Should I Put More In My SIPP?

highway55

Jointly my wife and I have £150K in ISAs, I have £150K in my SIPP, and a further £400K in a normal share dealing account (diversified funds) and a £500K BTL property with a £200K mortgage. Our house is worth about £500K and mortgage free. We have adequate emergency fund savings and no debt. No other pensions apart from the SIPP. We have a holiday home overseas.

We have had an unexpected £100K windfall. I am 50 and planning to retire at 55 so am considering taking up unused allowances to put the £100K into my SIPP. Is this a wise move? If it does not go into the SIPP it will be invested in the share dealing account so that it’s not locked in as a pension, or possibly another smaller BTL.

One doubt my wife and I have about adding anything further to the pension is that we are not clear on how much of it can be passed on to the kids after we’re gone. This was one reason we always put most our savings into ISAs and property. A lot has been written in the press about pensions being more flexible but I don't know if this extends to more attractive inheritance rights for grown up (i.e. non-dependent) descendants.

Can the remaining value of a SIPP be fully passed on to non-dependent grown-up children?

Our other doubt about a SIPP is that although it looks like you get a tax break when you put the money in, you can get 25% tax free when you want to take it out, but the rest gets taxed. So there is a suspicion that they always get back at least as much as they gave out.

Does the math make a clear case for a worthwhile tax gain overall for a standard rate tax payer?

We may at some point decide to move overseas to retire where we already have a holiday home, in which case we would probably keep the BTL and possibly let out our house as another BTL.

So is it is wise to top up my SIPP with the £100K? Or is it better to keep it invested outside a SIPP?

Thank you for reading!

jem16

highway55 wrote: »

We have had an unexpected £100K windfall. I am 50 and planning to retire at 55 so am considering taking up unused allowances to put the £100K into my SIPP. Is this a wise move?

Do you earn at least £100k?

Carry forward allows you to utilise unused annual allowances but tax relief is limited to 100% of your earnings in the year the contribution is made.

Can the remaining value of a SIPP be fully passed on to non-dependent grown-up children?

Yes.

Does the math make a clear case for a worthwhile tax gain overall for a standard rate tax payer?

If that's the case then you don't have enough earnings to make a £100k contribution worthwhile taxwise as you'll only get tax relief on some of it.

SeniorSam

The Sipp addition makes sense, but if your main interest is to see that there are funds to pass on to the children, then a Trust Investment may prove beneficial and if you will not need the capital yourself a Gift into Trust, suitably invested, may be better.

Also, your net worth may be attracting inheritance tax if you have not already taken appropriate action and action that would allow the children to obtain access to capital to meet any IHT liability BEFORE Probate.

Not sure if this is an area you have looked at or even wish to.

Sam

atush

yes, using the sipp makes sense as most of your assets are unwrapped and taxable.

Yes, you will be limited this year in what you put in, but do put in the max up to your earned income (less other pension contribs and TR). Do this each year in the next 5 and you can shelter it from tax.

atush

Also make sure you top up (or start) a pension for your OH

Farel01

jem16 wrote: »

Do you earn at least £100k?

Carry forward allows you to utilise unused annual allowances but tax relief is limited to 100% of your earnings in the year the contribution is made.



Yes.



If that's the case then you don't have enough earnings to make a £100k contribution worthwhile taxwise as you'll only get tax relief on some of it.

That's not actually true, the annual allowance is a limit on the amount that can be contributed to your pension each year, while still receiving tax relief. It's based on your earnings for the year and is capped at £40,000. However if he opens a sipp for his OH that makes it 80k. Any unused allowance from the last 3 years can be used and if that is not enough you can add 40k, then end your pension input period, and add another 40k.

highway55

jem16 wrote: »

Can the remaining value of a SIPP be fully passed on to non-dependent grown-up children?
Yes.

All of what is remaining in the SIPP goes to the surviving spouse in full, and they in turn can leave all of what is remaining to non-dependent grown-up children? By 'all' I mean the tax man doesn't take a big chunk out of it!?

With ISA and share dealing investments we plan to have a modest rate of withdrawal so that the remaining value remains in tact in post-inflation terms and can be passed on. We would plan to do the same with anything invested in a SIPP - if the remaining value really can be passed on in full.

highway55

jem16 wrote: »

Can the remaining value of a SIPP be fully passed on to non-dependent grown-up children?
Yes.

So all of what is remaining in the SIPP goes to the surviving spouse in full, and they in turn can leave all of what is remaining to non-dependent grown-up children? By 'all' I mean the tax man doesn't take a big chunk out of it!?

With ISA and share dealing investments we plan to have a modest rate of withdrawal so that the remaining value remains in tact in post-inflation terms and can be passed on. We would plan to do the same with anything invested in a SIPP - if the remaining value really can be passed on in full.

jem16

Farel01 wrote: »

That's not actually true,

Actually it is true.

the annual allowance is a limit on the amount that can be contributed to your pension each year, while still receiving tax relief.

The Annual Allowance and the limit for tax relief are two separate things.

As you say the current Annual Allowance is £40k. However Carry Forward rules allow you to use non-utilised allowances for the previous three tax years to increase the amount from £40k. So technically the OP has a possible £190k ( unlikely though as he's probably used some in the last 3 tax years) that he could contribute this year.

http://www.pensionsadvisoryservice.org.uk/about-pensions/saving-into-a-pension/pensions-and-tax/carry-forward

However Carry Forward does not apply to tax relief. That is limited to 100% of earnings in the tax year that the contribution was made. So if the OP is a basic rate taxpayer as he said then he is earning only around £42k so paying in £100k, whilst possible, would only give tax relief on £42k.

However if he opens a sipp for his OH that makes it 80k.

There is always that but he doesn't mention his wife's tax status nor current pension status. He also said top up his SIPP with £100k which is what I based my answer on.

Any unused allowance from the last 3 years can be used and if that is not enough you can add 40k, then end your pension input period, and add another 40k.

Yes but it doesn't give extra tax relief. That's still limited to 100% of your current earnings.

jem16

highway55 wrote: »

All of what is remaining in the SIPP goes to the surviving spouse in full, and they in turn can leave all of what is remaining to non-dependent grown-up children? By 'all' I mean the tax man doesn't take a big chunk out of it!?

Rules are different if death was before or after age 75. They are also different for crystallised and non-crystallised pots.

Perhaps this will help?

https://www.gov.uk/tax-on-pension-death-benefits

jamesd

highway55 wrote: »

So all of what is remaining in the SIPP goes to the surviving spouse in full, and they in turn can leave all of what is remaining to non-dependent grown-up children? By 'all' I mean the tax man doesn't take a big chunk out of it!?

Yes, if you die before you are 75 years old. Completely tax free to anyone you wish and they can take out the money as and when they want with no tax to pay. From age 75 onwards they can still take out as much as they like whenever they like but income tax is due at their normal rate. Their age doesn't matter for this paragraph, they could be a baby and still be entitled to it, no age 55 restriction.

If you were to be diagnosed with a medical condition that leads to an expectation of a year or less life expectancy you could also at any age get 100% of your pension pot tax free.

In all cases the money in the pension pot is not part of your estate and hence not subject to inheritance tax.