SIPP Tax Relief

sundialsuk

I have an old pension fund currently worth £6250. I am 61 and still working with no intention of retiring in the immediate future. I am self employed and want to set up an SIPP

Can I:

1. Draw out the whole £6250 from my old scheme after 6th April 2006
2. Will this be taxable
3. Can I re-invest that £6250 in to a new SIPP fund
4. Will the re-invetsment be eligible for tax relief

Can I, in subsequent tax years, if my SIPP is worth less than £15,000:

1. Draw out the whole of the SIPP fund
2. Will that be taxable
3. Can I then re-invest those monies in to another SIPP
4. Will that re-investment be eligible for tax relief

Thanking you in anticipation

dunstonh

1. Draw out the whole £6250 from my old scheme after 6th April 2006

Yes, if this is the only pension you have or have had.

2. Will that be taxable

Partly.

3. Can I then re-invest those monies in to another SIPP

Yes but No. (see 4 for clarification)

4. Will that re-investment be eligible for tax relief

No. You can pay back into the pension afterwards but what you are doing is known as recycling and the inland revenue have closed that loophole and hit it with a penalty tax charge which will make doing it pointless. There are some exceptions but you need to tread carefully on this.

I also read in some recent A day notes that if you use trivial commutation, all pensions you have must be done in a 12 month period. Clarification is still required on whether you could make a further contribution in that 12 month period and take that, providing you dont fall foul of recycling rules. Also, clarification is still required on whether you can use trivial commutation more than once. It appears that it can be activated for a period of 12 months. There is a £3000 penalty which can be levied by the revenue for false or incorrect triviality claims.

EdInvestor

Surely only the 25% tax free cash is non-taxable in a trivial commutation?

dunstonh

Correct.

Fund £15,000

25% tax fee cash £3,750
Taxable fund £11,250

Basic rate tax (22% April 2004) £2,475

Net lump sum £8,775
Total pension lump sum £12,525