Investing in SIPP

enthusiasticsaver

I am looking to maximise income for my early retirement from February 2018. I have a LGPS and work part time earning 12k per annum.

It has been suggested I would benefit from investing in a SIPP this tax year and I am considering investing £10k (maturing regular savers this month from FD and Lloyds Club) in a SIPP and it has been mentioned I could gain £2500 in extra tax - ie I pay in £10k and the government pays in £2.5k in this tax year and then again after April if I can find another £10k from somewhere.

Does this sound correct and how do I do it?

I use Halifax Share Dealing for Stocks and Shares ISA so could open it with them but how do I claim the £2500? Is this even right as it sounds crazy? I invest £20k over 2 years and the government gives me £5k

AlanP_2

The SIPP provider will automatically reclaim the 25% uplift (20% tax rate) from HMRC on your behalf so invest £10k and they reclaim the extra £2.5k.

The amount you can pay in is limited to your earned income in the tax year (there is an overall limit but not applicable here).

If you are paying into the LGPS then you need to allow for that contribution as well to keep within the rules.

I would suggest that, to make sure, you post the detailed numbers on here e.g. Gross Salary, LGPS Contribution amount (or % rate) and what you plan to put into the SIPP, someone can then check the logic.

I'm assuming here that you are open to supplying more detail.

enthusiasticsaver

Thanks Alan P. Triumph has indeed put the calculation on my other thread. Just sounds so strange to receive tax relief of that amount regardless of the fact I have not paid anywhere near that in tax.

Linton

enthusiasticsaver wrote: »

Thanks Alan P. Triumph has indeed put the calculation on my other thread. Just sounds so strange to receive tax relief of that amount regardless of the fact I have not paid anywhere near that in tax.

Dont feel too guilty, - unless you can keep your total income below your tax allowance in retirement you could be paying back 75% of the tax relief in income tax when you withdraw the money.

enthusiasticsaver

Linton wrote: »

Dont feel too guilty, - unless you can keep your total income below your tax allowance in retirement you could be paying back 75% of the tax relief in income tax when you withdraw the money.

Yes, that will be a juggling act. My LGPS will only be around £4500-£5000 though and I have 2 years of this before a further GMP of £4000 kicks in so it is not until my state pension kicks in 2026 that I become a tax payer again. Until then OH pension, savings and my 2 pensions and the SIPP will be juggled to keep me under tax free allowance. Just wondering whether to actually invest the SIPP or leave it in cash given I only have a window of 8 years before spa and return to paying tax.

bowlhead99

enthusiasticsaver wrote: »

Just wondering whether to actually invest the SIPP or leave it in cash given I only have a window of 8 years before spa and return to paying tax.

Everyone is different but personally I would invest it because you presumably already have enough to live on and early retirement until expiry is a long time so you want to maximise your wealth... As such, leaving it (or a chunk of it) dormant in a SIPP to have it continually being eroded by inflation for multi-year periods, seems a waste.

It is perhaps a misconception to say that (e.g.) three to five to eight years is too short to invest in something. Consider what you would do with the cash once 'freed' from the SIPP. Would you perhaps consider having it in a S&S ISA over the next couple of decades?

Assuming you would, then (tax effects notwithstanding) it doesn't really matter if you invest inside the SIPP for two years and then take it out and stick it in the same investments inside an ISA for eighteen years, or invest inside the SIPP for five years and then inside the ISA for fifteen, or invest inside the SIPP for eight years and the ISA for twelve. The point is, after twenty years you will have had decent gains.

So if for example after three years when you have capacity to take money out of the SIPP within that year's personal allowance, you happen to be nursing a loss because markets are low, that's actually quite good, because you will fit (relatively) a lot of what you are holding in your SIPP, into your personal allowance. And having drawn it, you can stick it in your S&S ISA where it will go back up with the markets as part of your long term plan to invest for a decade or more.

enthusiasticsaver

bowlhead99 wrote: »

Everyone is different but personally I would invest it because you presumably already have enough to live on and early retirement until expiry is a long time so you want to maximise your wealth... As such, leaving it (or a chunk of it) dormant in a SIPP to have it continually being eroded by inflation for multi-year periods, seems a waste.

It is perhaps a misconception to say that (e.g.) three to five to eight years is too short to invest in something. Consider what you would do with the cash once 'freed' from the SIPP. Would you perhaps consider having it in a S&S ISA over the next couple of decades?

Assuming you would, then (tax effects notwithstanding) it doesn't really matter if you invest inside the SIPP for two years and then take it out and stick it in the same investments inside an ISA for eighteen years, or invest inside the SIPP for five years and then inside the ISA for fifteen, or invest inside the SIPP for eight years and the ISA for twelve. The point is, after twenty years you will have had decent gains.

So if for example after three years when you have capacity to take money out of the SIPP within that year's personal allowance, you happen to be nursing a loss because markets are low, that's actually quite good, because you will fit (relatively) a lot of what you are holding in your SIPP, into your personal allowance. And having drawn it, you can stick it in your S&S ISA where it will go back up with the markets as part of your long term plan to invest for a decade or more.

Yes I think you are right. I have a stocks and shares isa and we have backup cash in current accounts and national savings bonds which we would withdraw before touching the isas or sipp. I will just make a judgement Year on Year as to whether to move it across to the isa or leave in the sipp. I could also defer taking state pension to keep under personal allowance.

It all really depends on how much of our capital we end up using to supplement pensions. My husband has only just retired so we have just dropped our monthly income by £500 per month. When I go next February it will drop by a further £500. This still covers all essentials though and around 50% discretionary spending so capital shouldn't deplete by too much until we do some long haul holidays.