn't get touched upon. Wouldn't it be considered Tier 3 as well since it's at 7.4% interests atm? For someone who'll definitly pay it off within the next 10 years at the current rate of earning.
I am planning to move from the UK to Canada in 2030 so what I am doing different is maxing out my Stocks and shares ISA to have the money I need to purchase a house when I get there. I will. Be fortunate to have an immediate pension when I leave the military after serving 22 years and will rely on that. I'm not building up any private pension in the UK but aim to start that when I get to Canada at age 40. I am a little unsure how moving private pensions to other countries works.
This is absolute gold, thanks James! I'm 26 and very fortunate to be in a high-paying job, but I dont have anyone close to me that is familiar with financial planning. I know it sounds dramatic, but I think it's fair to say that your channel has changed my life. I actually understand how to build a better life for me and my family now, which I can't thank you enough for, but here's a little something. P.S. I would be very interested to understand what the *real* returns of investing in property are, once all the associated costs are factored in. People keep telling me it's the "best" investment, but what do the numbers really say?
Wow Sam, thank you so much! I really appreciate it. I’m glad to hear you’re feeling confident about the future. Property is so varied. Some turn out to be good some bad, just like companies. But the problem is that you can’t diversify in the same way as stocks. It’s also very reliant on leverage, which makes it higher risk. It’s very much a personal decision based on whether you want to be actively involved in it. My dad was a property developer, he did pretty well, but personally I hate the hassle.
As James say, never underestimate the hassle of letting property. Sure you might get lucky and have an easy ride, but more likely not. There has been times where it was lucrative but these days with property prices so high and the government cracking down on landlords with tax etc, you'd really need to work for your return. Might well be better off financially putting that effort into your job.
Hey @unencoded depending on how much you earn it might be worth getting a financial advisor. I was in a similar situation where family’s only advice was “buy a house” and that was it. I’m always pleasantly surprised at how helpful financial advisers are in my very specific circumstances, and they have a great network to tap into.
Once i became a landlord i realised i was a useless tennant as the ones we have make multiple (albeit reasonable) demands for repairs and improvement s which we always do immediately. Overall, while we have seen perhaps a 20% capital gain in 5 years we have this year 'broken even' on all the cashflows (IRR). So 0% return and negative real returns This includes imputed rent while we lived in it. People tend to look at sale price vs purchase price when evaluating housing. They ignore: transaction fees and taxes, insurances, repairs and maintenance costs (which can be hefty) and mortgage interest. Property only stacks up if you strike it lucky (eg buy just prior to an interest rate dip or in an area that blows up) or make significant improvements OR are prepared to be a slum lord and squeeze the tenants as much as you can. Sadly i think many people take that last option. BUT if you have deep pockets and time i think developing vacant land or redeveloping urban sites can be massively great returns...just not for the avg punter who generally lacks the capital resources for this. I have a projected long run 6-7% return going forward on real estate assets for retirement planning. A number i came to after modelling future interest rate and capital growth guestimates. I think that is 'about' a fair guess for most residential type investments. IMHO.
Thank you all, I really appreciate your thoughts here. It sounds like I really should consider working with a financial advisor (no prizes for guessing where I'll start there 😁), and property is an awful lot of work. Super helpful to hear from those with real-world experience and a view of overall returns. I think sticking with index funds will work best for me!
After years of researches to get my finances right I found this video, which covers almost everything I have learned and more in just 17 minutes. I wish this video could have existed earlier. Would save me years of head scratching. Definitely the best and should be everyone's 1st video to learn financial planning!
Not all debt is bad. A mortgage is one of the cheapest form of loan you'll be able to access, and at the moment in the UK it might be more efficient to have your money invested in something with a higher yield than the mortgage, as long as it can become liquid reasonably easy
@@wl660 it does not matter it rates go up or not, if investing gives you a similar rate or higher than your mortgage. It's better to have your money in a somewhat liquid investment vs have it invested in a house, which is non liquid. I can sell shares and have cash available in a couple of days, selling my house, not so much
This is one of the best episodes I’ve watched, a simple summary of the end to end stages to consider throughout your investment planning journey. Thank you james!!!
Fantastic breakdown on tax-efficient investment strategies! 👍 One key point to remember is the importance of adjusting your emergency fund and insurance coverage as your financial situation evolves, ensuring that you're always adequately protected as your portfolio grows.
Excellent video… especially the bit about life insurance and critical illness cover. No one expects the worst but when it happens ….trust me it happens when you least expect it….that insurance is an absolute life saver
I do all three things on tier 3. S&S ISA to keep me going from 55 to 57, SIPP to keep me going from 57 until I start taking my work pension and paying off the house so that living after early retirement is possible.
I found that, in order to max out your pension and ISA, you need to invest into them roughly £70k p.a. (before taxes). Therefore, unless you make around £100k gross salary, there is no reason to even consider anything tier 4 or above.
Great video James. Although I’m confident I won’t get past tier 3 despite my best efforts this is still valuable information for me Many thanks and all the best
Only really started retirement planning a couple of years ago. Amazing that your tier system is exactly the order that I have done things in. I'm at the bottom of tier 3 and unlikely to drop to tier 4 with retirement just around the corner. Thank you so much for confirming what I've been doing. No financial planning experience, but okay at arithmetic and common sense.
Really expensive debt like overdrafts and some credit cards should be paid off before everything else. You can always use them for emergencies if they arise. This is not a commonly held view but with some overdrafts and cards having rates of over 30% you simply have to focus on paying them off or you will never reach tier 1 never mind any of the others. Great video 👍
Absolutely. Martin Lewis's biggest tip. You can't save for emergencies if you're servicing interest. Here in the UK you can get good 0% purchase cards, and balance transfer deals to help. Personally, I have a few months rent and bills set aside, and I pay into an ISA, and a FTSE dividend fund. I need to sort out some insurance now.
I would hope that it is a commonly held view! Paying down high interest debt is a guaranteed return far higher than any short-term and risk free investment returns. The psychological benefit of removing that weight from around your neck is greater than that derived from a similar gain in investments and it puts you in a position where, hopefully, you can eventually make the positive change from debtor to investor with no negative impact on finances and family circumstances.
@@davem.4003 strangely amongst financial commentators they seem to favour building an emergency fund and making workplace pension contributions before paying down high-interest revolving credit
I thought I'd watched every YT finance video and had nothing left to learn, but I still like to watch them and dream of retirement. Until this video I'd never thought to consider dumping my ISA in the pension a couple of years out from retirement, every day's a school day!
My normal salary is £43K but last year I was put onto overtime work and it was only in January I realised that I was going to go over the £50K threshold and start paying 40% tax and halve my savings allowance. Belatedly I asked payroll to pay my overtime directly into my company pension. However, I was still going to go over and so made a voluntary contribution based on the overtime money I had made, I plan to cover this in a self assessment tax form to reduce my tax in this financial year. I wish I had been sharp enough to have spotted this last year and had my overtime put straight into my pension back then. Hope this helps others.
This is a brilliant video, clear and well communicated, but maybe one additional tier - invest in the here and now, spend money on experiences snd trips with your children or by yourself that you won’t be able to do when you are older.
