Had a thought this morning. Could this be a possible strategy for someone who has a FIRE portfolio that is too SIPP heavy vs ISA and would prefer to move some of the weighting of their portfolio from SIPP to ISA (albeit slowly):
- invest simultaneously in 2 funds/ETFs:
- 1 a short position
- the other a 2*leverage position (long)
- both funds tracking the same index
- net impact (approximately) is the same as simply investing in the underlying index with no short or leverage (I know it’s not going to be quite that simple)
Put the short position into the SIPP, in theory over long term the value of this investment would be expected to go down.
Put the 2 * leveraged position into the ISA. Again in theory the value of this investment would be expected to go up but more quickly than the underlying index.
Net affect is that the investments for the individual over the longer term would shift from a position where future tax is payable (SIPP) to being tax free (ISA), and also would bring forward the age at which those investments could be accessed.
I know there are obvious drawbacks:
- these 2 positions wouldn’t provide exactly the same return as investing in the underlying fund
- likely higher fees than tracking the underlying fund
- there is a risk index goes down and makes tax position worse (probably low over long term)
- limited indexes available on leverage/short
- pension funds outside SIPP (e.g. DC workplace pension) likely can’t do this
But is there something in this? Particularly for someone with enough in their SIPP that they wouldn’t be able to access without paying 40% tax?Just for that part of their portfolio to improve their tax situation and leave amount under that in a simple index fund as normal?
Thoughts? Probably an obvious drawback I’m not thinking of. Are there any legal or regulatory restrictions on something like that?