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    • economic
    • By economic 2nd Jan 18, 5:57 PM
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    economic
    SIPP tax free lump sum
    • #1
    • 2nd Jan 18, 5:57 PM
    SIPP tax free lump sum 2nd Jan 18 at 5:57 PM
    Quick question:

    My dad has a SIPP and say its invested in a number of funds and shares. If he decided to take a 25% tax free lump sum, is the 25% taken proportionately across the funds/shares he is invested in or can he decide which funds to sell for the 25% lump sum?

    thanks
Page 1
    • bowlhead99
    • By bowlhead99 2nd Jan 18, 6:00 PM
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    bowlhead99
    • #2
    • 2nd Jan 18, 6:00 PM
    • #2
    • 2nd Jan 18, 6:00 PM
    SIPP is Self Invested Personal Pension.

    It is entirely up to him what he might prefer to sell in order to generate the amount of cash that he'd like to take out of the pension - whether that cash will represent a tax free lump sum, or a mixture of tax free amount and taxable pension income.
    • AnotherJoe
    • By AnotherJoe 2nd Jan 18, 6:44 PM
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    AnotherJoe
    • #3
    • 2nd Jan 18, 6:44 PM
    • #3
    • 2nd Jan 18, 6:44 PM
    I think if he did nothing at all they might well take it proportionally from the contents, but it’s a simple matter to take charge, sell what he wants to and then take the 25% from the cash he’s released.
    • ColdIron
    • By ColdIron 2nd Jan 18, 6:55 PM
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    ColdIron
    • #4
    • 2nd Jan 18, 6:55 PM
    • #4
    • 2nd Jan 18, 6:55 PM
    Probably worth mentioning that he likely can't just take the 25% tax free and do nothing with the other 75%
    • triplea35
    • By triplea35 2nd Jan 18, 7:01 PM
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    triplea35
    • #5
    • 2nd Jan 18, 7:01 PM
    • #5
    • 2nd Jan 18, 7:01 PM
    Probably worth mentioning that he likely can't just take the 25% tax free and do nothing with the other 75%
    Originally posted by ColdIron
    I thought you can with Drawdown?
    • ColdIron
    • By ColdIron 2nd Jan 18, 7:09 PM
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    ColdIron
    • #6
    • 2nd Jan 18, 7:09 PM
    • #6
    • 2nd Jan 18, 7:09 PM
    I thought you can with Drawdown?
    Originally posted by triplea35
    You can but this may mean a sale and repurchase of existing funds. Different platforms will treat this in different ways
    • AnotherJoe
    • By AnotherJoe 2nd Jan 18, 8:25 PM
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    AnotherJoe
    • #7
    • 2nd Jan 18, 8:25 PM
    • #7
    • 2nd Jan 18, 8:25 PM
    Probably worth mentioning that he likely can't just take the 25% tax free and do nothing with the other 75%
    Originally posted by ColdIron
    Why? Thatís exactly what I did.
    • ColdIron
    • By ColdIron 2nd Jan 18, 8:51 PM
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    ColdIron
    • #8
    • 2nd Jan 18, 8:51 PM
    • #8
    • 2nd Jan 18, 8:51 PM
    Why? That’s exactly what I did.
    Originally posted by AnotherJoe
    Presumably you moved it into drawdown? What I was getting at was that you can't just pluck out the 25% with no change to the remainder
    • economic
    • By economic 2nd Jan 18, 8:58 PM
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    economic
    • #9
    • 2nd Jan 18, 8:58 PM
    • #9
    • 2nd Jan 18, 8:58 PM
    What happens if my Dad is not in drawdown for his SIPP? Can he take the 25% lump sum (after he sold the relevant shares for the 25%) whilst still being not in drawdown (before and after the lump sum is taken)?
    • ColdIron
    • By ColdIron 2nd Jan 18, 9:32 PM
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    ColdIron
    Essentially he can do one of two things. 1) Move some or all of it into drawdown and take the 25%. This may involve a sale and repurchase, platforms differ. He doesn't have to take an income from the investments/cash in drawdown yet if he doesn't want to, it can remain invested or held as cash 2) Withdraw some or all of it from the SIPP as cash, an Uncrystallised Fund Pension Lump Sum, 25% of this will be tax free but will obviously require a sale of the whole sum. He can do both 1) and/or 2) in stages or phases and not all at once. What he cannot do is pluck out the 25% and leave the remainder not in drawdown, something has to happen to it even if it's just a change of status
    • Linton
    • By Linton 2nd Jan 18, 9:54 PM
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    Linton
    It is just the order in which things happen and how the pension is classified....