Hi James, great video. I’d love you to do a deep dive on tier 6 in a future video, pros & cons, and which of the tier 6 videos is best for which situation. Also include blood lines trusts and wills in the video content too. Thanks. Cheers 👍
Sound advice as usual and a good time of year to give it. When I was young there were no people like you around. I learned gradually. I was always a saver, good habit from my parents. My first monthly pay as a trainee was £39.50 per month, that was back in 1973. I joined the pension fund immediately. I’ve raised two children and put them through university. Yes for all the younger boys and girls watching you will have to change your plans at some stage. You will need all those insurances. However if you can follow the advice given by James you should be “comfortable” in retirement.😊
What do you think about investing in gold or silver, especially in capital gains tax-free products like Britannia coins? I'm considering renting a safe deposit box, which costs around £100 per year in London, to store them. But yeah, only after maximizing my ISA and potentially my pension
Proof if you ever needed it of all the tax dodges and efficiencies available to the high earners. Yet they've frozen the limit everyone begins to pay tax for how many years (to the point that the basic state pension isn't far behind being caught up in being taxable income) Appreciate all the videos you do James and certainly not meant as a knock against you, just shows how many options there are out there.
What I would say to this is that most people never pay any tax on investments. They have a tax rate if 0% because they get relief on interest in bank accounts, CGT relief on anything they sell in a general investment account, primary residence relief on their home and never fill their ISA or Pension allowances. If you are a combination of fortunate and hardworking enough to use up your allowances, the tax rates are very high. If you have paid 45% tax on your income (plus lost your child benefit, interest allowance, pension allowance etc), then you're paying 20% on your gains made using money that's already been taxed, plus then facing IHT on top when you die if you don't use the tax planning tools available. I'm not suggesting that we all get out our violins for such people, but the previous commenter is correct when they suggest that these breaks are not allowing such people to pay less tax than the typical person, just reducing what would otherwise be huge rates. What I will say is that the very wealthy do sometimes achieve lower overall rates than some of the middle class who earn enough to pay the highest rates but not enough (or don't have the knowledge) to get advice on how to reduce tax.
Really good James but I would say get your personal insurance done ahead of building an emergency fund. For me it's a part of my monthly household expenses.
I loved the road map. Definitely clears the fog on how you should be investing. Definitely makes sense to get an emergency fund sorted then get rid of that needless debt. I have two cars on finance, albeit very low monthly payments but after watching so many investment videos I’m going to sell up and use the profit to buy a car outright and then use the money that would have went into the cars, into my portfolio.
The mortgage overpayment balance can act as most of your emergency fund. Ie I can choose to pay next month's mortgage out of the balance and use the money I would have paid in for the emergency. The mortgage overpayment is basically a savings account on many mortgages.
I have always pushed ‘emergency fund’ down my investing agenda simply because of the psychological idea that I’m delaying saving for my retirement. However, our neighbour’s oil tank has just leaked 3000L into the ground and contaminated the surrounding area. Our insurers have decided that we are under-insured (lesson: get a rebuild valuation survey on your house every 5 years). Now we could find ourselves having to fork out £00,000s (doesn’t matter that the neighbour is liable). Luckily, I received some inheritance which could hopefully JUST about cover this liability. However, it’s made me seriously understand the value of an emergency fund, and its priority in investing. I never would have thought we would be at risk of such a cost.
Keeping a £00,000's emergency fund in case of your neighbour's oil leak would be madness. Make your emergency fund 'reasonable' - and suck it up if something crazy happens.
@@danguee1 if you think about what the advice is on emergency fund (6 or so months of expenditure), we are actually talking about tens of thousands (in the situation of a couple at least). In our specific situation, without being so fortunate receiving the inheritance monies we have, we would have no way of sucking up such a significant amount. Hence, my new found appreciation for the advice that emergency funds take priority.
Hi James, thanks as always! I have a question - overpaying a mortgage sits in tier 3 but is there a suggested tier for buying a property itself? I guess there's no single answer but are there any general principles behind foregoing some ISA and pension savings to get a foot on the property ladder?
As far as products go, maxing out a LISA > ISA is often the way to go (depending on the value of the place you want to buy). Whether you should invest or keep the money as cash depends on when you want to buy. I discuss it here: ruclips.net/video/jCUbBLxtzMo/видео.htmlsi=aOELJEMPyxl81uN3
Also another comment to why to do investments instead of paying off mortage: I have no intention of paying off my mortage - in fact I would like to borrow a lot of money in it and live off of it. In Denmark where I live it can be hard getting a mortage to have money to 'live off' as you get above 5o, so an alternative it to do savings via investments instead of paying off the mortage.
At one point my SLC student loan interest rate was >6.5% So glad I have paid that off and it is out my life Everyone talks about student loans being low interest but the reality is for high earners they burn through your money
I agree. I did the same when I saw the interest rates charged on the remaining balance and knew I'd be paying it off eventually. May as well get it out of the way and use the extra interest saved to invest.
The benefit of student loans are for low earners really, given you don't pay it off if you're not working or earning very little, and it goes away if you lose your job until you're employed again. For high earners it's just a crappy debt like any other and paying it off early can make a lot of sense, it's essentially a form of tier 2 high interest debt per the video framework.
@@theantagonist2147 Sorry but that's utter nonsense... it's a % of earnings above a certain threshold, why would anyone choose to earn less money because 9% of the extra would go towards student loan? Engage your brain...
Another great video. Just a personal observation, after many years of investing I have given up on the 10% satellite part and keep 100% core . I’ve either lost money or the core fund has always outperformed in the long term. Also given the low allocation to satellite , even if you managed to attain alpha then it won’t make so much impact. In the past even with 90 percent core I was basically admitting and rightly so I had no idea of what will do well or not so investing 10 percent of hard earned money would be based on sheer hubris.
I am glad you enjoyed it! For some people, VCTs have a place both from an asset allocation and tax planning perspective. But other than that, the satellite portfolio is there to help scratch an itch. If you don't have one, don't bother!
The satellite part could be something that interests you. One of my late Father's best investments was Lego train sets - about 400% return in 20 years. One tip on that though is that items marketed as "collectables" tend to be very poor investments. Unless, of course, they are sold by Royal Mint and made of gold or silver.
Very informative video. One decision I've made (that is the opposite of what you've suggested), is to "front load" my kid's inheritance to them by contributing their maximum JSIPP allowances each tax year until they're 18 and also a small amount each month into high-risk S&S JISAs (again, until they're 18). This way, I can let the magical mix of time and compounding interest work their magic while I make the most of my later life (as I plan on retiring at 55 or so). I've also set up a discretionary trust for them, but it means that I can move my Ltd company shares into it upon my death and I have age-related controls on when my kids can get any access to said funds and/or company shares. My pensions are also set up to automatically pay into said trust if I die before I can access it. Keep up the good work. I wish I had of had such financial education a *lot* sooner than I did...
Thank you !! Just the ticket, been looking for a video like this, a great guide of what to tackle 1st and how proceed, simply brilliant !! Have my thumbs up James.
Hi James, great video as always! Just wondering where your figure of 200k for the GIA comes from? Is this just where CGT really starts to build up, or any other considerations? Thanks!
I wanted to pick something to give viewers an idea, but it really depends on your situation. Many people end up with a large GIA because they receive a lump sum either from selling a home, a business or an inheritance. Say that's £500k. If you're an HRTP, you're likely going to end up paying quite a bit of tax on that. However, if you can squirrel that into ISA, Pension, and JISA allowances over the next five years or so, there's probably no point in doing anything more complex. The GIA brings maximum flexibility at the cost of tax efficiency, whereas tiers 5 & 6 bring OK tax efficiency with poor flexibility. I have a client who has £1m in a GIA (split between him and his wife). He is starting a new company, so right now, flexibility is the most important thing for him. The fact that they have no other income also makes the GIA easier to manage. On the other hand, I have some clients who are high earners, maxing out all of their allowances, now building up a GIA, and we're recommended VCTs even with a small GIA (
You have inspired me to think about getting into the industry of financial advising/planner. Where would you recommend to start as my qualifications and work history is completely unrelated
Thanks for this video, really helpful. I imagine most people would be at tier 3 and if they did a good job of these they'd be well sorted for life. I'm overpaying my student loan right now to get rid of it asap and would like to put those loan deductions I get, back into my pension. My company does the 3% but I imagine I could choose to pay more for tax relief, even if my company doesn't contribute more.
