Self-employed retirement planning - where to start?!

Hey everyone,

I found this brilliant forum while doing some research and wanted to ask for advice.

I'm 24 years old, self-employed in the UK and make about £20,000 a year after taxes and expenses. I'd like to start planning for my retirement, and I'm somewhat overwhelmed and confused with all the information that's out there. I plan on the UK being my long-term home, and have about £4k to get started. Some of you say Cash ISAs are the way to go, others say investing in ETFs is better. What do you recommend, and where should I start looking? I understand how subjective this question is - all replies are welcome!

Thank you everyone. I appreciate your help.

EDIT - Yes, I'm a US citizen.

First question to answer is if you are a US citizen. If so then UK funds of stocks and bonds will be treated as Passive Foreign Income Companies and taxed punitively including those inside an ISA. I do have a cash ISA and although the interest is tax free in the UK I do have to pay US taxes on it.

You may be able to open a SIPP (UK equivalent of a self employed 401k). I believe you  can invest in whatever you want inside a SIPP and the IRS respects the pension wrapper and won't tax any growth  but I will have to leave others to advise on that. My son works in the UK and is a USC, and his company has the equivalent of a 401k to which he matches the employer contribution.

First question to answer is if you are a US citizen. If so then UK funds of stocks and bonds will be treated as Passive Foreign Income Companies and taxed punitively including those inside an ISA. I do have a cash ISA and although the interest is tax free in the UK I do have to pay US taxes on it.

You may be able to open a SIPP (UK equivalent of a self employed 401k). I believe you  can invest in whatever you want inside a SIPP and the IRS respects the pension wrapper and won't tax any growth  but I will have to leave others to advise on that. My son works in the UK and is a USC, and his company has the equivalent of a 401k to which he matches the employer contribution.

Thanks so much for the input! Yes, I am a US citizen. I'd been considering a cash ISA - approximately how is it taxed?

Would love to know more about the SIPP if anyone could elaborate on those.

Thanks again! The ball is already rolling!

Thanks so much for the input! Yes, I am a US citizen. I'd been considering a cash ISA - approximately how is it taxed?

Would love to know more about the SIPP if anyone could elaborate on those.

Thanks again! The ball is already rolling!

When you do your IRS return you simply report interest from each of your UK banks on a 1099-INT.  You won't receive a 1099 from any UK bank but don't need one to create an entry on your tax return.

The IRS issues an average exchange rate that I use to convert £s to $s.

https://www.irs.gov/individuals/international-taxpayers/yearly-average-currency-exchange-rates

The 2018 figure would normally be posted by end of January but may be delayed because of the government shutdown.

Note that the exchange rate to use for your FBAR filing is that issued by the US Treasury and is the rate as of December 31st. Again, this should normally be available by end of January.

https://fiscal.treasury.gov/reports-statements/treasury-reporting-rates-exchange/current.html

Where to start:-
1. Objectives. What we normally say if you're not sure of your plans - who is? - is maintain a 'balanced spend' by which we mean save enough to give yourself a fair chance as having the same standard of living after independence as you now do. That's a simple maths equation if you assume that you'll need 30 x your future spend in capital at the age of independence, and often works out at 40% of your net after housing costs.
2. Optimal Risk. Knowing when you / want to / can / be independent defines the optimal risk to take, and the maths for this is not so easy, but the point to realise is that given a target, there will be a point on the efficient frontier of risk and return which gives you the best chance of achieving your objective. For the moment, unless you're saving for a home, that's about 25% risk and high risk.
3. Asset Allocation: that tells you your asset allocation using modern portfolio theory and quite a bit of forward guessing for risk return and correlation, and although there are a lot of models out there to use freely, so people take the short-cut and go for 60% local equities, fixed interest and property. I suggest you don't take the short-cut because it's all changing.
4. Tax favoured account choice:  the outstanding people on this forum will rightly say 'no iSA' because you've got all kinds of reporting problems, but some will say use an ISA, invest in ETF funds that are registered on both sides of the Atlantic. I've actually started to wonder whether a Roth IRA is a better vehicle to use for a fellow like you, but the problem will be getting an administrator to talk to you for an application without throwing a fit because they're not registered in the State you're in (or not, if you follow me). The SIP alternative is cool and right, if you've got over 50k otherwise the charges are too high. There is much to be said for keeping it simple, by opening a stockbroker account without seeking an tax wrapper for the moment.
The more you know the less you pay in charges and hidden charges. These have more impact than tax ,for you. 
Yes, there's a book to read which gives you all this, which I've just published. I don't actually know of another one that puts it together like I have. Permit me to respect forum rules and avoid more self promotion. If you want to know what it is send me a message.

