How does a SIPP work?.

ajbell

Ok i have 2 Final salary pensions and a tiny avc but am hoping to retire early at 55 in just over 4 years.
If i contribute to a SIPP with HL does the tax top up take place automatically?.
I am a higher rate tax payer so if i were to put £500 a month in a HL SIPP what happens to the tax top up?. Can i then draw it all out instead of taking any TFLS from my DB schemes?.
Also one of my DB schemes has a CETV of £361000 but i assume i wont get 20/40% top up on that if i deposit it into a SIPP?.

hugheskevi

If i contribute to a SIPP with HL does the tax top up take place automatically?.

Basic rate tax relief is applied automatically. You claim the extra higher rate relief due from HMRC.

I am a higher rate tax payer so if i were to put £500 a month in a HL SIPP what happens to the tax top up?

HL add basic rate relief, so the £500 you contribute results in a gross contribution of £625. You then claim the extra higher rate relief from HMRC, which is £125. That means you put in £375 of post tax money and a total of £625 is credited to your account.

You get the higher rate relief either via changing your Tax Code in-year, through Self Assessment or by writing to HMRC after the tax year.

Can i then draw it all out instead of taking any TFLS from my DB schemes?.

Each pension arrangement will be treated separately, so you cannot swap around TFLS.

Also one of my DB schemes has a CETV of £361000 but i assume i wont get 20/40% top up on that if i deposit it into a SIPP?.

You would not be depositing it into a SIPP, you would be transferring it, and so no tax relief would be due.

ajbell

Ok, thanks.


So are you saying that the TFLS can only be 25% of each pension.
I thought you could add all your pensions and take the 25% from
one only as i would not want to take it from my DB schemes.

hugheskevi

So are you saying that the TFLS can only be 25% of each pension.

Correct.

I thought you could add all your pensions and take the 25% from one only as i would not want to take it from my DB schemes.

This only applies to AVC arrangements, where the DC AVC is part of the same scheme as the DB pension. Then (if the scheme rules permit) you can calculate the total value in the scheme (the DB and DC combined) and take the 25% TFLS from the DC element.

GoodSon

Hi ajbell,

There is a certain irony in your choice of user name lol

If you google AJ Bell SIPP you may be surprised.


Kind regards.