James, Have stumbled upon your channel and.. wow.. was blown away. Thank you so much for doing this. Quick question on the waterfall which may be relevant to others here: My wife and I have relocated to the UK a decade ago, hence, given our age can’t achieve full state pension status. So question is whether topping up to to achieve full state pension status is a high tier allocation of funds in your view. Thank you
Ah yes, a good point. Generally, yes its one of the best investment you can make but it depends on your situation. I've made a video on this below. However, the deadline has now been moved to April 2025. ruclips.net/video/fG_D-JFdwBM/видео.htmlsi=S3KBzcA96iXwPSxH
Hi James, thank you very much for your contents, very informative and clear.I have a work pension scheme with my employer which enrols me automatically with a well known provider. I find that the total annual charges are relatively high, between 0.8 - 1.3 %. I am considering to pay in the work pension only the amount that my company matches and then pay the rest into a SIPP, where, in theory, I should be able to get the same tax relief (via tax relief claim, my employer does not top up the NI into my pension) and to allocate the investment personally with potentially lower fees. What would be your suggestion? It would be great a video on this topic to compare the different scenarios and actual charges/saving.
If your workplace pension is a salary sacrifice pension, then it may be more tax-efficient to pay it rather than a SIPP because you also save on NI. If you don't like your workplace pension platform, you can often partially transfer out of it into an SIPP. So you keep £100 in there, and keep getting your employer conts, but the rest is being managed in your own SIPP.
Can someone explain why financial advisors just ignore the need for a deposit for a mortgage? It is like they assume we are born with a mortgage. For many people, getting away from rent is a massive saver
Property can be a good investment but personally, I need flexibility to move where work needs me. I'm too busy to be a landlord and not wealthy enough to have a company manage a property for me. Mortgage is there as an investment, rent is there as a living expense so I think they do cover it. Your lifestyle depends how you manage your investments/expenses. Car is absolutely something I will never buy again! Lost 50% selling it when I had to move overseas 😢
Interesting useful video. Wonder what percentage of people in the UK can now manage to save up an emergency fund to last them more than a month. A Jan 2024 survey (finder) reckoned 25% of us have £200 or less in savings. Inequality appears to be out of control.
Great video and I love the visualisation of the process being a visual learner. One question though, you omitted to mention about investing in Gilts in the GIA as a way of investing once maxed out on ISA and Pension. I am planning to sell my main residence and move back in to my rented house then sell the rented house once established as our main residence. The profits to then be invested in gilts amongst other things as they are free of capital gains. Is there a problem with this plan?
Gilts are free of capital gains, but you will pay income tax on the coupon. You can buy individual gilts that trade below their par value, meaning that some of the return is tax-free. However, buying individual bonds is quite fiddly. You really don't want to buy the wrong one! I've never seen a retail investor who has done this; I've only seen advisers/DFMs do it for clients holding large amounts in gilts. But that's not so say you could not do it. Asset allocation should always come before tax efficiency. So make sure you don't end up putting lots in gilts to save a bit of tax when perhaps it should be invested in equities.
@@JamesShack many thanks for reply. Must admin I have been listening to Ramin. This plan is a few years away so the situation may change. Thanks for your excellent tips. Just hope my idea of moving back to rental property for a year will flip OK to enable Main Residence Relief.
Great to sort it into "tiers" like that. Perhaps you might have mentioned gilts somewhere around Tier 4 (GIA)? ... millions more are likely to be hit by CGT in coming years due to the fast-disappearing allowance. For many (particularly higher-raters) short-term low-yield gilts will probably be better than savings accounts or Premium Bonds for their "emergency fund".
Glad you liked it. What makes you say a gilt would be better than a premium bond for a HRTP? Gilts that are trading below par value are useful, as part of the return will be tax free, but they’re fiddly to invest in.
@@JamesShack HRTP ... an acronym too far! just tried looking it up and none the wiser! = Emergency Fund? A couple of things about Premium Bonds which I didn;t like when I considered it: 1) lots of rich people have the full £50K "invested" there and not surprisingly win most of the big prizes. 2) I believe PB rates reflect inflation, whereas short-term gilts respond to govt short-term borrowing requirements... at the moment I believe PB "rates" (i.e. probabilities of returns) are likely to drop quite fast. 3) I found out that there is quite a long gap between buying PBs and the "first monthly draw" for which those newly purchased PBs quality, which is annoying 4) I was deeply unimpressed by NS&I's (dis)organisation... they're basically a failing institution 5) gilts' returns are just, to put it bluntly, better than putting your money in a savings account. I'm not sure why you say they're fiddly to buy and sell... they are bought and sold like shares on (I think) most platforms. Maybe there's some kind of voodoo in working out which one to actually buy, is that what you mean? NB yes, the idea is to buy low-yield gilts, so the income (subject to income tax) will be negligible. But the growth will be exempt from CGT.
This is tailored specifically to the UK I suppose? In Belgium car loans are cheap, like 4% right now, which might be a lot lower than in the UK.. Also company pension plans work differently - either your employer has it, or doesn't have it, but there is never a personal contribution involved, it's all done automatically.
Never get a loan on a depriciating asset. It's automated in the UK. But you have an option to overpay and employer has to match contributions up to a certain amount.
That's an amazing video, James! Thank you! I have a very quick question I hope you can help me with. I understand well the additional contributions in DC pensions, but I have a DB pension and I cannot put any additional money into it. Have you got any advice for these types of pensions? Don't get me wrong, I know DB pensions are gold dust and I am very happy about it! It's just a shame I can't put more money into it. Thanks!
Does the scheme have an AVC you can pay into? Some schemes will allow you to use an AVC pot to pay your tax free cash at retirement without reducing your annual pension. If not, you'll have to improve your pension position using a personal pension or topping up your employer's DC scheme. Get a financial adviser to help you.
Spot on my friend. Awesome video! Thank you for all the knowledge and nuggets you had thrown my way over the last month. I have accumulated 180k today. Started with 17k in last month 2024 Investing with Sylvia Nicolas
Honestly? I'm so excited. Sylvia Nicolas strategy has normalized winning trades for me also and it's a huge milestone for me looking back to how it all started😃
Most people are retiring this year and have nothing to show for. But I assure you it's never late to get your financial life together again. All thanks to Mrs. Sylvia for me and my family.
Hi James, great video once again! General question, I hold US equities that pay dividend within my ISA and am being taxed at 15% withholding tax. Is this something I can claim back?
Hi James, I really enjoy your channel. it was the first I came across when I first really started thinking about retirement earlier this year - 35M (and now the only one I watch consistently). I have a question on the flow chart on the 3rd line. When doing some rudimentary calculations it looks like if I am: 1. salary sacrificing at higher rate tax 2. projected to be drawing down my salary from my pension at lower rate tax (40k or under + state pension). Then its more tax efficient to put money into my SIPP than an ISA (to the tune of 20% extra when taken out) - provided I keep close track it wont soar over 1.25mil (assuming taking out 256k tax free and 4% drawdown of the mil). Should I be taking this approach for line 3 = limited pension contribution, then ISA, then pension again and then mortgage overpayment (rate is 3.99%) - Am I correct or have I missed something? Thanks
I liked the video, lots of good information! I have a question that I am sure others are now thinking... When does it make sense to cash out ISAs into pensions from a purely tax perspective? Is there a tipping point when this should be done?
It simple. You need to pay off all your debts (including car and mortgage) before you start investing. I was lucky enough to pay all my debts by age 35 which enabled me to invest and still have a good lifestyle on one income although that's mostly not possible for people today. Never need life insurance if you don't have debts.
