SIIP contribution without tax relief?

talexuser

I understand that the max contribution you can make to a SIIP out of unearned income is £3600 with £720 of tax relief.

After googling I can't find an answer to whether you can top up any more (obviously well below the 40k limit) without getting tax relief?

jem16

talexuser wrote: »

After googling I can't find an answer to whether you can top up any more (obviously well below the 40k limit) without getting tax relief?

You can do this but you would need to ensure that the pension provider knew that you were only entitled to tax relief on the £3600 otherwise they would automatically apply full basic rate tax relief.

There is no limit to the amount you can actually contribute. The limits apply to tax relief.

http://www.pensionsadvisoryservice.org.uk/about-pensions/saving-into-a-pension/how-much-can-i-pay-into-a-pension

atush

Why though? W/o tax relief you'd be better off using a S&S isa?

talexuser

atush wrote: »

W/o tax relief you'd be better off using a S&S isa?

Agreed, reason for query: S&S isa maxed out every year, and cash spare not needed for savings (just put another 5k in premium bonds). Just thought since the existing pension is small compared to isa (having only had a couple of 3600s added) it would be less paperwork and hassle investing through the existing SIIP rather than starting funds outside an isa and having to deal with accumulation income reporting every year? Cash hopefully not needed for 10 years plus timescale.

atush

Well i guess you could consider VCTs?

talexuser

Thanks, yes, that's a possibility, but I don't know anything about them, and they may be beyond my risk tolerance (although I know the long timescale possibly mitigates against that).

ffacoffipawb

atush wrote: »

Why though? W/o tax relief you'd be better off using a S&S isa?

Exactly.

£100 in an ISA = £100 available.

£100 in a savings account / cash = £100 available.

£100 in a SIPP with no tax relief, £25 plus 80% of £75 = £85 available after tax on the way out.

So throwing away 15% of your money.

Why?????

bigadaj

talexuser wrote: »

Thanks, yes, that's a possibility, but I don't know anything about them, and they may be beyond my risk tolerance (although I know the long timescale possibly mitigates against that).

Search for Jamesd posts on this forum who gives a very good summary of some of the options. You'll also need to do your own research and accept the level of risk, timescale and restrictions that are imposed.

talexuser

ffacoffipawb wrote: »

Exactly.

£100 in an ISA = £100 available.

£100 in a savings account / cash = £100 available.

£100 in a SIPP with no tax relief, £25 plus 80% of £75 = £85 available after tax on the way out.

So throwing away 15% of your money.

Why?????

As I explained above, isa not available since fully used most years for the past 20 years, cash is now more than total isa so needs a S&S home rather than savings rates for the next 10 years plus.
Income tax on the way out of the pension is the same as income tax on savings interest now (or next year >1000) or income tax on accumulation units outside an isa.
So I reckon I'm better off with tax free growth inside the SIIP while I don't need the money? There is no chance of not being a taxpayer when the SIIP ever pays out since already have income from a full final salary pension. Any other alternative suggestions welcome.

TH1878

talexuser wrote: »

Income tax on the way out of the pension is the same as income tax on savings interest now (or next year >1000) or income tax on accumulation units outside an isa.

No it's not. You only pay tax on your savings interest but you will pay tax on your capital within the pension when you withdraw it, the first 25% being tax free.

For example, put £100 in without tax relief and then draw it straight away. You'll pay tax on £75 of it, either £15 (basic), £30(higher) or £33.75 (additional) so your return will be £85, £70 or £66.25 from that £100. Sounds like a rubbish investment to me!

Consider either unwrapped unit trusts (especially if you are a basic rate taxpayer) or other investments.

TH1878

I've just modelled this in a basic spreadsheet assuming the following:

• You invest £100k into equity OEICs (INCOME UNITS)
• 3% Growth, 2% Dividend Yield
• Annual CGT Exemption increases by 3% per annum

VERSUS

• A pension investment of £100k (no tax relief)
• 5% total return growth
• 25% tax free cash on withdrawals

I've assumed an investment timescale of 10 years for both.

OEIC

Fund Value in 10 years is £130,477 and the annual CGT exemption is £13,830 so the CGT is £2,996 (BRT) or £4,661 (HRT) resulting in a net fund value of £127,480 or £125,816.

Gross Dividends over that period = £22,928. Tax to pay is £2,293 (BRT) or £7,452 (HRT) - net return of £20,635 or £15,476

TOTAL NET PROCEEDS : £148,115 (BRT) or £141,292 (HRT)

PENSION

The fund value in 10 years is £155,133:

£38,783 is tax free
£116,350 is taxable - £23,270 (BRT) or £46,540 (HRT) tax to pay

TOTAL NET PROCEEDS : £131,863 (BRT) or £108,593 (HRT)

No brainer.....