Would you withdraw money to place in an ISA when in the higher tax bracket?

[Hobosapien]

Looks like the general consensus is keep it in the company but max out pension contributions.

I'm going to split my approach so not max out the pension contribs but also continue to take some cash out of company as divis to put in s&s ISA for more short/medium term flexibility.

I've already got some cash ISAs that I may as well transfer directly to s&s ISA (no impact on current year contribution limits) due to the poor return with their crappy interest rates. I know the risk profile is different but that's what investing is all about.

[sop]

Thanks for all the replies guys.

Looks like the general consensus is keep it in the company but max out pension contributions.

When I was in that situation, I left the money in the company for up to nine years before I managed to withdraw it all in years when I could so without paying higher rate tax.

While in the company it was invested.

However most of those nine years were before we were allowed to put so much in pensions, and the money was earned before IR35 came in, so had zero risk of the taxman confiscating some of it after an investigation. Now I would put as much as possible in a pension rather than retain in the company.

Did you use entrepreneur's relief to withdraw the money? I would have thought investing the money from your company would have disallowed you from ER?

Cheers

[lukemg]

Agreed - I don't think it's worth withdrawing funds at that rate to put in an ISA, you will never catch the initial tax up.
Personally I am choosing to invest rather than paying off my mortgage early but I wouldn't recommend this to everyone.
I would suggest direct company payment into a SIPP, regardless of your current age.

[ASB]

You dont have to "make up" 32.5%. You have to make up the difference between what you can withdraw it at over time and the cost of doing it now.this is not easy and at best guesswork depending upon your circumstances.

depending upon age and what happens career wise in the future this could very easily be nil. E.g. you become a higher rate taxpayer for somebody else.

it may be appropriate to consider making corporate contributions to your pension instead.

this will produce some limited tax savings (75% of it is eventually taxed) but the saving can be substantial if a higher rate payer whilst contributing and normal rate in retirement.

[IR35 Avoider]

When I was in that situation, I left the money in the company for up to nine years before I managed to withdraw it all in years when I could so without paying higher rate tax.

While in the company it was invested.

However most of those nine years were before we were allowed to put so much in pensions, and the money was earned before IR35 came in, so had zero risk of the taxman confiscating some of it after an investigation. Now I would put as much as possible in a pension rather than retain in the company.

[Eirikur]

No.
But I might put it in a pension fund

[northernladuk]

Out of interest, are you actually currently in employment? Or are you some sort of contract forum commenter?

What is this employment thing you talk about?

But it is complex. What you do should be part of an overall tax strategy based on a host of factors we simply do not know and I would guess at this point you also fully don't.

We don't know how much is in the company, how much it will grow over the year, who else is part of the company, if you have pension and other tax options and so on and so on. IMO asking such a simple isolated question just does not make any sense and the answer will just be a guesstimate and ignores all the points above that apply to the respondent. You could be comparing apples with pears.

You are not going to get a very good answer trying to look for a simplistic answer in a very complex area IMO.

[MrMarkyMark]

You know I actually included that last line because I tried to preempt the comment that I knew you would make based on your responses having read through these forums. Looks like preempting isn't enough...you just comment it anyway. Out of interest, are you actually currently in employment? Or are you some sort of contract forum commenter?

[Intel]

It's all swings and roundabouts. Depends on your personal situation. If you can take it out and leave it in an ISA for 30 years then that's different to if you'll need it in 3 years but won't have any income from the business at that point.

Or you can gamble that divi tax will be lowered in the future and leave it there assuming you'll pay less tax at that point in the future.

Personal opinion is HM Gov will "fix" the IR35 situation in the future by taxing dividends above a threshold punitively so that the tax is equal to that from income. They're not far off that now anyway and it'll save a ton of tribunal cases.

I'd take the cash, spend it on booze, women, fast cars and then blow the rest.

[LondonManc]

Thanks Dave. Yeah I agree with your point of view and calculations. Just wondering what other contractors have done when in this situation.

Cheers

Speculate - buy 6750 pounds of premium bonds, buy shares, etc?

Sit on it for warchest

Take the hit and do what the hell you want with it.

[sop]

Work out the ROI on the ISA and figure out if you can leave it there long enough to offset the tax paid on the dividends you withdrew.

Fag packet calculation says £10000 withdrawn would leave you with £6750 after tax and would take around 5 years at 10% to break even.

Thanks Dave. Yeah I agree with your point of view and calculations. Just wondering what other contractors have done when in this situation.

Cheers

[sop]

It's a complex question.....

You know I actually included that last line because I tried to preempt the comment that I knew you would make based on your responses having read through these forums. Looks like preempting isn't enough...you just comment it anyway. Out of interest, are you actually currently in employment? Or are you some sort of contract forum commenter?

[DaveB]

Work out the ROI on the ISA and figure out if you can leave it there long enough to offset the tax paid on the dividends you withdrew.

Fag packet calculation says £10000 withdrawn would leave you with £6750 after tax and would take around 5 years at 10% to break even.

[northernladuk]

It's a complex question.....

[sop]

Hi all,

Given the yearly ISA allowances and that over time they have the potential to generate a lot of revenue through interest, would you take the 32.5% hit to withdraw money to place into an ISA (namely a stocks and shares), if you were in the higher bracket?

I am aware this is a complex question, but I'm wondering what you do in this situation.

Cheers