Very interesting video! I have a question regarding pension contributions: you seem to be limiting it to the point where your company stops matching it (in your example, 7%), but you said nothing about going for potentially much higher contributions to avoid the 60% tax brackets. Is it a good strategy, vs. taking the hit of this tax bracket but moving further in the tiers you have described? (for instance I am currently putting 40% of my qualifying earnings in my pension, waaayyyy beyond the matching threshold of my company).
The order of the unmatched pension versus ISA was the only part I wondered about. For me, there's a balance between the two dependent upon your current ISA balance, your income and your age. For example, if you earn £120k and are a parent of a toddler, it would be insane not to pay at least £20k into your pension.
That would sit outside of this framework. The vast majority of people fund private education from income. So, during that period, whenever it comes, you would have less money to save towards this tier structure. You may even move down a tier. Even those that "save up" to fund private education tend to still fund it entirely from their income and save little or nothing, but because they saved a lot beforehand, that money remains invested and keeps compounding. You should be able to at least complete tier 1 whilst paying for education; if you can't, then you should be questioning whether that is actually affordable.
I have to disagree in "First do this, then this". For most people it will be better to start with the later stages from the beginning or at least when the previous haven't finished. You might lose some % of the theoretical gains. But many people will quit when they don't see small results from the start. It might be such a motivational gain for your emergency fund to have some dividends from your parallel investment.
Hi James. What would you recommend (regarding pensions) for people working for the NHS and enrolled in the NHS pension scheme? Would that be worth to have a private pension as well as the NHS one?
Hi James, I've been paying into a S&S LISA for retirement purposes, as a lower rate tax payer, for the last few years. However, I'll soon be a higher rate tax payer. Would the advice now be to leave the LISA to grow and open a SIPP and pay into that instead?
Great videos @JamesShack. Any chance you could do a video around approaches for people with mixed pensions e.g. I have one defined contribution with a current employer and two defined benefit from previous employers (one which is set at 63 the other at 65) both which allow a tax free lump sum. Im wondering if it would be best to take the lump sum from the pension I can't draw until 65 as in theory I would have less years to take payments before the inevitable happens. There is also a possibility that my DC pension might reach the threshold for the maximum tax free lump sum before when i intend to retire.
It is a time and value equation. You know the time constraint is mortality. My lump sum would take 22 years to receive on the drip. This would be taxed as income. Would I live long enough to benefit? The value side is about how much £100k will be worth as the years tick by. If invested, how much can it generate? I intend to put mine into ISAs, to draw as tax-free income.
Hi James. Would really appreciate you re-visiting student loans and where you think they fit in this table (for parents) given they now fall into the high debt box in tier 2. I've done my own analysis, and am now taking steps to mitigate the risk to my children that i see, but welcome a fresh professional view (not least because your own last video on this thorny issue is over 3 years old). Many thanks.
@JamesShack what are your thoughts on investing offshore in a country with no tax eg. in a GIA in Bahamas, instead of an offshore bond, where you will pay income tax at the end?
Hi James, could you please clarify the new isa rules regarding moving funds from 1 platform to another... If i put this years allocation of 20k into vanguard for example but in 6 months time i decided i would like to move the funds to 212 as i would like to buy individual stocks or some other non vanguard fund would this movement of funds be within the current isa rules?
It depends on your personal situation and goals. There may be reasons why you want to change this order up. But this is the path that most people should be following.
So I have 12k debt. 3k is on interest free. The rest on a loan at 6.1%. So I should build a 3-9 month emergency fund before I look to tackle that debt?? As in make overpayments.
Complete noob to this. I'm getting that stocks ISA is always better than Cash ISA, if you're willing to absorb a little risk, it's a no brainer. Is that right?
You get the same tax relief, the difference is a LISA is only available to use as a first time buter or when 60. Benefit of using a LISA for retirement is that is it tax free (a pension isnt). Downsides are you can only invest £4k per year (+£1k tax relief) and allow deposits between 18 and 40 yrs old. I am personally using one to allow me to top up my pension without paying tax.
@@Oggy1086 I worry about the possibility of getting laid-off from work and not having access to means tested benefits while job-searching because of a LISA :/
It depends on how you contribute to the pension and what tax you expect to pay when you take it out. Purely from a tax perspective: If you contribute to a SIPP or relief at source pension, and you expect to pay 20% tax in retirement then a LISA is better. If you contribute to a SIPP or relief at source pension, and you expect to pay NO tax on withdrawals in retirement then they are exactly the same. If you contribute via salary sacrifice, so you also save on NI (10%), and you pay 20% tax on withdrawal, a LISA is marginally better off. If you contribute via salary sacrifice, so you also save on NI (10%), and you pay NO tax on withdrawal, a LISA is marginally better off. The pension is quite a lot better. So, it depends…
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Would you change this order based on your personal circumstances? Let me know how and why.
An elephant in the room is interest rates. Use Cash ISA when IR is high, but property when IR is low (leveraging). Yes, I know people have socks and shares ISAs, but if you are working I would suggest you make extra AVCs and get the extra tax relief (instant 20% uplift minimum), and put that into equity in your pension (I see no point in a stocks and shares ISAs if you can do the same within a pension wrapper).
I notice Dave Ramsay over in the US always encourages overpayment of mortgage before maxing out on other related US investments. I was intrigued with this since mathematical it make little sense Shiv he seems to admit. However the reason seems to be related to powerful psychological reasons Shiv I understand. I prefer to invest first due to the cheap money on offer for mortgage purposes.
I was hoping I'd find an answer as to when UK Student finance should enter the question, but it didn't get touched upon. Wouldn't it be considered Tier 3 as well since it's at 7.4% interests atm? For someone who'll definitly pay it off within the next 10 years at the current rate of earning.
Safer to overpay mortgage before ISA for me.
I am planning to move from the UK to Canada in 2030 so what I am doing different is maxing out my Stocks and shares ISA to have the money I need to purchase a house when I get there. I will. Be fortunate to have an immediate pension when I leave the military after serving 22 years and will rely on that. I'm not building up any private pension in the UK but aim to start that when I get to Canada at age 40. I am a little unsure how moving private pensions to other countries works.
This is absolute gold, thanks James!
I'm 26 and very fortunate to be in a high-paying job, but I dont have anyone close to me that is familiar with financial planning. I know it sounds dramatic, but I think it's fair to say that your channel has changed my life. I actually understand how to build a better life for me and my family now, which I can't thank you enough for, but here's a little something.
P.S. I would be very interested to understand what the *real* returns of investing in property are, once all the associated costs are factored in. People keep telling me it's the "best" investment, but what do the numbers really say?
Wow Sam, thank you so much! I really appreciate it.
I’m glad to hear you’re feeling confident about the future.
Property is so varied. Some turn out to be good some bad, just like companies. But the problem is that you can’t diversify in the same way as stocks.
It’s also very reliant on leverage, which makes it higher risk.
It’s very much a personal decision based on whether you want to be actively involved in it.
My dad was a property developer, he did pretty well, but personally I hate the hassle.
As James say, never underestimate the hassle of letting property. Sure you might get lucky and have an easy ride, but more likely not. There has been times where it was lucrative but these days with property prices so high and the government cracking down on landlords with tax etc, you'd really need to work for your return. Might well be better off financially putting that effort into your job.
Hey @unencoded depending on how much you earn it might be worth getting a financial advisor. I was in a similar situation where family’s only advice was “buy a house” and that was it. I’m always pleasantly surprised at how helpful financial advisers are in my very specific circumstances, and they have a great network to tap into.
