Limits on Pension (SIPP) Contributions

ChesterDog

I am currently struggling (and failing) to get a verifiable answer to this from the Pensions Advisory Service...

May I make cash contributions into my SIPP in excess of my Annual Allowance if I do not claim any tax relief on such contributions?

That seems a simple question, but all the information that I can find relates only to limits with respect to the tax relief.

HappyHarry

ChesterDog wrote: »

I am currently struggling (and failing) to get a verifiable answer to this from the Pensions Advisory Service...

May I make cash contributions into my SIPP in excess of my Annual Allowance if I do not claim any tax relief on such contributions?

That seems a simple question, but all the information that I can find relates only to limits with respect to the tax relief.

Yes. You would need to declare the contributions and pay tax on them via self assessment. See here: https://www.gov.uk/tax-on-your-private-pension/annual-allowance

However, why would you want to? No tax-relief on the way in, and then paying tax on the way out? It sounds a strange thing to do.

Are you planning on avoiding some inheritance tax this way?

ChesterDog

No. It is because I have a lot of money tied up in investments outside (and also inside) ISAs and want to avoid ongoing CGT and dividend taxes.

What tax is applicable on cash liberated from external investments (aside from any CGT liability thus created) when contributed into the SIPP? This is not income.

EdSwippet

ChesterDog wrote: »

No. It is because I have a lot of money tied up in investments outside (and also inside) ISAs and want to avoid ongoing CGT and dividend taxes.

But by doing what you plan, aren't you at the very real risk of simply transforming these avoided CGT and dividend taxes into higher rates of normal income tax when you later withdraw from this pension, along with a second bite of income tax on the already-taxed and not-tax-relieved contributions?

I suppose there may be some niche circumstances in which this might make sense. Bypassing inheritance tax is one. Being in an extremely high tax bracket now but a very low one -- that is, close to destitution! -- in retirement might be another. It's very hard to see how this is likely to make a great deal of sense in most cases, though. In the general case you'd simply be signing up for double-tax on these pension contributions.

ChesterDog

Thanks.

I am aware of the potential future taxation implications and am weighing those up.

Spreadsheetman

ChesterDog wrote: »

Thanks.

I am aware of the potential future taxation implications and am weighing those up.

Why not use the yearly CGT allowance and cycle the taxable investments into ISAs where it can always be extracted tax-free?

Malthusian

CGT is a voluntary tax. That leaves dividend tax, and I struggle to imagine how paying 20% on 75% of everything you withdraw from the SIPP results in less tax than paying 7.5% on probably 2-4% of the annual portfolio value.

Plus what Spreadsheetman said.

Even if it was aimed at being an Inheritance Tax dodge, with no money ever being withdrawn from the SIPP and it being passed on to an heir in due course, I still wouldn't do it because of the strong possibility of a tax being re-applied on to pension fund death benefits in the future. In 2015 the pendulum swung from 82% tax on unused pension funds to 0% tax if you die before age 75 or if the beneficiary has available personal allowance. The pendulum will probably swing back again at some point.

ChesterDog

Thanks, all.

I have so much outside of ISAs and SIPPS that I am looking for a CGT mitigation method that doesn't involve the ISAs, as they get maxxed as a matter of course.

At least I know I have this option available.

ChesterDog

We are not intending to withdraw taxable income from the SIPPS as, having retired in 2007, we make sufficient income from ISAs and other investments, etc to more than cover our needs generally (although we might each take our 25% tax-free lump at some point), so our situation is rather niche, I know.