    All or part of a pension is put into drawdown. You can then take 25% of it tax free. You may or may not choose to take any of the remainder at that time. It is still classed as being in drawdown.
    • AnotherJoe
    • By AnotherJoe 3rd Jan 18, 9:45 AM
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    AnotherJoe
    Yep, my 75% is in drawdown but I’m not yet drawing any down.
    • Audaxer
    • By Audaxer 3rd Jan 18, 9:58 AM
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    Audaxer
    Yep, my 75% is in drawdown but Iím not yet drawing any down.
    Originally posted by AnotherJoe
    Just trying to get my head around drawdown. Does that mean you have already drawn down the tax free element, and the remaining 75% is still invested and when you eventually withdraw money from that it will all subject to income tax? Apart from that, when the SIPP is in drawdown is it just the same as if it wasn't in drawdown, i.e. it remains invested and you can still buy and sell investments within the drawdown amount?
    • westy22
    • By westy22 3rd Jan 18, 10:14 AM
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    westy22
    Just trying to get my head around drawdown. Does that mean you have already drawn down the tax free element, and the remaining 75% is still invested and when you eventually withdraw money from that it will all subject to income tax? Apart from that, when the SIPP is in drawdown is it just the same as if it wasn't in drawdown, i.e. it remains invested and you can still buy and sell investments within the drawdown amount?
    Originally posted by Audaxer
    Exactly so. Also bear in mind that if you take even £1 out of the remaining 75% your future pension contributions will be limited to £4,000 pa due to the Money Purchase Annual Allowance (MPAA) restrictions
    Old dog but always delighted to learn new tricks!
    • ColdIron
    • By ColdIron 3rd Jan 18, 11:55 AM
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    ColdIron
    Just trying to get my head around drawdown. Does that mean you have already drawn down the tax free element, and the remaining 75% is still invested and when you eventually withdraw money from that it will all subject to income tax? Apart from that, when the SIPP is in drawdown is it just the same as if it wasn't in drawdown, i.e. it remains invested and you can still buy and sell investments within the drawdown amount?
    Originally posted by Audaxer
    Perhaps it would be easiest to give an example. This is how it would work for you at HL

    Say you have £100K in your SIPP and you decide to put £60K into drawdown. You could move all of it but for illustration let's use an example of phased drawdown. At this point, and only this point, you can take up to 25% of it as a tax free sum. You instruct HL and fill in the forms. They will create a second account for you so you will see two of them, your original SIPP and the new SIPP Income Drawdown account. HL will pay the tax free £15K into your nominated bank account and deposit £45K into the drawdown account

    £45K of your £100K is now in drawdown (even though you haven't actually 'drawn down' any of it as income yet) and £40K isn't. You can leave this as cash or invest it in anything you want just like your SIPP. Any dividends will be paid into your drawdown cash account, you can reinvest these in the usual manner. You can leave it like this for as long as you want, move more into drawdown etc. Importantly you are not taking an income from this yet so can continue to fund your original SIPP subject to the usual earning restrictions

    After a while you elect to take an income. You decide how much you want to take, £100, £1,000, monthly, quarterly etc and instruct HL again. This is the point that westy22 mentions when you trigger the MPAA restrictions but that may have already happened if you had taken income from your DB pension you mentioned elsewhere. HL will carry out your instructions and pay your income into your nominated bank account, this is taxable income. You should make sure you have cash to cover this unless you want them selling bits of your investment. If you hadn't already done so you could choose to move some or all of the £40K in the SIPP into drawdown

