To ISA or to SIPP, or to do both, that is the question? Thoughts of Saltydog Investor

These are not investments in their own right, but are tax wrappers which if used properly allow you to influence how much tax you will pay to the government when the time comes to avail yourself of the proceeds.

I am sure that if you subscribe to Saltydog you will be as familiar as I am, if not more so, with the opportunities on offer from the use of these wrappers.

Using a SIPP gives an upfront bonus from the government of 20% for basic rate tax-payers and 40% for higher rate earners. In the first case, for every £800 saved it is turned into £1000, and in the second case £600 is turned into £1000. When you reach retirement age you can then drawdown 25% of the total pot tax free, and the balance is treated as taxable income.

The ISA method works the opposite way around. The government makes no upfront contribution to your savings, but you can drawdown from your ISA savings including any gains, without incurring a tax charge. It should also not be necessary to include this in your tax return.

The maximum amount that can be saved in a SIPP each year varies from individual to individual according to salary and circumstances, and probably needs checking by an accountant. The ISA maximum amount is straightforward and the same for everyone – it is currently £20,000 per annum.

Towards the end of my working life, I was extremely fortunate to be able to invest the annual maximum allowed into each of these types of tax wrapper. This has meant that I am now able to take from the SIPP up to the maximum annual personal allowance and then top up our needs from the ISA. This approach has reduced my annual tax bill to zero.

At long last, after years of my companies creating millions for the taxman, it is payback time!

At long last, after years of my companies creating millions for the taxman, it is payback time!

The only reason that I have written about this subject now, is because of the economic situation that the country currently finds itself in owing to the financial action taken to relieve the effects of Covid-19 on the finances of businesses and the working population.

One of the ways that the Chancellor might claw back some of the country’s debts might be to cancel this tax bonus in the future. If he takes this action, hopefully it will not be retrospective.

Certainly, this is a giveaway that most of the population would feel has always been a gift to the wealthy, so they would not be shedding any tears!

If there is any truth in this it could be the time to make sure that you not only have your SIPP covered but also your ISA – which tends to be the poor relation.

Back to more mundane things like our actual investment sectors. Well, I am still sticking with the green/clean, sustainable, and some technology funds, and of course the hydrogen shares.

These funds are making large gains and the hydrogen shares are doubling and trebling, so not much to cry about there.

I have been asked by many people when should they sell and secure the gain. Of course I do not know the answer to that question.

I can say that when the earth was young and dinosaurs roamed the earth, I bought ASOS shares and Hargreaves Lansdown when they were valued in pennies and I sold them when they were both around the pound mark, thinking that I had done very well which of course I had.

But not as well as I might have done when they were latterly valued in tens of pounds. So good luck with that one!


Founder & Chairman
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Saltydog Investor Ltd is not authorised or regulated by the Financial Conduct Authority, and does not provide financial advice. Any information you use, or guidance you follow, is entirely at your own risk.

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