Paying £2880 into pension when retired

Shedman

Bob-a-builder.

You have basically two ways to take money out of a SIPP.

One is called UFPLS (this is what I think HL are referring to as lump sum method). What ever you take by way of UFPLS is always treated as 75% taxable and 25% tax free. In your wife's case if she used this method then she would need to take a total of £9,173 to have £6,880 of taxable income (£9173 x 75%) and she would have £2,293 of tax free income.

This would leave £913 as uncrystalised in her SIPP and assuming she added the £2880 (£3600 gross) next year she could take it all out and there would £3,385 of taxable income (£3600+£913=£4513 x 75%) and £1128 of tax free income.

The alternative that HL referred to is called Flexible Drawdown. You can move the whole pot (or a portion of it) into drawdown so this becomes crystallised. Using this method and moving the whole pot over she could choose to take the maximum tax fee amount of £2521 (£10086 x 25%) and also draw out the £6880 of taxable income that she wants.

This would leave only £685 in the SIPP and next year no further 25% tax free sum could be taken from this and if she takes this out next year it is all taxable income. Of course she could add the £2880/£3600 again next year and either take that all out as a UFPLS (so £2700 taxable, £900 tax free) or move it into drawdown and then take out the £900 tax free plus up to £3385 as taxable income (although she doesn't have to take it all (or even in fact any of the taxable element) if say she didn't have enough of her tax allowance left after her pension and other income). That's why it's called flexible drawdown as you can choose how much you draw and how much is taxable whereas with a UFPLS sum it is always 75% taxable/25% tax free.

One thing to bear in mind with HL is that they usually require £1000 left in a SIPP otherwise they may levy an account closure fee. In her case as SIPP has been open more than 12 months it would be £25 plus VAT (it would be £295 plus VAT if closed before 12 months). It's usually recommended to only take out as much from a HL SIPP each year to ensure that there is this constant £1000 balance until such time as you really do what to close it (ie if you're not likely to put any new contributions in)

By the way HL usually require you give instruction by 17th of a month for payment on 28th (although with my wife's UFPLS payment they seem to have made it pretty much the next day after they got the form). As you will have to fill in the forms they send you as it's the first time for taking anything from the SIPP there's obviously a bit of a delay there so you might not be in time for Febs payment but you'll be alright for March

Ganga

DeepSporran wrote: »

You are quite correct that there is no charge, but with Virgin you are forced to put the investment into a fund rather than leave as cash. So you may find that you have lost (or gained) a few pounds in the interval between initial investment and withdrawal. If (as a non tax payer) you would otherwise expect to benefit by the full £720, then a movement of a few percent in the fund unit price may make little difference to you, but for anyone who is only looking to get the (usual) minimum of £180 it would only take a drop of 5% in the fund price to take £3600 down to £3420 and the £180 has been swallowed up. Of course, a rise in fund price would increase your £180, it works both ways.


It would take a 20% fall in the fund price to swallow up £720, so the risk for non taxpayers is less, though still present. You are exposed to the market for a few weeks between initial investment and withdrawal while you wait for the tax boost to be applied, so even if you choose the lowest risk fund that Virgin offer, you may see a significant price movement.

This is true,this tax year i got £3640 so an extra £40,as i am a non tax payer i have to claim the tax back.

bioboybill

My wife took early retirement in July 2017, but couldn't do the SIPP trick depositing £2880 for the tax relief in 2017/18 as she had already used up all her tax allowance.

However, she did open a SIPP with HL a couple of weeks ago and deposited £2880, which she left as cash to get the £720 tax relief this tax year. They have confirmed that this will be added on 21st March. I had just assumed that she could immediately draw out £2600 and leave £1000 in to avoid account closure with the intention of repeating again in the next tax year.

However,Shedman mentioned above that a form would have to be filled in and would take a couple of weeks to process and they need to be told by 17h to action on 28th of the month. Is there any way she can get that form and fill it in prior to the tax being added, so that she can get the money out before the new tax year? I assume if she can't then it will count as income for the next tax year instead?

DeepSporran

bioboybill wrote: »

...


Is there any way she can get that form and fill it in prior to the tax being added, so that she can get the money out before the new tax year? I assume if she can't then it will count as income for the next tax year instead?

Yes, you should just ring up HL now and tell them you want to go into drawdown. They'll send out the forms the same day in my experience and you'll have plenty of time to fill them in and get your £2600 out before the end of the tax year. When you fill in the forms, you'll say you want to take out £2600 and that will then leave £280 remaining in the original SIPP account. HL will know that once the £720 tax rebate comes in, you'll be above the minimum £1000 so they won't be concerned that you will only have £280 in there for a few weeks. They will take tax off the (potentially) taxable £1950 part of your £2600, and you'll have to claim that back from HMRC.



If you are in any way unclear about this, just talk to HL who are very helpful,

molerat

MrsM opened one yesterday but it says the tax will not be added until April 21st. She will not have any income next year so I think it is easiest to leave it where it is at the moment, bung another £2880 in after April 6th, wait for the tax to be added and pull £6200 out then reclaim the tax.

vixen1500

molerat wrote: »

MrsM opened one yesterday but it says the tax will not be added until April 21st. She will not have any income next year so I think it is easiest to leave it where it is at the moment, bung another £2880 in after April 6th, wait for the tax to be added and pull £6200 out then reclaim the tax.

Been thinking of doing this myself.

But if tax not added until the next tax year, do you know if you can till pay in again after the end of this tax year and then get the tax added again?

Thanks

molerat

The date the tax is added is irrelevant, it is the year the money is paid in that counts.

jerrysimon

I put in the £2880 last march 2nd 2018 for my wife who does not pay tax and its now at £3600 with tax added.

I assume I can draw it all out after 2/3/19 without penalty payment i.e. you need to leave it in for 12 months ?


I am aware she will be taxed on it when I draw it out but that is easily reclaimed.


I will then open another one for her for 2019/20 and do the same thing, i.e. rinse repeat

vixen1500

molerat wrote: »

The date the tax is added is irrelevant, it is the year the money is paid in that counts.

Thanks for your reply

I noticed that it states you can also pay in the same amount as your earnings for the last (5?) Years. I have a small salary from working self employed £3000 a year.

So could I pay in the equivalent plus the normal £2880 and get tax back on that also?
Many thanks

jerrysimon

I dont think you can add the two figures together as my wife also earns £2500 but I can only put in the £2880 so in your case I dont think you could put in the total of £3000 + £2880 and get tax back on £5880.


Of course if I am wrong someone will correct me I am sure.