S&S ISA / SIPP Contributions

colinjd

Bear with me on this one, I'm trying to get creative!

As my employer hasn't reached it's staging date for pensions yet I've been saving this tax year into my S&S ISA and first direct RS & TSB Classic Plus current accounts.

Both my S&S ISA & SIPP are with HL, I'm a higher rate taxpayer since starting with this employer in May and I'm trying to see what the best way is to take advantage of the additional 20% tax-relief available to me this tax year and before someone (probably) takes it away after the election.

Using the calculator on HL's website, the maximum HR tax relief I'd get based on my current salary is £2027 and in order to get that I'd need to deposit £8108 into the SIPP:

Deposit - £8108
Tax relief - £2027
HRT relief - £2027

I have about £3k in the current accounts and enough in the ISA to cover the £8108 but my question is...should I?

1) Bed & ISA £8108 worth of funds into the SIPP.
2) Deposit the £3k from cash savings + £5108 Bed & ISA into the SIPP.
3) Deposit the £3K cash into the SIPP & leave the ISA funds alone - gaining just £750 of HRT relief.
4) None of the above - it's not worth the hassle.

Thanks for your patience

masonic

Is the £3k your only cash savings? How much are you able to save from income each month?

bowlhead99

1) Just on terminology, Bed & ISA is usually presumed to mean selling shares or other assets and buying them back within an ISA. But in this case you already have the assets inside an ISA and are talking about Bed & SIPPing your ISA assets, right? Anyway:

This seems an entirely reasonable plan. Presuming you want to lock your assets up until age 55+ in exchange for tax deferment.

2) This involves preserving more of your investment assets to be available pre-55, by using up your cash reserve. There is nothing fundamentally wrong with wanting investment assets available pre 55, many of us do this.

Why was your cash savings not already in S&S ISAs? If it was because you need a cash reserve, don't lock it away in a pension.

However, if you always intended to put it into investments and had only not done so while waiting for a workplace pension, then you should be indifferent between moving 5k of S&SISA to pension and 3k of cash to pension, vs moving 8k from S&SISA to pension and then spending the cash on buying more S&SISA because it's the same thing. But the first option of moving 8k S&SISA to pension and then Not buying more S&S ISA with your spare cash implies to me that your cash is perhaps not really spare.

So, would you rather have the 3k kept in cash or 3k less cash and more investments? There is no right answer, it's different for everyone. Depends on how much other cash you have. If you have no other cash apart from the 3k it would seem stupid because then when you need cash in an emergency when you lose your job or face some crisis, you may have to sell S&S ISA assets at perhaps very unfavourable values to get the 3k back.

3) If there is 2k of tax deferment available which was the whole reason for your post it seems silly to just take less than 1k of it, but a perfectly valid reason to do that would be if you need the assets before 55 - that is the trade off with pensions.

Again, whether the 3k comes from cash vs existing ISA depends on whether you need the cash to stay as cash. You can always use the cash to top up ISAs or pension in future years if, being honest with yourself, the 3k cash would be better left as your emergency cash buffer to avoid borrowing in times of need.

4) ignoring the opportunity of tax relief this year might be the best thing for your personal circumstances because the tax relief is only available by sacrificing flexibility (of having accessible S&S assets or accessible cash).

So, do option 4 if it is best for your circumstances but don't just do it out of laziness.

colinjd

I should have added that I'm 54 with no intention of withdrawing anything from my SIPP before retirement, which given my situation won't be before whatever the official retirement date is in 12+ years time. I'll probably get carried out in a box before retiring!

masonic - yes, because until this current job I wasn't able to really save, however I'm now in a position where I'm saving around 1k per month. Which leads me on to...

bowlhead - yes, I am nervous about using my small cash reserves but given the amount I'm now able to save I should be able to replenish those reserves relatively quickly. On reflection, however, your answer to option 4 hits the nail on the head - it's sacrificing flexibility. BTW, I never intended to suggest I couldn't be bothered with the process, my tongue was firmly in my cheek

Finally, I'd like to thank both of you for the fantastic advice and suggestions you constantly make on these boards - a lot of us are learning as we go and your patience is admirable!

masonic

colinjd wrote: »

I should have added that I'm 54 with no intention of withdrawing anything from my SIPP before retirement, which given my situation won't be before whatever the official retirement date is in 12+ years time. I'll probably get carried out in a box before retiring!

In that case, it might be worthwhile going for option 1. You'll get a significant benefit from moving the investments into the SIPP and not really sacrifice anything (since you could access the money fairly soon, even if you have no intention of doing so). Since you aren't saving at a rate where you'd just end up buying back investments within the ISA again, I don't see a downside to doing this.

masonic - yes, because until this current job I wasn't able to really save, however I'm now in a position where I'm saving around 1k per month.

Which means if you did use any of your cash and had to replace it, you'd probably struggle to utilise the full HRT relief the following year, so if you needed any more reasons not to put your cash into the SIPP, there's another.