SIP - Tax back ?

jerrysimon

So on advice from here last year in late March I created a SIP for my wife.

She is giving up work in Sep and I wanted to get some tax back. I put in 6K and was pleasantly surprised to see its now £7500

What I dont understand is they have paid me £1500 in tax back when I was only expecting £1200 i.e. 20%

Anyway I was going to top it up with another 4K this year to max out her contributions.

I have a DB pension and plan to go early as per my other posts probably Mar 2017. Wondering if I should contribute into one as well as with her and my SIP we could delay the DB pension a year and it will pay out more

Jerry

jerrysimon

Oop forget that just realised I can't do maths lol

Is 20% of the 7.5K

Jerry

zagfles

Could be a good idea, just make sure you're aware of the rules/limits (eg annual allowance, and tax relief limit of 100% earnings/3600, recycling rules though probably doesn't apply)

jerrysimon

Yes I went through all that last time when I was thinking of paying in 40K out of my oneaccount mortgage as I had paid off my mortgage and had eight years to go with 120K I could draw down

Would have been a nice way to get a big chunk of tax back but probably broke the recycling rules.

I only need to put in about 9K which with the tax bonus and my wifes SIP will keep us for another year.

Jerry

kidmugsy

jerrysimon wrote: »

but probably broke the recycling rules.

The recycling rules are about recycling of pension TFLSs. I don't see how they would interfere with investing money from a mortgage.

If you know the size of your expected TFLS you can quickly calculate how much you are allowed to recycle without constraint. You may find that it won't interfere with your plans at all.

(P.S. it can count as recycling even if you make the contribution before receiving the TFLS.)

jerrysimon

TSFL ? is that lump sum from my DB pension you are talking about ?

I am still working and earn about 42k (my wife 8k but she leaves in Sep), so less pension contribution I could easily put in about 35K I guess. That said I would then incur payment on my mortage of about 3% and it has to be paid back at some time. I could also not draw it all out at once to repay the mortgage.

The idea was to have two SIPs of about 11K, so about 8.8K in for each of us. I could easily put in 8.8K from my salary this year.

Presumably we could draw all this total 22K out tax free (we will both be over 55 next April) and use that to give us a year or so to live off before we claim my DB pension at 58, obviously with the associated penalty.

Once you are nearing 55 and both earning if you can afford it SIPs sound like a free gift tax wise, especially if like me you just keep it as cash only. In many ways it seems too good to be true and I keep thinking I have over looked something ?

I think the only caution I had was not to lock too much up in it given you can only draw 25% LS and then up to 11k tax free per year ?

Regards

Jerry

kidmugsy

jerrysimon wrote: »

TSFL ? is that lump sum from my DB pension you are talking about ?

You are potentially limited in making pension contributions whenever you are in the tax year of drawing a Tax Free Lump Sum, or the two years before, or the two years after. I suggest you google for the rules themselves.

But the rules do have a get-out, with a comment to the effect that they are not intended to interfere with ordinary retirement planning. They were, I suppose, meant to stop someone from drawing a big TFLS, then carrying on with his career, contributing like mad. The whole thing is a sledge-hammer-to-crack-a-nut combined with a !!!!!!'s muddle. That was Gordon Brown for you. Osborne should have scrapped the whole fandango.

If you want a year of living tax-free off a SIPP you could always make a gross contribution of £15333, which would give you a TFLS of £3833 and taxable pension of £11500 = expected size of next year's Personal Allowance.

Two warnings: (i) if you open a SIPP and then close it within a year, you might find yourself paying extra charges (e.g. at HL), (ii) if you pulled the whole £11,500 out at the start of the tax year the provider would be obliged to take some higher rate tax off it, which you would have to claim back from HMRC.

jerrysimon

Thanks didn't know about that two year rule.

Re drawing off it within a year I spoke to HL and they said as long as you dont close it (draw it ALL out) then it was ok. I read something about a £250 charge otherwise.

As the 11K would not be required all at once, I guess I could draw it month by month

Jerry