    Other platforms will have different mechanics but the principles will be the same, for instance if you opted to move the lot into drawdown you wouldn't have 2 accounts
    • Audaxer
    • By Audaxer 3rd Jan 18, 8:35 PM
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    Audaxer
    Say you have £100K in your SIPP and you decide to put £60K into drawdown. You could move all of it but for illustration let's use an example of phased drawdown. At this point, and only this point, you can take up to 25% of it as a tax free sum. You instruct HL and fill in the forms. They will create a second account for you so you will see two of them, your original SIPP and the new SIPP Income Drawdown account. HL will pay the tax free £15K into your nominated bank account and deposit £45K into the drawdown account

    £45K of your £100K is now in drawdown (even though you haven't actually 'drawn down' any of it as income yet) and £40K isn't. You can leave this as cash or invest it in anything you want just like your SIPP.
    Originally posted by ColdIron
    Thanks ColdIron for that example. If the £45k was already invested in a number of funds in the main SIPP would they simply be transferred to the drawdown account in the same percentages?

    As I am retired and can only pay in £3,600 gross per year I don't think the Money Purchase limit of £4k applies to me, if I am understanding that correctly?

    I think I just need to consider whether to go into drawdown and take out £900 tax free each year and put it into my S&S ISA. Alternatively I could take a UFPLS withdrawal each year for £900 and move that to the ISA, but that would be subject to £135 tax so would only be a net £765 to put in the ISA. However under UFPLS what is left in the SIPP would still have a 25% tax free element, so not sure which is most beneficial?
    • ColdIron
    • By ColdIron 3rd Jan 18, 9:18 PM
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    ColdIron
    Thanks ColdIron for that example. If the £45k was already invested in a number of funds in the main SIPP would they simply be transferred to the drawdown account in the same percentages?
    Originally posted by Audaxer
    I think you will need to move it as cash, no problem for funds and HL will give you a break on sale but not repurchase costs for shares/ITs

    As I am retired and can only pay in £3,600 gross per year I don't think the Money Purchase limit of £4k applies to me, if I am understanding that correctly?
    Sounds right to me

    I think I just need to consider whether to go into drawdown and take out £900 tax free each year and put it into my S&S ISA. Alternatively I could take a UFPLS withdrawal each year for £900 and move that to the ISA, but that would be subject to £135 tax so would only be a net £765 to put in the ISA. However under UFPLS what is left in the SIPP would still have a 25% tax free element, so not sure which is most beneficial?
    UFPLS is a route worth considering, skipping drawdown altogether. I only used the £900 figure as it is a natural amount for the annual contribution using drawdown. If you went this route and only used HL as a cheap temporary home rather than letting the sums build up there may be merit in taking all or most of it out each year to fund your ISA. Apart from the first year where you say you have have some headroom in your Personal Allowance it'll ultimately get taxed one way or another. Do the sums but there probably isn't much in it
    • Audaxer
    • By Audaxer 4th Jan 18, 9:44 PM
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    Audaxer
    UFPLS is a route worth considering, skipping drawdown altogether. I only used the £900 figure as it is a natural amount for the annual contribution using drawdown. If you went this route and only used HL as a cheap temporary home rather than letting the sums build up there may be merit in taking all or most of it out each year to fund your ISA. Apart from the first year where you say you have have some headroom in your Personal Allowance it'll ultimately get taxed one way or another. Do the sums but there probably isn't much in it
    Originally posted by ColdIron
    Yes, using £900 as the example, if I take it out using UFPLS I would be paying tax of £135 so only have £765 to pay into my S&S ISA. Under you drawdown example, I would have all of the £900 to transfer to the ISA but £135 less tax to pay on the balance of the SIPP when eventually withdrawn, so I don't think there is any difference as far as I can see.
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