Should I empty my SIPP as well?

okydoky

Not as daft as it sounds, or is it?

For my wife the intention always was to use this to bridge the gap until her SP kicks in, in 5 years. Current valuation is about £70k, so depending on investment performance, she may actually decide to defer her SP by a year or two, which might boost it to £8500/£9000 based on current projections which would be perfect as no tax to pay even when she starts to draw her LGPS at 66 as it is only about £3k pa.

Thought my situation was different as I have £300k in SIPP and was going to drawdown up to personal allowance only, paying no tax, and again deferring SP to about age 70, which should boost current projection of £10700 to about £13000, again escaping tax assuming modest increases in personal allowance. However I am rethinking this and wondering if perhaps I should drawdown my SIPP more aggressively, up to the basic rate level so about £45k ish, take the tax hit of about £6600pa, put what I don’t need into ISA’s, replicating the same SIPP funds as I sell them as I am happy with the performance, and thereby ensuring that the longer term growth of these investments will be tax free, and not subject to the vagaries and future changes within the tax system?

I have not given much other info on our finances but you can see I’m sure the point I am making?

Our £250k home is mortgage free and will be downsized soon - we have £250k in S and S ISA’s and keep £100k in cash or cash equivalents, which is three/ four years spending in case of market downturn.

Would appreciate a response if anyone has a view on this.

Brynsam

okydoky wrote: »

I have not given much other info on our finances but you can see I’m sure the point I am making?

As you say, not a lot of info, so rather hard to comment helpfully just on the basis of the 'point' you are making.

True that future growth in your ISA would all be tax free (assuming the rules don't change), but whether it worth taking a tax hit now (and thus reducing the amount invested in your SIPP) depends on your view of future fund performance + some detailed arithmetic!

You can't move the whole lot in one go, given the annual limits on ISA investments, so why not try it for a year or so and see what the outcome looks like? What will you do the with excess which can't be invested in your ISA?

tacpot12

Your plan seems to come at a cost of £6600pa and deliver nothing but some insurance against some vague risk of tax changes in the future.

If your idea to draw more out of your SIPP than the nil band is necessary because you need more money to live on, then I would suggest you draw down what you need and leave the rest invested in the tax free shelter of your SIPP.

Alice_Holt

" take the tax hit of about £6600pa, put what I don’t need into ISA’s, "

Why not leave it in the SIPP if you don't need the money?

Why are you rethinking your original plan?

TBC15

I'm sure I'm probably wrong about this but if you need care in the future the council will look at your ISA's not your SIPP. If you bite the dust before the other half she gets the whole SIPP 9yds tax free. May be worth taking into account.

I would take the 25% tax free and draw down the SIPP under my allowance.

kidmugsy

TBC15 wrote: »

If you bite the dust before the other half she gets the whole SIPP tax free. May be worth taking into account.

If, that is, the OP bites the dust before 75; otherwise her withdrawals would be subject to income tax.


OP, I'd say the key balance is between (i) TBC15's strong points, versus (ii) the advantage of getting your money out of the SIPP while the basic rate of income tax stays at 20% - pretty much a point you implied in your original post.

There's no reason why you couldn't hedge your bets on that comparison.

Brynsam

TBC15 wrote: »

I'm sure I'm probably wrong about this but if you need care in the future the council will look at your ISA's not your SIPP.

Then why post if you are sure you're wrong (you are - if you've reached Pension Credit Age the council will look at the annuity your SIPP pot could notionally buy, regardless of whether or not you intend to buy or have actually bought an annuity).

dunstonh

Thought my situation was different as I have £300k in SIPP and was going to drawdown up to personal allowance only, paying no tax, and again deferring SP to about age 70, which should boost current projection of £10700 to about £13000, again escaping tax assuming modest increases in personal allowance. However I am rethinking this and wondering if perhaps I should drawdown my SIPP more aggressively, up to the basic rate level so about £45k ish, take the tax hit of about £6600pa, put what I don’t need into ISA’s, replicating the same SIPP funds as I sell them as I am happy with the performance, and thereby ensuring that the longer term growth of these investments will be tax free, and not subject to the vagaries and future changes within the tax system?

So, the bottom line is that you think that taking an action which will result in you paying tax is a good idea in an attempt to avoid paying tax?

westv

dunstonh wrote: »

So, the bottom line is that you think that taking an action which will result in you paying tax is a good idea in an attempt to avoid paying tax?

It could be if you thought paying a little more tax now would save a lot more tax later on.

dunstonh

westv wrote: »

It could be if you thought paying a little more tax now would save a lot more tax later on.

Where there is justification you are you absolutely correct.

However, in this case, the OP is saying he should pay tax to make sure the benefits are tax-free. That is not justification.

TBC15

Brynsam wrote: »

Then why post if you are sure you're wrong (you are - if you've reached Pension Credit Age the council will look at the annuity your SIPP pot could notionally buy, regardless of whether or not you intend to buy or have actually bought an annuity).

Possibly to generate discussion on the subject. Thanks for your contribution.