Using tax wrappers to increase your investment

John* had managed to retire early, before he was sixty, due to good forward planning.

He had the income from two paying final salary schemes and lump sums in cash ISAs. However, he was concerned with the poor interest rates on his ISAs and was keen to explore opportunities for growth and future income. And so, at his annual investment review, we looked into the possibility of investing in a personal or self invested personal pension (SIPP).

After considering the options, we recommended that John withdraw £2,880 from his cash ISA and pay it into a SIPP on his existing wrap platform as a grossed up £3,600 pension payment. The advantage of this was that he gained £720 in tax relief. The only possible disadvantage could be a tax liability when drawing down, but 25% is tax free when taken out and it might in fact be possible to draw down the money tax free, depending on his income.

We invested John’s money in our model portfolio in line with his attitude to risk and as appropriate to the stage he was at in life. John was delighted with the end result, which had given him £720 from what he viewed as being, in essence, a paper exercise.     

 

* Not real name

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