SIPP vs. ISA in pension planning

lisyloo

aroominyork wrote: »

I am 56, OH is 60. Before I retire I will most likely inherit a sizeable amount. Both of us contribute enough to SIPPs each year to reclaim all 40% tax.

I am tempted to move some funds from ISA to SIPP. I guess one risk is of higher rate tax relief on SIPP contributions disappearing and a single band of 25%-30% being introduced; then I would have moved too early. But crystal balls and all that...

ColdIron: why refocus on ISA in retirement? Do you mean draw from it first and if so why so long as I am a basic rate taxpayer after retirement? Because of beneficial IHT rules on SIPPs?

Last question for now. Can I make in specie transfers from ISA to SIPP (I am with HL, in the process of switching to ii) or must I sell, withdraw and rebuy?

Pretty sure you need to withdraw and reivest.
You’ll be limited to £40k per tax year each into a SIPP in total.

msallen

Remeber also that whatever you hold in ISAs counts for IHT and against many state benefits.

ColdIron

aroominyork wrote: »

ColdIron: why refocus on ISA in retirement? Do you mean draw from it first and if so why so long as I am a basic rate taxpayer after retirement? Because of beneficial IHT rules on SIPPs?

Last question for now. Can I make in specie transfers from ISA to SIPP (I am with HL, in the process of switching to ii) or must I sell, withdraw and rebuy?

Well apart from the £2,880/£3,600 contribution I can't make any more pension additions. I retired just over a year ago and my tax free lump sum generated enough to use my full ISA allowance for 5 or so years so I am planning on increasing my ISA accounts rather than running them down, I have no dependants

I think transfers into SIPPs have to be cash but willing to be corrected

aroominyork

lisyloo wrote: »

I think there a fairly major one been missed which is the income tax relief.

Assuming iii) you!!!8217;ll be able to draw 11.5k (or whatever the personal allowance is) per year tax free.

You!!!8217;ll be able to take all of your ISA tax free but you paid 20% income tax on the way in.

So in addition to the tax free lump sum, there!!!8217;s tax relief on £11.5k per year (or equivalent at the time).

State pension will use up most of my personal allowance. But you are right that retirement tax planning should ensure you use your full personal allowance out of SIPP withdrawals before drawing on ISAs.

AnotherJoe

aroominyork wrote: »

State pension will use up most of my personal allowance. But you are right that retirement tax planning should ensure you use your full personal allowance out of SIPP withdrawals before drawing on ISAs.

Also depends when you retire. I've retired 4 years ahead of SP so have those years before i get taxed on pension withdrawals.

aroominyork

This is interesting on the danger of filling your SIPP too much during the early accumulation years and as a result paying avoidable higher rate tax after retirement. So it seems the best strategy is i) always pay into a SIPP first to reclaim any higher rate tax and/or to get any free money from an employer, then ii) during the early accumulation years pay into an ISA ahead of a SIPP and iii) the nearer you get to retirement bring the SIPP into play and also transfer funds from ISA into SIPP to get the maximum benefit from the 25% tax free lump sum while not taking yourself into a higher rate tax bracket when you draw on your SIPP. That maximises tax efficiency and also keeps your savings accessible (in ISA) during your younger/mid-age years. Does that sounds right?

Thrugelmir

aroominyork wrote: »

Before I retire I will most likely inherit a sizeable amount.

Then you need to plan carefully. As getting this invested may pose challenges given annual limits.

economic

aroominyork wrote: »

This is interesting on the danger of filling your SIPP too much during the early accumulation years and as a result paying avoidable higher rate tax after retirement. So it seems the best strategy is i) always pay into a SIPP first to reclaim any higher rate tax and/or to get any free money from an employer, then ii) during the early accumulation years pay into an ISA ahead of a SIPP and iii) the nearer you get to retirement bring the SIPP into play and also transfer funds from ISA into SIPP to get the maximum benefit from the 25% tax free lump sum while not taking yourself into a higher rate tax bracket when you draw on your SIPP. That maximises tax efficiency and also keeps your savings accessible (in ISA) during your younger/mid-age years. Does that sounds right?

Why would you move funds from isa to sipp when isa is completely exempt from income tax in the first place? It’s not even considered as income as it’s wealth you already own.

ColdIron

economic wrote: »

Why would you move funds from isa to sipp when isa is completely exempt from income tax in the first place?

To get a 40% rebate on money you may have only paid 20% on? It might take you out of higher rate tax on your earnings and savings? You'll get 25% of it back tax free and if you retire early you can use your Personal Allowance each year to take even more tax free

aroominyork

Thrugelmir wrote: »

Then you need to plan carefully. As getting this invested may pose challenges given annual limits.

Yes. This makes me think I should aim to max our SIPP contributions each year, not just the 40% rebate element. So long as we have an emergency fund left, I can always liquidate ISAs in future years to make 40% rebate SIPP contributions.