Once i became a landlord i realised i was a useless tennant as the ones we have make multiple (albeit reasonable) demands for repairs and improvement s which we always do immediately. Overall, while we have seen perhaps a 20% capital gain in 5 years we have this year 'broken even' on all the cashflows (IRR). So 0% return and negative real returns This includes imputed rent while we lived in it. People tend to look at sale price vs purchase price when evaluating housing. They ignore: transaction fees and taxes, insurances, repairs and maintenance costs (which can be hefty) and mortgage interest. Property only stacks up if you strike it lucky (eg buy just prior to an interest rate dip or in an area that blows up) or make significant improvements OR are prepared to be a slum lord and squeeze the tenants as much as you can. Sadly i think many people take that last option. BUT if you have deep pockets and time i think developing vacant land or redeveloping urban sites can be massively great returns...just not for the avg punter who generally lacks the capital resources for this. I have a projected long run 6-7% return going forward on real estate assets for retirement planning. A number i came to after modelling future interest rate and capital growth guestimates. I think that is 'about' a fair guess for most residential type investments. IMHO.
Thank you all, I really appreciate your thoughts here.
It sounds like I really should consider working with a financial advisor (no prizes for guessing where I'll start there 😁), and property is an awful lot of work. Super helpful to hear from those with real-world experience and a view of overall returns. I think sticking with index funds will work best for me!
After years of researches to get my finances right I found this video, which covers almost everything I have learned and more in just 17 minutes. I wish this video could have existed earlier. Would save me years of head scratching. Definitely the best and should be everyone's 1st video to learn financial planning!
This bloke is absolutely fascinating.
Grade A knowledge for free on RUclips.
Welcome to the channel. There's a lot more content like this!
Excited for this video. Final bit of consumer debt paid off this month. Emergency fund full. Time to invest!
Congrats!
Big up
Not all debt is bad. A mortgage is one of the cheapest form of loan you'll be able to access, and at the moment in the UK it might be more efficient to have your money invested in something with a higher yield than the mortgage, as long as it can become liquid reasonably easy
@@DSVWAREMortgage Rates have gone up in recent years and many with your mindset caught a cold coming off fixed rate mortgages.
@@wl660 it does not matter it rates go up or not, if investing gives you a similar rate or higher than your mortgage. It's better to have your money in a somewhat liquid investment vs have it invested in a house, which is non liquid. I can sell shares and have cash available in a couple of days, selling my house, not so much
This is one of the best episodes I’ve watched, a simple summary of the end to end stages to consider throughout your investment planning journey. Thank you james!!!
Fantastic breakdown on tax-efficient investment strategies! 👍 One key point to remember is the importance of adjusting your emergency fund and insurance coverage as your financial situation evolves, ensuring that you're always adequately protected as your portfolio grows.
Excellent video… especially the bit about life insurance and critical illness cover. No one expects the worst but when it happens ….trust me it happens when you least expect it….that insurance is an absolute life saver
Well said.
I do all three things on tier 3. S&S ISA to keep me going from 55 to 57, SIPP to keep me going from 57 until I start taking my work pension and paying off the house so that living after early retirement is possible.
I found that, in order to max out your pension and ISA, you need to invest into them roughly £70k p.a. (before taxes). Therefore, unless you make around £100k gross salary, there is no reason to even consider anything tier 4 or above.
Mate, you are a legend. Best financial advisor online
Great video James. Although I’m confident I won’t get past tier 3 despite my best efforts this is still valuable information for me
Many thanks and all the best
I’m glad you enjoyed your it!
Only really started retirement planning a couple of years ago. Amazing that your tier system is exactly the order that I have done things in. I'm at the bottom of tier 3 and unlikely to drop to tier 4 with retirement just around the corner. Thank you so much for confirming what I've been doing. No financial planning experience, but okay at arithmetic and common sense.
Really expensive debt like overdrafts and some credit cards should be paid off before everything else. You can always use them for emergencies if they arise. This is not a commonly held view but with some overdrafts and cards having rates of over 30% you simply have to focus on paying them off or you will never reach tier 1 never mind any of the others. Great video 👍
Well said, and that's exactly where I am now. I will prevail!
Absolutely. Martin Lewis's biggest tip. You can't save for emergencies if you're servicing interest. Here in the UK you can get good 0% purchase cards, and balance transfer deals to help.
Personally, I have a few months rent and bills set aside, and I pay into an ISA, and a FTSE dividend fund. I need to sort out some insurance now.
I would hope that it is a commonly held view! Paying down high interest debt is a guaranteed return far higher than any short-term and risk free investment returns. The psychological benefit of removing that weight from around your neck is greater than that derived from a similar gain in investments and it puts you in a position where, hopefully, you can eventually make the positive change from debtor to investor with no negative impact on finances and family circumstances.
@@davem.4003 indeed, however, many financial commentators say emergency fund building and pension matching take priority
@@davem.4003 strangely amongst financial commentators they seem to favour building an emergency fund and making workplace pension contributions before paying down high-interest revolving credit
I thought I'd watched every YT finance video and had nothing left to learn, but I still like to watch them and dream of retirement.
Until this video I'd never thought to consider dumping my ISA in the pension a couple of years out from retirement, every day's a school day!
My normal salary is £43K but last year I was put onto overtime work and it was only in January I realised that I was going to go over the £50K threshold and start paying 40% tax and halve my savings allowance. Belatedly I asked payroll to pay my overtime directly into my company pension. However, I was still going to go over and so made a voluntary contribution based on the overtime money I had made, I plan to cover this in a self assessment tax form to reduce my tax in this financial year. I wish I had been sharp enough to have spotted this last year and had my overtime put straight into my pension back then. Hope this helps others.
At least you noticed before it was too late and now you know for the future.
And now we know thanks to you!
Great, very clear and concise overview. Very helpful, thank you!
This is a brilliant video, clear and well communicated, but maybe one additional tier - invest in the here and now, spend money on experiences snd trips with your children or by yourself that you won’t be able to do when you are older.
PLEASE do a video on Personal Insurance. I’m not sure what would be good to have covered
Another excellent video with high quality graphics. These should be part of every 18 year olds education in life.
Hi James, great video. I’d love you to do a deep dive on tier 6 in a future video, pros & cons, and which of the tier 6 videos is best for which situation. Also include blood lines trusts and wills in the video content too. Thanks. Cheers 👍
Sound advice as usual and a good time of year to give it. When I was young there were no people like you around. I learned gradually. I was always a saver, good habit from my parents. My first monthly pay as a trainee was £39.50 per month, that was back in 1973. I joined the pension fund immediately.
I’ve raised two children and put them through university. Yes for all the younger boys and girls watching you will have to change your plans at some stage. You will need all those insurances. However if you can follow the advice given by James you should be “comfortable” in retirement.😊
Thanks for the comment and wise words Ian.
What do you think about investing in gold or silver, especially in capital gains tax-free products like Britannia coins? I'm considering renting a safe deposit box, which costs around £100 per year in London, to store them. But yeah, only after maximizing my ISA and potentially my pension
Another great video James. Nice to see a logical flowchart and as always explained very well. Keep up the good work!!
This is such a well put together video. Thank you !
Proof if you ever needed it of all the tax dodges and efficiencies available to the high earners. Yet they've frozen the limit everyone begins to pay tax for how many years (to the point that the basic state pension isn't far behind being caught up in being taxable income)
Appreciate all the videos you do James and certainly not meant as a knock against you, just shows how many options there are out there.
Folk accessing anything below tier 3 are in theory already paying far more tax than most of us. I'm not one of them unfortunately, but just a thought.
What I would say to this is that most people never pay any tax on investments. They have a tax rate if 0% because they get relief on interest in bank accounts, CGT relief on anything they sell in a general investment account, primary residence relief on their home and never fill their ISA or Pension allowances.
