I am gratified that my posts on tax are appreciated. I have had to learn a lot about it 1) because I don’t like paying tax without understanding how it is calculated 2) tax planning can have a big effect on investment returns, 3) there is satisfaction in learning.
I have sometimes in my life employed professional accountants and learned from them some tricks. (One such accountant offered me a job at his firm after having me as a client.) It has been a small hobby to learn more. I browse from time to time forums like taxationweb.co.uk and I read the HMRC pages. For part of my life I was subject to both US and UK tax even though living only in the UK. US worldwide taxation is a blight that people here are lucky not to have (as Trading 212 will not accept US persons as clients).
We have a SIPP for my partner with AJ Bell. Anything that goes in is free of income tax at the marginal rate. Someday, and after age 55, it can be withdraw with 25‰ tax free, either as lump sum at the start or as 25% of every withdrawal.
It is interesting to compare SIPP and ISA and INVEST. Suppose marginal tax rate in work and in retirement are both 40%. What should we do with a spare 10000? Suppose growth will be 100‰ between now and the time of spending in retirement. Let’s ignore dividend income and think only of capital gains.
ISA : 10000 earnings is taxed down to 6000, invested in ISA, 100% return, we now have 12000 which can be spent tax free, so 12000 available to spend.
SIPP : 10000 is invested tax free, 100% return, we now have 20000, which can be spent 25% tax-free and 75% taxed at 40% rate, so effectively we pay 30% tax rate and have 14000 available to spend. If we are a lower rate taxpayer in retirement paying 20%, this becomes 17000 available to spend.
INVEST taxable account : 10000 is taxed down to 6000, 100% return, we now have 12000. There is 6000 capital gains, taxed at anything between 0 and 20% (depending if we can use the 12300 annual allowance and possible changes the government might introduce), so have between 10800 and 12000 to spend,
Many will know that there are rules about contributions to SIPPs. There is a lifetime allowance of a bit over £1m on how big your pot may grow. Beyond that a penalty tax rate of 55% is applied. There are also annual limits on how much higher earners can stash in a SIPP.
TLDR : many of the UK investors on this platform might benefit from opening a SIPP. You can have one in addition to any workplace pension. The downside is that you cannot withdraw until age 55, and that age is rising.