Any rules on lump sump pension investments shortly before taking lump sum?

itm2

I'm hoping to retire in the next 12 months, about a year before my 55th birthday. I have about £45k in "unwrapped" investments (managed funds mainly), and was wondering whether there was anything to stop me transferring these to my SIPP and capitalising on the tax relief (worth an additional £11k)?
Would I also be able to take the full 25% lump sum from the SIPP at age 55, even though there was a substantial deposit only a year before?

Linton

You can do this but...

1) You only get tax relief on pension payments up to the lower of your annual earned income or £50K in tax year 2012/2013.

2) Income from a pension is subject to tax so, overall, standard rate tax payers dont gain by £11K, but only by 20% of the 25% tax free lump sum assuming you continue to be a tax payer. If the whole of the £45K was subject to higher rate tax then the gain would be much higher.

3) Money in an ISA is much more flexible than in a pension, unless you have over £20K/year of guaranteed pension and can opt for flexible drawdown.

itm2

Linton wrote: »

You can do this but...

1) You only get tax relief on pension payments up to the lower of your annual earned income or £50K in tax year 2012/2013.

2) Income from a pension is subject to tax so, overall, standard rate tax payers dont gain by £11K, but only by 20% of the 25% tax free lump sum assuming you continue to be a tax payer. If the whole of the £45K was subject to higher rate tax then the gain would be much higher.

3) Money in an ISA is much more flexible than in a pension, unless you have over £20K/year of guaranteed pension and can opt for flexible drawdown.

I'm currently a high-rate taxpayer so maybe this would be a good idea. How is the proportion of higher-rate tax relief calculated?

Linton

itm2 wrote: »

I'm currently a high-rate taxpayer so maybe this would be a good idea. How is the proportion of higher-rate tax relief calculated?

At the end of the year total gross pension payment and tax allowances are deducted from your gross income alongside allowances and what's left is "taxable" subject to tax according to the published tax bands. So its not a question of proportion, its more a matter of pension payments reducing your income for tax purposes on a £ for £ basis.