SIPPPs and Existing Investments

Paul_Varjak

No longer wish to disclose personal information

cheerfulcat

Hi,

You have to sell and repurchase. You can move existing funds into an ISA, though.

Cheerfulcat

Paul_Varjak

cheerfulcat wrote:

You can move existing funds into an ISA, though.

My understanding has always been that existing funds cannot be moved into an ISA - that is why I asked the question about SIPPS!

cheerfulcat

I actually phoned Hargreaves Lansdown yesterday to clarify this very point. They told me that existing funds can be moved into an ISA but not into a SIPP. However, since you questioned it I checked with Hoodless Brennan's site and they say categorically that funds held outside of an ISA must be sold and the *cash* can then be transferred in. So there we are. None the wiser :-)

Perhaps you should check with your broker?

Paul_Varjak

cheerfulcat:

I did ring my broker today (Hargreaves Landsdown) but forgot to ask the question. Just waiting for more info from them, so will probably find out for sure then.

cheerfulcat

I'd be very interested to hear what they tell you. If you don't mind :-)

Paul_Varjak

cheerfulcat:

I think this answers our query (from Comdirect site):

Can I transfer existing holdings into a SIPP?
No. However, it is possible to sell the stock outside the SIPP in a standard Dealing account. The proceeds can then be paid to your pension via your bank account and the pension administrators' bank account, provided you have not exceeded the contribution allowance.

Pal

Having thought about it I have the following theory that seems to make sense:

The tax "rebate" on pension contributions isn't actually a rebate at all. Pension contributions are deemed to be a legitimate "expense" for the individual during that tax year, and so are deducted from income before income tax is calculated - you only pay tax on your "profit" during the year, just like a company. So it is not a case of the tax being payable and then it being rebated or refunded if you pay it to a pension. Tax is never payable in the first place. The arrangements for stakeholder and personal pension funds to claim back basic rate tax automatically are simply a botch to simplify the administration of this tax concession.

If you were to transfer existing savings into a pension, it is not cash earned during that year, and so could not be deemed to be an expense for that year and so would not get the tax relief.

However if you sell the investments, you can then pay it into a pension because it is assumed that you are spending the investment money in living, and using that year's income to pay the pension contribitions. Hence you can claim it as an expense and so avoid tax. The only problem is that you are limited to the contribution limits on personal pensions (17.5-40% of income depending on age).

Easy init? Life will hopefully get a lot easier when the new IR Simplification rules come in next year.

Paul_Varjak

Pal:

Even Non-taxpayers can qualify for tax relief on contributions into a pension!

For instance, as a non-earner (and non-taxpayer) I can contribute £3,600 each year (including the tax rebate) into a personal pension. This would cost me just £2,808 each year. The government would AUTOMATICALLY add £792 Income Tax rebate to my contribution (£2,808 + £792 = £3600) even though I am not a taxpayer!

The only time that they get any tax back is when the pension pays out - but up to 25% os the fund value is paid out tax-free, the remainder is subject to what ever rate of tax you pay when you receive the pension.

Higer rate taxpayers can also benefit, especially if when they take their pension they have fallen back into the basic rate tax bracket.

cheerfulcat

Paul_Varjak wrote:

cheerfulcat:

I think this answers our query (from Comdirect site):

Can I transfer existing holdings into a SIPP?
No. However, it is possible to sell the stock outside the SIPP in a standard Dealing account. The proceeds can then be paid to your pension via your bank account and the pension administrators' bank account, provided you have not exceeded the contribution allowance.

Thanks, Paul Varjak. That was the impression I got from Hoodless Brennan as well. The chap I spoke to at HL must have been misinformed. It just goes to show, you're better double-checking these things! Too many rules...

Pal

Paul_Varjak wrote:

Even Non-taxpayers can qualify for tax relief on contributions into a pension!

I know. That wasn't my point. The tax relief is not tax relief as in "You pay some money and we give you the tax back." It is "You pay the money and we completely ignore it when we calculate your tax, so tax is never due on it". The £3600 limit and basic rate tax claims by pension providers are simply rule changes introduced to reduce the self assessment burden on the Inland Revenue. The alternative would be that everyone paying pension contributions would need to complete a self assessment form.

The way that tax relief is granted is almost certainly the reason why moving investments into a pension policy is disallowed at the moment, as allowing it would require a specific exemption which very few people in the country would ever use. Unlike the basic rate tax reclaim procedure which the Government hopes that many people will use.