SIPP - Use of lump sum benefits.

triplea35

As a high tax payer I understand that I can pay £8000 into a Sipp which will be made upto £10000 with basic rate tax relief. I then reclaim another £2000 through my tax return making a net contribution of £6000.

As I am over 50 could I almost immediately 'retire' and withdraw my 25% lump sum , in this case £2500, leaving my net contribution as £3500 but having £7500 left in the SIPP, therefore having more than doubled my contribution

I would not want an annuity at this stage so could I leave it in the SIPP?

If I did this would I have to open a new SIPP each year?

Thanks

dunstonh

As I am over 50 could I almost immediately 'retire' and withdraw my 25% lump sum , in this case £2500, leaving my net contribution as £3500 but having £7500 left in the SIPP, therefore having more than doubled my contribution

You could, although I cant see the point. If you dont need the money, dont take it. You just turn the tax free pension into a taxable pension.

If I did this would I have to open a new SIPP each year?

no.

triplea35

Thanks.
What are the effects of changing it from a tax free to a taxable pension?, if the remainder remains in the Sipp and not drawn upon.
I suppose my mindset is trying to get the maximum return on a limited investment at an early stage by using the tax efficiency to the hilt.
I would not say that I do not need the money, but knowing if this was feasible I could make a larger intial contribution at the outset.
Or I could always reinvest the 25% lump sum in the next years contribution, in addition to whatever I budget to put in to get another tax benefit from it!
Does this make sense? as I am a newbie to the world of Sipp's.

dunstonh

What are the effects of changing it from a tax free to a taxable pension?

You only get one dip into that pension pot. So, 25% now means no 25% later when its higher. On death, there will be tax to pay on the pension fund remaining which is not the case if you havent crystallised.

So, putting money in is great but taking it out if it isnt needed is not great. You just reduce the effectivess of the product.

I suppose my mindset is trying to get the maximum return on a limited investment at an early stage by using the tax efficiency to the hilt.

fair enough but why crystallise it straight away?

I would not say that I do not need the money, but knowing if this was feasible I could make a larger intial contribution at the outset.

At the expense of a larger 25% later.

The idea is good but to me, taking out the 25% is not.

EdInvestor

triplea35 wrote: »

Or I could always reinvest the 25% lump sum in the next years contribution, in addition to whatever I budget to put in to get another tax benefit from it!

Recycling of tax free cash is OK as long as the 25% is less than 15k, above that it is bannned by the revenue.

Met_Bobby

May be a silly question but, could he take the income from the Sipp and pay this into a personal pension thereby building a new tax free lump sum of 25%?

dunstonh

May be a silly question but, could he take the income from the Sipp and pay this into a personal pension thereby building a new tax free lump sum of 25%?

Yes. However, as a higher rate taxpayer, the income would be taxed at 40%.

jamesd

Met_Bobby wrote: »

May be a silly question but, could he take the income from the Sipp and pay this into a personal pension thereby building a new tax free lump sum of 25%?

Yes. It would increase the higher rate income and so the contributions get attract higher rate tax relief as long as the extra income was used for that.

That makes it pretty much a 100% transfer of income into pension, with the obvious small loss being the delay between making the contributions and getting the higher rate part of the tax relief. If income is taken as a lump sum near the end of the tax year instead of as an annuity that effect is minimised. There may be some cost to pay to the drawdown provider every few years so they can calculate the maximum annual income that is allowed.

gbogest

Hello

I am new here and was looking at exactly this situation to see if it is technically possible.

Is it possible to open a SIPP before April 5th 2009 and make contributions even if you are already 50 years old?

How long after opening the SIPP are you allowed to then take the benefits?

Thanks

Geoff

dunstonh

Is it possible to open a SIPP before April 5th 2009 and make contributions even if you are already 50 years old?

Yes. All personal pensions accept contributions upto your 75th birthday.

How long after opening the SIPP are you allowed to then take the benefits?

same day (as with most personal pensions).

gbogest

Hello

Thanks for your answer.

Can I then open a separate SIPP in the next tax year and do the same again?

Geoff