If you are a combination of fortunate and hardworking enough to use up your allowances, the tax rates are very high. If you have paid 45% tax on your income (plus lost your child benefit, interest allowance, pension allowance etc), then you're paying 20% on your gains made using money that's already been taxed, plus then facing IHT on top when you die if you don't use the tax planning tools available.
I'm not suggesting that we all get out our violins for such people, but the previous commenter is correct when they suggest that these breaks are not allowing such people to pay less tax than the typical person, just reducing what would otherwise be huge rates.
What I will say is that the very wealthy do sometimes achieve lower overall rates than some of the middle class who earn enough to pay the highest rates but not enough (or don't have the knowledge) to get advice on how to reduce tax.
Really good James but I would say get your personal insurance done ahead of building an emergency fund. For me it's a part of my monthly household expenses.
That's a fair comment, and well done for getting it sorted early!
I loved the road map. Definitely clears the fog on how you should be investing. Definitely makes sense to get an emergency fund sorted then get rid of that needless debt. I have two cars on finance, albeit very low monthly payments but after watching so many investment videos I’m going to sell up and use the profit to buy a car outright and then use the money that would have went into the cars, into my portfolio.
Fantastic flowchart.
I'd personally put the Overpayment Mortgage as optional in Tier 4 (make sure I use my GIA allowance first)
Great Video James, as usual, i'm 55 and Currently Tier 4. I have property with Pension, ISA all maxed out. No Mortgages.
This is just what I needed. Thanks James for the great content.
Great video! The one I send to family and friends when they ask where to start...
This was really helpful to hear, thank you!
I wish I had seen this video in my 20's.
The mortgage overpayment balance can act as most of your emergency fund. Ie I can choose to pay next month's mortgage out of the balance and use the money I would have paid in for the emergency. The mortgage overpayment is basically a savings account on many mortgages.
I have always pushed ‘emergency fund’ down my investing agenda simply because of the psychological idea that I’m delaying saving for my retirement.
However, our neighbour’s oil tank has just leaked 3000L into the ground and contaminated the surrounding area. Our insurers have decided that we are under-insured (lesson: get a rebuild valuation survey on your house every 5 years). Now we could find ourselves having to fork out £00,000s (doesn’t matter that the neighbour is liable).
Luckily, I received some inheritance which could hopefully JUST about cover this liability. However, it’s made me seriously understand the value of an emergency fund, and its priority in investing. I never would have thought we would be at risk of such a cost.
Keeping a £00,000's emergency fund in case of your neighbour's oil leak would be madness. Make your emergency fund 'reasonable' - and suck it up if something crazy happens.
@@danguee1 if you think about what the advice is on emergency fund (6 or so months of expenditure), we are actually talking about tens of thousands (in the situation of a couple at least).
In our specific situation, without being so fortunate receiving the inheritance monies we have, we would have no way of sucking up such a significant amount. Hence, my new found appreciation for the advice that emergency funds take priority.
Hi James, thanks as always! I have a question - overpaying a mortgage sits in tier 3 but is there a suggested tier for buying a property itself? I guess there's no single answer but are there any general principles behind foregoing some ISA and pension savings to get a foot on the property ladder?
As far as products go, maxing out a LISA > ISA is often the way to go (depending on the value of the place you want to buy).
Whether you should invest or keep the money as cash depends on when you want to buy. I discuss it here: ruclips.net/video/jCUbBLxtzMo/видео.htmlsi=aOELJEMPyxl81uN3
Also another comment to why to do investments instead of paying off mortage: I have no intention of paying off my mortage - in fact I would like to borrow a lot of money in it and live off of it. In Denmark where I live it can be hard getting a mortage to have money to 'live off' as you get above 5o, so an alternative it to do savings via investments instead of paying off the mortage.
At one point my SLC student loan interest rate was >6.5%
So glad I have paid that off and it is out my life
Everyone talks about student loans being low interest but the reality is for high earners they burn through your money
I agree. I did the same when I saw the interest rates charged on the remaining balance and knew I'd be paying it off eventually. May as well get it out of the way and use the extra interest saved to invest.
The benefit of student loans are for low earners really, given you don't pay it off if you're not working or earning very little, and it goes away if you lose your job until you're employed again. For high earners it's just a crappy debt like any other and paying it off early can make a lot of sense, it's essentially a form of tier 2 high interest debt per the video framework.
Just ride it out at a job just under the threshold of when repayments start until its automatically written off.
@@theantagonist2147 Sorry but that's utter nonsense... it's a % of earnings above a certain threshold, why would anyone choose to earn less money because 9% of the extra would go towards student loan? Engage your brain...
Excellent and far reaching contents, thanks for sharing James 👍
Another great video. Just a personal observation, after many years of investing I have given up on the 10% satellite part and keep 100% core . I’ve either lost money or the core fund has always outperformed in the long term. Also given the low allocation to satellite , even if you managed to attain alpha then it won’t make so much impact. In the past even with 90 percent core I was basically admitting and rightly so I had no idea of what will do well or not so investing 10 percent of hard earned money would be based on sheer hubris.
I am glad you enjoyed it!
For some people, VCTs have a place both from an asset allocation and tax planning perspective.
But other than that, the satellite portfolio is there to help scratch an itch. If you don't have one, don't bother!
Yip, back to forms of stock picking with satellite, I avoid too.
The satellite part could be something that interests you. One of my late Father's best investments was Lego train sets - about 400% return in 20 years. One tip on that though is that items marketed as "collectables" tend to be very poor investments. Unless, of course, they are sold by Royal Mint and made of gold or silver.
@@MrDuncl agreed on Lego sets. Great investment along with original Star Wars figures from the 70s and 80s- boxed of course.
Very informative video. One decision I've made (that is the opposite of what you've suggested), is to "front load" my kid's inheritance to them by contributing their maximum JSIPP allowances each tax year until they're 18 and also a small amount each month into high-risk S&S JISAs (again, until they're 18). This way, I can let the magical mix of time and compounding interest work their magic while I make the most of my later life (as I plan on retiring at 55 or so).
I've also set up a discretionary trust for them, but it means that I can move my Ltd company shares into it upon my death and I have age-related controls on when my kids can get any access to said funds and/or company shares. My pensions are also set up to automatically pay into said trust if I die before I can access it.
Keep up the good work. I wish I had of had such financial education a *lot* sooner than I did...
Thank you !! Just the ticket, been looking for a video like this, a great guide of what to tackle 1st and how proceed, simply brilliant !! Have my thumbs up James.
I’m glad you found it useful!
Hi James, great video as always! Just wondering where your figure of 200k for the GIA comes from? Is this just where CGT really starts to build up, or any other considerations? Thanks!
I wanted to pick something to give viewers an idea, but it really depends on your situation.
Many people end up with a large GIA because they receive a lump sum either from selling a home, a business or an inheritance.
Say that's £500k. If you're an HRTP, you're likely going to end up paying quite a bit of tax on that. However, if you can squirrel that into ISA, Pension, and JISA allowances over the next five years or so, there's probably no point in doing anything more complex.
The GIA brings maximum flexibility at the cost of tax efficiency, whereas tiers 5 & 6 bring OK tax efficiency with poor flexibility.
I have a client who has £1m in a GIA (split between him and his wife). He is starting a new company, so right now, flexibility is the most important thing for him. The fact that they have no other income also makes the GIA easier to manage.
On the other hand, I have some clients who are high earners, maxing out all of their allowances, now building up a GIA, and we're recommended VCTs even with a small GIA (
@@JamesShack that makes a lot of sense, thanks so much!
Thanks James. As always great content!
Excellent overview & you have made me reflect on my next financial move.
You have inspired me to think about getting into the industry of financial advising/planner. Where would you recommend to start as my qualifications and work history is completely unrelated
What about sharesave schemes? The share price for the company I work for is over 50% more than the option price
I like your way of explanation.
