Drawing downa SIPP

Stubod

Hi all,

..appols if this is a bit of a dumb question but I have not accessed a SIPP before.

I am planning to take some of my SIPP before the end of this tax year as I have not earned any income and I want to take advantage of the tax. My SIPP is worth about £30k. I assume I can take 20% tax free, then a further £11500? I assume I physically have to take this money out and put it somewhere else?

As I don't actually need the money next year I assume I can transfer it into a "holding" account, then in April I can put £2800 into another SIPP and the balance into a SS ISA?

Thanks for any help..

Linton

You get 25% tax free, not 20%.

When you drawdown, the platform will pay the money into the bank account you have registered with them. What you do with the money is up to you, including paying £2880 net/£3600 gross onto another pension.

The only hassle concerns tax. When you drawdown taxable money the tax is worked out by PAYE. For the first ever such payment there wont be a tax code issued so the platform will have to use an emergency code. The effect is that you will probably be charged tax which you will have to claim back from HMRC at the time or wait until the end of the tax year.

See: https://www.gov.uk/claim-tax-refund/you-get-a-pension

Stubod

Hi Linton and thanks for the reply. my plan is to draw just enough to remain below the tax threshold. I will then "empty" the Sipp next year as again I will not be "earning"..ie I will defer starting a small private pension until the Sipp is "empty", so hoping not to pay any tax.

pip895

You may have to pay tax initially it and then claim it back though.

mark1959

I'd like to think that if you drew around £15000 out [25% tax free] right at the end of the tax year the taxperson would realise that you can't draw any more out this tax year.
I'd like to think that...........................:)

Linton

mark1959 wrote: »

I'd like to think that if you drew around £15000 out [25% tax free] right at the end of the tax year the taxperson would realise that you can't draw any more out this tax year.
I'd like to think that...........................:)

The system isnt run by "tax people", tax is calculated automatically via the tax code and PAYE which is designed for regular monthly or weekly payments, not for one-off lump sums. The effect for the first ever taxable payment is that all your allowances are divided by 12 which would put £15K-25% tax free into the >£100K extra tax band.

mark1959

Then isn't it a shame that these computers can't have a sub-programme built into them [by a programmer] that tells them "automatically" when it's the last week of the tax year.
It really isn't rocket science.

greenglide

IF week-no = 52 then ......

Should do!

But, what, exactly, would you do in week 52(or 53) or month 12?

Your employer or pension scheme would have to know what your overall tax situation was. This information is not available to them.

Each income stream is totally separate so income tax can never be perfect.

To get it "right" the tax would have to be calculated by HMRC instead of the employer based on all income streams before performing this calculation. This would be a huge change which would cost a fortune!