Tax loophole with SIPP, advice please

happyhero

So when I crystalise some of my SIPP is a new account created with the crystalised money?

So if I crystalise £8,000 of a £20,000 pot can I then keep adding each year up to my £2880 limit increasing the remaining £12,000 SIPP pot?

What happens to my funds and shares in the bit that gets crystalised, ie how can I take 25% tax free lump if nearly every penny is invested within the SIPP in Funds and shares?

zagfles

happyhero wrote: »

So when I crystalise some of my SIPP is a new account created with the crystalised money?

Yes, basically. Unless you take a UFPLS (google it), where you take the taxed part out as well (and obviously get taxed on it)

So if I crystalise £8,000 of a £20,000 pot can I then keep adding each year up to my £2880 limit increasing the remaining £12,000 SIPP pot?

Yes, subject to recycling rules (google HMRC recycling rules).

What happens to my funds and shares in the bit that gets crystalised, ie how can I take 25% tax free lump if nearly every penny is invested within the SIPP in Funds and shares?

You sell them. It's usually referred to as tax free cash , not sure if any providers off in-specie transfers out of a SIPP as part of the TFLS, or even if it's allowed. I suspect most offer in-specie transfers to a drawdown pot (ie the other 75% of the crystallised bit).

jamesd

Not sure about in-specie even for that at the moment. The same sort of valuation issues that have essentially stalled most in-specie original funding after some HMRC action could apply.

The most relevant recycling rule for this topic is £7,500 tax free lump sum recycling per twelve months is fine. I summarise the rest here, though.

happyhero

xylophone wrote: »

Is your wife employed by the school/the local authority and contributing to an occupational pension scheme?

Have you both obtained new state pension forecasts?

https://www.gov.uk/yourstatepension?utm_source=Mail-Online&utm_medium=Partnership&utm_campaign=GTKY

She's employed by the local council and pays into their scheme, how will this effect what she can do with a SIPP.

jamesd

No effect other than the increase in value each year counting towards the annual allowance. Given her income that means no effect.

busybee100

MyOnlyPost wrote: »

I think you've got that wrong. You can take 25% of the £10,500 tax free and after that tax will always be charged on the remaining 75%. I think greenglide was saying you can crystalise a proportion of the pension (say £5,000) leaving the rest invested and take 25% and then at a later date crystalise the rest and again take 25% tax free

Hi
I'm just trying to clarify my understanding.

Should the bolded be, taxable if over personal allowance or tax always charged?

jamesd

Taxable. No tax due if within personal allowance.

happyhero

Ok my wife’s account seems to be the one to concentrate on and I don’t want to hit the £4000 limit on either of us as we may want to put more in if things change in the future or especially for the sake of my wife in the next few years where we can keep putting in the £10,500 (the grossed amount I know) so I would avoid either of us taking any of the new 75% created each year.


Remembering that I am living off my investments and have them within ISA’s as well as my SIPP, I could fund my wife’s contribution for a few years possibly from my ISA (where I take my income from currently).


Therefore assuming her pay stayed the same to keep things simple I would give her £8400 every year from my ISA which would be grossed up to £10,500 and then through her I could get back £2,625, effectively meaning I would be giving her £5775/year.


After 5 years she would have 5 times the (75%’s) £7,875, so £39,375 which sounds quite nice and even better as the years pass if we carry on and if I have understood correctly I can continue to invest in Funds and shares within her 75%’s in her crystallised account (or accounts …I assume they create a new one each time you crystallise)?


Also we would have taken out £2,625, 5 times, so £13,125 over the 5 years.


Wrongly or rightly so I have been brought up to be very cautious with the money I have made and worked very hard for and so up until now my wife neither knows nor is interested in anything money related, she relies totally on me to manage our income and expenses. Consequently all my investments are in my name and she has 2 or 3 small pensions from the past, but by doing this Sipp thing I will end up with a lot of my money in my wife’s account, the new crystallised pension funds.


We are solid but I worry if anything did happen to our relationship and so prefer the money in my name, probably selfish of me but it’s worked well until now. Over 5 years I would have effectively given her £28,875 (5x £5775) and this could run for much longer than 5 years. Money that was in my accounts but is then in her accounts.


I am not after marital advice here but rather advice about how you could or would handle this side effect of the transfer of funds to the other half and what one might consider to return the funds to the initial out layer, basically me.


I am not against doing this but want to consider the possibilities of what could be done.


Once we are both not working and non-tax payers perhaps the £4000 ( i.e. £3600 will be max anyway) limit won’t matter and we can start taking from the crystallised funds in my wife’s accounts


but wont any pension we then take from previous work life make us tax payers and so any amount taken out of my wife’s account will be taxed at 20%, whereas if I leave it in my ISA I don’t get the 20% top up but all my income is tax free and then the money stays in my name but at the same time we have lost all the top ups my wife could have got with her £10,500 salary over the years…..ooh what to do, this is torture to decide on, any advice really welcome here.

jamesd

They would just add newly crystallised funds to the existing account. They have to choose and just about every place chose add rather than create new. No change in the investment options.

You're married. All it would do is cut the amount of other assets that go to her. Position varies a bit depending on nation but a good enough approximation is you get half her pension value and she gets half of yours, similar with the rest.

Yes some is eventually taxed but the 25% at least isn't. If you want to save more tax look into VCTs.

MyOnlyPost

I have been switching some of my assets to my wife recently and I am still a fair way from retirement. I reasoned that if we divorce in the future she would have the entitlement anyway, so we may as well make the most of our tax allowances now. An added benefit is that anything in her name or joint names doesn't have to go through probate on my death so she would have access to money whilst it was all sorted.