That is nice, I do like it too
Okay, thank you. That's nice of you
Fantastic one
Thanks for this video, really helpful. I imagine most people would be at tier 3 and if they did a good job of these they'd be well sorted for life. I'm overpaying my student loan right now to get rid of it asap and would like to put those loan deductions I get, back into my pension. My company does the 3% but I imagine I could choose to pay more for tax relief, even if my company doesn't contribute more.
Awesome video, thank you for sharing!
This video could not have been timed better. Thank you, James.
James,
Have stumbled upon your channel and.. wow.. was blown away. Thank you so much for doing this.
Quick question on the waterfall which may be relevant to others here:
My wife and I have relocated to the UK a decade ago, hence, given our age can’t achieve full state pension status. So question is whether topping up to to achieve full state pension status is a high tier allocation of funds in your view.
Thank you
Ah yes, a good point.
Generally, yes its one of the best investment you can make but it depends on your situation.
I've made a video on this below. However, the deadline has now been moved to April 2025.
ruclips.net/video/fG_D-JFdwBM/видео.htmlsi=S3KBzcA96iXwPSxH
Great content and very eye opening!
That's true 👍👍
Where do you pay off the low interest debt?
Outstanding explanation.
Hi James, thank you very much for your contents, very informative and clear.I have a work pension scheme with my employer which enrols me automatically with a well known provider. I find that the total annual charges are relatively high, between 0.8 - 1.3 %. I am considering to pay in the work pension only the amount that my company matches and then pay the rest into a SIPP, where, in theory, I should be able to get the same tax relief (via tax relief claim, my employer does not top up the NI into my pension) and to allocate the investment personally with potentially lower fees. What would be your suggestion? It would be great a video on this topic to compare the different scenarios and actual charges/saving.
If your workplace pension is a salary sacrifice pension, then it may be more tax-efficient to pay it rather than a SIPP because you also save on NI.
If you don't like your workplace pension platform, you can often partially transfer out of it into an SIPP.
So you keep £100 in there, and keep getting your employer conts, but the rest is being managed in your own SIPP.
Yes, it is a salary sacrifice. I'll check the details about the NI further then. Thank you James.
James, you are a superstar. Such an encyclopedic depth and breadth of knowledge, very useful even to experienced investors.
Can someone explain why financial advisors just ignore the need for a deposit for a mortgage? It is like they assume we are born with a mortgage. For many people, getting away from rent is a massive saver
Property can be a good investment but personally, I need flexibility to move where work needs me. I'm too busy to be a landlord and not wealthy enough to have a company manage a property for me.
Mortgage is there as an investment, rent is there as a living expense so I think they do cover it. Your lifestyle depends how you manage your investments/expenses.
Car is absolutely something I will never buy again! Lost 50% selling it when I had to move overseas 😢
I personally believe the Pension contribution match should be above Emergency fund.
Interesting useful video. Wonder what percentage of people in the UK can now manage to save up an emergency fund to last them more than a month. A Jan 2024 survey (finder) reckoned 25% of us have £200 or less in savings. Inequality appears to be out of control.
Great video and I love the visualisation of the process being a visual learner. One question though, you omitted to mention about investing in Gilts in the GIA as a way of investing once maxed out on ISA and Pension. I am planning to sell my main residence and move back in to my rented house then sell the rented house once established as our main residence. The profits to then be invested in gilts amongst other things as they are free of capital gains. Is there a problem with this plan?
Gilts are free of capital gains, but you will pay income tax on the coupon.
You can buy individual gilts that trade below their par value, meaning that some of the return is tax-free. However, buying individual bonds is quite fiddly. You really don't want to buy the wrong one!
I've never seen a retail investor who has done this; I've only seen advisers/DFMs do it for clients holding large amounts in gilts.
But that's not so say you could not do it.
Asset allocation should always come before tax efficiency. So make sure you don't end up putting lots in gilts to save a bit of tax when perhaps it should be invested in equities.
@@JamesShack many thanks for reply. Must admin I have been listening to Ramin. This plan is a few years away so the situation may change. Thanks for your excellent tips. Just hope my idea of moving back to rental property for a year will flip OK to enable Main Residence Relief.
Lots of good stuff in there James, and food for thought as well, thank you.
I’m Canadian. What is isa?
Great to sort it into "tiers" like that. Perhaps you might have mentioned gilts somewhere around Tier 4 (GIA)? ... millions more are likely to be hit by CGT in coming years due to the fast-disappearing allowance. For many (particularly higher-raters) short-term low-yield gilts will probably be better than savings accounts or Premium Bonds for their "emergency fund".
Glad you liked it.
What makes you say a gilt would be better than a premium bond for a HRTP?
Gilts that are trading below par value are useful, as part of the return will be tax free, but they’re fiddly to invest in.
@@JamesShack HRTP ... an acronym too far! just tried looking it up and none the wiser! = Emergency Fund? A couple of things about Premium Bonds which I didn;t like when I considered it: 1) lots of rich people have the full £50K "invested" there and not surprisingly win most of the big prizes. 2) I believe PB rates reflect inflation, whereas short-term gilts respond to govt short-term borrowing requirements... at the moment I believe PB "rates" (i.e. probabilities of returns) are likely to drop quite fast. 3) I found out that there is quite a long gap between buying PBs and the "first monthly draw" for which those newly purchased PBs quality, which is annoying 4) I was deeply unimpressed by NS&I's (dis)organisation... they're basically a failing institution 5) gilts' returns are just, to put it bluntly, better than putting your money in a savings account.
I'm not sure why you say they're fiddly to buy and sell... they are bought and sold like shares on (I think) most platforms. Maybe there's some kind of voodoo in working out which one to actually buy, is that what you mean?
NB yes, the idea is to buy low-yield gilts, so the income (subject to income tax) will be negligible. But the growth will be exempt from CGT.
@@JamesShack I replied to this but YT has *!*/??**ing swallowed my answer. Long story short, PBs looked worse the more I looked into them.
This is tailored specifically to the UK I suppose?
In Belgium car loans are cheap, like 4% right now, which might be a lot lower than in the UK..
Also company pension plans work differently - either your employer has it, or doesn't have it, but there is never a personal contribution involved, it's all done automatically.
Never get a loan on a depriciating asset. It's automated in the UK. But you have an option to overpay and employer has to match contributions up to a certain amount.
Excellent video
That's an amazing video, James! Thank you! I have a very quick question I hope you can help me with. I understand well the additional contributions in DC pensions, but I have a DB pension and I cannot put any additional money into it. Have you got any advice for these types of pensions? Don't get me wrong, I know DB pensions are gold dust and I am very happy about it! It's just a shame I can't put more money into it. Thanks!
Does the scheme have an AVC you can pay into? Some schemes will allow you to use an AVC pot to pay your tax free cash at retirement without reducing your annual pension. If not, you'll have to improve your pension position using a personal pension or topping up your employer's DC scheme. Get a financial adviser to help you.
Spot on my friend. Awesome video! Thank you for all the knowledge and nuggets you had thrown my way over the last month. I have accumulated 180k today. Started with 17k in last month 2024 Investing with Sylvia Nicolas
Wow that's huge, how do you make that
much monthly?
Honestly? I'm so excited. Sylvia Nicolas strategy has normalized winning trades for me also and it's a huge milestone for me looking back to how it all started😃
The first time we had tried, we invested $4,000 and after a week we received $16,400. That really helped us a lot to pay our bills.
Most people are retiring this year and have nothing to show for. But I assure you it's never late to get your financial life together again. All thanks to Mrs. Sylvia for me and my family.
Wow wow please is there any way to reach her services, I work 3 jobs and have been trying to pay off my loan for a while now, please help me..