When you do your IRS return you simply report interest from each of your UK banks on a 1099-INT.  You won't receive a 1099 from any UK bank but don't need one to create an entry on your tax return.

The IRS issues an average exchange rate that I use to convert £s to $s.

https://www.irs.gov/individuals/international-taxpayers/yearly-average-currency-exchange-rates [nofollow]

The 2018 figure would normally be posted by end of January but may be delayed because of the government shutdown.

Note that the exchange rate to use for your FBAR filing is that issued by the US Treasury and is the rate as of December 31st. Again, this should normally be available by end of January.

https://fiscal.treasury.gov/reports-statements/treasury-reporting-rates-exchange/current.html [nofollow]

Thanks again! I'll look into that form to see what % of tax I'd be paying. I had to file my first FBAR for 2017, and used the IRS exchange rate. The amounts were menial as I'd just moved to the UK (so just above the 10k) cap. Should I be worried I used the wrong conversion? I wouldn't think so...

Where to start:-
1. Objectives. What we normally say if you're not sure of your plans - who is? - is maintain a 'balanced spend' by which we mean save enough to give yourself a fair chance as having the same standard of living after independence as you now do. That's a simple maths equation if you assume that you'll need 30 x your future spend in capital at the age of independence, and often works out at 40% of your net after housing costs.
2. Optimal Risk. Knowing when you / want to / can / be independent defines the optimal risk to take, and the maths for this is not so easy, but the point to realise is that given a target, there will be a point on the efficient frontier of risk and return which gives you the best chance of achieving your objective. For the moment, unless you're saving for a home, that's about 25% risk and high risk.
3. Asset Allocation: that tells you your asset allocation using modern portfolio theory and quite a bit of forward guessing for risk return and correlation, and although there are a lot of models out there to use freely, so people take the short-cut and go for 60% local equities, fixed interest and property. I suggest you don't take the short-cut because it's all changing.
4. Tax favoured account choice:  the outstanding people on this forum will rightly say 'no iSA' because you've got all kinds of reporting problems, but some will say use an ISA, invest in ETF funds that are registered on both sides of the Atlantic. I've actually started to wonder whether a Roth IRA is a better vehicle to use for a fellow like you, but the problem will be getting an administrator to talk to you for an application without throwing a fit because they're not registered in the State you're in (or not, if you follow me). The SIP alternative is cool and right, if you've got over 50k otherwise the charges are too high. There is much to be said for keeping it simple, by opening a stockbroker account without seeking an tax wrapper for the moment.
The more you know the less you pay in charges and hidden charges. These have more impact than tax ,for you. 
Yes, there's a book to read which gives you all this, which I've just published. I don't actually know of another one that puts it together like I have. Permit me to respect forum rules and avoid more self promotion. If you want to know what it is send me a message.

A lot of very valuable information here, and clearly a lot to think about. My US residence (where my parents still live) is in Puerto Rico. Wouldn't the issue with investing in a Roth IRA be the fact that the money is in USD $ and not GBP £? So am I pretty much just considering/researching Cash ISA because of the UK tax allowance and SIPP?

Fair point with the minimum amount, as I've realised most companies won't even talk to you if you've got less than 50k, which means I'm very much on my own in that sense.

Would love it if you PMd me your e-book as I'd happily take a look at it. Thanks again.

Thanks again! I'll look into that form to see what % of tax I'd be paying. I had to file my first FBAR for 2017, and used the IRS exchange rate. The amounts were menial as I'd just moved to the UK (so just above the 10k) cap. Should I be worried I used the wrong conversion? I wouldn't think so...

I wouldn’t worry about using the wrong exchange rate last year. A very minor error and this is a report only, not like you have paid the wrong tax or anything.