Paying a lump sum into my SIPP

sh856531

Hi all

If I saved up a relatively large lump sum in an ISA (lets say 30K), and one day decided I would like to transfer that money into my SIPP or company pension scheme - would this transfer attract the same tax benefits as if I had paid that money in using salary sacrifice?

I am trying to decide whether I should build up said sum for my retirement. However ideally I would like the funds to remain available - ie in an ISA. I know that when I pay into a pension it gets tax relief if I do it through work - but my question is can I build up a lump sum, and then transfer it in manually and still get 20 - 40% added on by the Inland Revenue.

Clearly a 20 - 40% increase if I do it one way vs the other would settle the matter - but I'm not sure if I can get the tax boost either way.

Thanks in advance

S

atush

No, it would not get the salary sacrifice benefits o NI tax relief. but it would get TR at your highest rate ( ie Hr or BR tax). 20% if you pay only BRT, 40% if you pay enough to pay HRT. Subject to the current maximum per year of 50K.

you can only get 40% relief on salary above the HRTax band. but, you can use any unused relief from the previous 3 years.

So we can't say what TR you could get as you haven't told us enough.

but what I can say is you are torn between ISAs and pensions. If you only earn enough for BRT, then you put 80 into your pension and same day it is worth 100. The same 80 into a pension is just 80.

But you are right in considering that 80 in the ISA is available to you now, whereas the 100 in the pension is not.

But, the 80 in the isa is also available for

you to spend/waste
you to surrender to a creditor
you to declare to DHS if you fall on hard times and need any means tested benefit.

If you are worried/unsure there is no reason you cannot split your money. 100% does not need to go anywhere.

You could choose to put 1/2 and half, or split it further and invest in a 3rd way.

you do seem to perhaps be prone to impluse control. If this is so, a certain portion into a pension could be a good idea?

jem16

sh856531 wrote: »

Clearly a 20 - 40% increase if I do it one way vs the other would settle the matter - but I'm not sure if I can get the tax boost either way.

If you are paying a lump sum you may not get as much tax relief as paying it in yearly. Tax relief is limited to 100% of your earnings and higher rate tax relief is limited to the amount you actually pay higher rate tax in that tax year.

atush wrote: »

you can only get 40% relief on salary above the HRTax band. but, you can use any unused relief from the previous 3 years.

You can't get unused tax relief. The carry forward rule only relates to the £50k max that you are allowed to pay in each tax year. Tax relief only applies to the tax year in which the contribution is paid.

sh856531

Hi there

Thank you very much for your quick reply!

No, it would not get the salary sacrifice benefits o NI tax relief. but it would get TR at your highest rate ( ie Hr or BR tax)

Just so I understand - when we say "salary sacrifice benefits" - is this just the NI element that I miss out on or is there more to it? I am currently just a basic rate tax payer. I'm quite close to the threshold of being a higher rate payer - but not quite.

But, the 80 in the isa is also available for

you to spend/waste
you to surrender to a creditor
you to declare to DHS if you fall on hard times and need any means tested benefit.

This is all true - but I am pretty disciplined when it comes to these things. It's unlikely I would spend money that I have earmarked for retirement. The only way this would happen - would be in some sort of disaster/emergency - which is exactly why I might like a reasonable amount of my resources *outside* of the pension.

You could choose to put 1/2 and half, or split it further and invest in a 3rd way.

you do seem to perhaps be prone to impluse control. If this is so, a certain portion into a pension could be a good idea?

Essentially - what I have in mind is - build up a modest amount of savings that I will always maintain at a certain level - say 20 - 30k. Anything above that goes direct to pension. I was just wondering what happens if one day - I change my mind and decide to bump 10 - 20K of that straight into my pension? Do I still get the same tax benefits?

It sounds like not quite in that although I would get income tax relief - I wouldn't get NI relief and maybe some other salary sacrifice advantages that I am unaware of?

Thanks again for your help - its much appreciated!

S

sh856531

If you are paying a lump sum you may not get as much tax relief as paying it in yearly. Tax relief is limited to 100% of your earnings and higher rate tax relief is limited to the amount you actually pay higher rate tax in that tax year.

Thanks for that - I am currently about 1K short of being a higher rate payer. If I become a higher rate payer in the next year - which is possible - I doubt very much of my income will be taxed at the higher rate. I'm not too worried about the numbers involved there

Thanks!

S

jem16

sh856531 wrote: »

Just so I understand - when we say "salary sacrifice benefits" - is this just the NI element that I miss out on or is there more to it?

It would just be the NI element in your case.

hugheskevi

If I saved up a relatively large lump sum in an ISA (lets say 30K), and one day decided I would like to transfer that money into my SIPP or company pension scheme - would this transfer attract the same tax benefits as if I had paid that money in using salary sacrifice?

If you transferred it, you would not get benefits of salary sacrifice.

If instead you decided to sacrifice an extra £30,000 of salary and use the ISA money in place of the lost salary, you would get the benefits of salary sacrifice.

That does assume you have salary sacrifice available to you in the future, which may not be the case (either due to policy change or job change).

sh856531

If you transferred it, you would not get benefits of salary sacrifice.

Reading around on the Hargreaves Lansdown website and based on what the other posters said - it seems that this might not be entirely true.

If I were to do a transfer today - if I understand correctly - HL would credit my pension with an additional 20%. I would forgoe the NI benefits of a salary sacrifice scheme - but I might be prepared to live with that!

Let me know if you think I'm wrong!

Thanks

S

sh856531

It would just be the NI element in your case.

Hey - thanks for that. Thats good to know

Sorry to be a pain - but what are the NI benefits roughly? Is it something like an additional 10%, or is it less than that?

Thanks again

S

hugheskevi

Reading around on the Hargreaves Lansdown website and based on what the other posters said - it seems that this might not be entirely true.

Any pension gives income tax relief, the key benefit of salary sacrifice is in relation to national insurance savings.

Sorry to be a pain - but what are the NI benefits roughly? Is it something like an additional 10%, or is it less than that?

Depends on what your employer offers.

As a minimum, you save employee National insurance (12% or 2%, depending on income and assuming you are not contracted out).

Your employer may also choose to pass on none, some or all of the 13.8% employer National Insurance contribution saving.

sh856531

As a minimum, you save employee National insurance (12% or 2%, depending on income and assuming you are not contracted out).

Ah - ok - thats really helpful. So I think it would be the 12% mark in my case - which isn't inconsequential!

Thanks for the info - that may well swing my view in favour of having less savings and more pension...

Much appreciated

S