Very good video. First time I have seen all the options and some logic put on one page. Thank you.
Hi James, great video once again! General question, I hold US equities that pay dividend within my ISA and am being taxed at 15% withholding tax. Is this something I can claim back?
Hi James, I really enjoy your channel. it was the first I came across when I first really started thinking about retirement earlier this year - 35M (and now the only one I watch consistently). I have a question on the flow chart on the 3rd line. When doing some rudimentary calculations it looks like if I am: 1. salary sacrificing at higher rate tax 2. projected to be drawing down my salary from my pension at lower rate tax (40k or under + state pension). Then its more tax efficient to put money into my SIPP than an ISA (to the tune of 20% extra when taken out) - provided I keep close track it wont soar over 1.25mil (assuming taking out 256k tax free and 4% drawdown of the mil). Should I be taking this approach for line 3 = limited pension contribution, then ISA, then pension again and then mortgage overpayment (rate is 3.99%) - Am I correct or have I missed something? Thanks
I liked the video, lots of good information! I have a question that I am sure others are now thinking... When does it make sense to cash out ISAs into pensions from a purely tax perspective? Is there a tipping point when this should be done?
Whenever you feel like you no longer need the accessibility of an ISA.
It simple. You need to pay off all your debts (including car and mortgage) before you start investing. I was lucky enough to pay all my debts by age 35 which enabled me to invest and still have a good lifestyle on one income although that's mostly not possible for people today. Never need life insurance if you don't have debts.
Very interesting video!
I have a question regarding pension contributions: you seem to be limiting it to the point where your company stops matching it (in your example, 7%), but you said nothing about going for potentially much higher contributions to avoid the 60% tax brackets. Is it a good strategy, vs. taking the hit of this tax bracket but moving further in the tiers you have described? (for instance I am currently putting 40% of my qualifying earnings in my pension, waaayyyy beyond the matching threshold of my company).
The order of the unmatched pension versus ISA was the only part I wondered about. For me, there's a balance between the two dependent upon your current ISA balance, your income and your age. For example, if you earn £120k and are a parent of a toddler, it would be insane not to pay at least £20k into your pension.
James does touch about this at 7:15 into the video, but not in a lot of detail
I talk about this at 7:08.
I did a recent video on it too ruclips.net/video/pE2V83OybUo/видео.htmlsi=CsWkUSCt7zASs6Sk
Question for James (and all): in which tier would you put ‘UK primary/secondary private education for your dependants’?
That would sit outside of this framework. The vast majority of people fund private education from income. So, during that period, whenever it comes, you would have less money to save towards this tier structure. You may even move down a tier.
Even those that "save up" to fund private education tend to still fund it entirely from their income and save little or nothing, but because they saved a lot beforehand, that money remains invested and keeps compounding.
You should be able to at least complete tier 1 whilst paying for education; if you can't, then you should be questioning whether that is actually affordable.
How do you insure tail risk on a large pension pot?
Is there a minimum limit of money you have to invest in order to work with a professional advisor?
I have to disagree in "First do this, then this". For most people it will be better to start with the later stages from the beginning or at least when the previous haven't finished.
You might lose some % of the theoretical gains. But many people will quit when they don't see small results from the start. It might be such a motivational gain for your emergency fund to have some dividends from your parallel investment.
Is there any equivalent video about the best sequence of taking money (reflecting implications for income tax, IHT and degradation of returns)?
Hi James. What would you recommend (regarding pensions) for people working for the NHS and enrolled in the NHS pension scheme? Would that be worth to have a private pension as well as the NHS one?
If you don't think your NHS pension will be enough or if you want to retire earlier, then yes it can be useful.
Hi James, I've been paying into a S&S LISA for retirement purposes, as a lower rate tax payer, for the last few years. However, I'll soon be a higher rate tax payer. Would the advice now be to leave the LISA to grow and open a SIPP and pay into that instead?
Brilliant video, so informative. Thankyou James! 🫡
Great videos @JamesShack. Any chance you could do a video around approaches for people with mixed pensions e.g. I have one defined contribution with a current employer and two defined benefit from previous employers (one which is set at 63 the other at 65) both which allow a tax free lump sum. Im wondering if it would be best to take the lump sum from the pension I can't draw until 65 as in theory I would have less years to take payments before the inevitable happens. There is also a possibility that my DC pension might reach the threshold for the maximum tax free lump sum before when i intend to retire.
It is a time and value equation.
You know the time constraint is mortality. My lump sum would take 22 years to receive on the drip. This would be taxed as income.
Would I live long enough to benefit?
The value side is about how much £100k will be worth as the years tick by.
If invested, how much can it generate?
I intend to put mine into ISAs, to draw as tax-free income.
At what stage would you save for a house deposit if not already on the property ladder?
After getting an emergency fund. There are ISAs specifically aimed at house buyers but the limit on how much you can pay into them is tiny
Hi James. Would really appreciate you re-visiting student loans and where you think they fit in this table (for parents) given they now fall into the high debt box in tier 2. I've done my own analysis, and am now taking steps to mitigate the risk to my children that i see, but welcome a fresh professional view (not least because your own last video on this thorny issue is over 3 years old). Many thanks.
What if you are a solo entrepreneur? How can take advantage of pensions?
@JamesShack what are your thoughts on investing offshore in a country with no tax eg. in a GIA in Bahamas, instead of an offshore bond, where you will pay income tax at the end?
How do I find this guy but for Australia?
Muchas Gracias!
What about lump sum vs pound averaging investment especially when indexes/commoditoes/bonds are all at peak ? Thanks.
Is the chart suggesting maximising ISAs 1st before contributing to SIPPs?
Hi James, could you please clarify the new isa rules regarding moving funds from 1 platform to another...
If i put this years allocation of 20k into vanguard for example but in 6 months time i decided i would like to move the funds to 212 as i would like to buy individual stocks or some other non vanguard fund would this movement of funds be within the current isa rules?
Yes you can do that.
Thanks James. Enjoyed this.
Glad you enjoyed it
Great content very helpful.
@jamesshack would this be your recommendation on what to do with a windfall of cash?
It depends on your personal situation and goals. There may be reasons why you want to change this order up.
But this is the path that most people should be following.
So I have 12k debt. 3k is on interest free. The rest on a loan at 6.1%. So I should build a 3-9 month emergency fund before I look to tackle that debt?? As in make overpayments.
Can someone explain why so many people overlook insurance? If it's so crucial, why is it the least talked about? 🛡😲
Complete noob to this. I'm getting that stocks ISA is always better than Cash ISA, if you're willing to absorb a little risk, it's a no brainer. Is that right?
Is a LISA or pension more beneficial for a basic rate tax-payer?
You get the same tax relief, the difference is a LISA is only available to use as a first time buter or when 60.
Benefit of using a LISA for retirement is that is it tax free (a pension isnt). Downsides are you can only invest £4k per year (+£1k tax relief) and allow deposits between 18 and 40 yrs old.
I am personally using one to allow me to top up my pension without paying tax.
@@Oggy1086 I worry about the possibility of getting laid-off from work and not having access to means tested benefits while job-searching because of a LISA :/
It depends on how you contribute to the pension and what tax you expect to pay when you take it out.
Purely from a tax perspective:
If you contribute to a SIPP or relief at source pension, and you expect to pay 20% tax in retirement then a LISA is better.
If you contribute to a SIPP or relief at source pension, and you expect to pay NO tax on withdrawals in retirement then they are exactly the same.
If you contribute via salary sacrifice, so you also save on NI (10%), and you pay 20% tax on withdrawal, a LISA is marginally better off.
If you contribute via salary sacrifice, so you also save on NI (10%), and you pay NO tax on withdrawal, a LISA is marginally better off. The pension is quite a lot better.
So, it depends…