Is paying into a SIPP a no brainer?

C_Mababejive

OK this may seem like a crazy question and its probably due to the fact that im no expert in these matters.

My situation is that i already have a good DB pension.

My gross earnings last year were into the higher rate pretty much driven by dividend and savings income to the point where i was up for paying 32.5% divi tax.

I paid into a SIPP to bring my gross earnings down into the basic rate bracket so i got a chunk of tax relief into my sipp and paid less tax upfront for the year.

The thing is,,you are then left in the position of having to chose what to invest in the sipp to generate a return. Thats the tricky bit.

So here we are in tax year 2018/19 and i am in the same position. I dont really feel like i want to keep dumping money in sipps to cut my upfront tax payments.

Maye id be a bit happier if i could find investments in the SIPP that were lower risk?

I'm also not ready to retire yet.

So i guess the question is,,is this my only way forward, ie keep paying into a SIPP to cut tax payments?

Thanks

HappyHarry

If you're not looking to put funds in a SIPP, where else would you want them? Do you need to have access to these funds soon? You can also get tax relief on VCTs, but these tend to be higher risk and have a minimum holding period of 5 years.

You can invest in low risk assets in a SIPP, even in cash if you so wanted. There are thousands of OEICs/unit trusts out there you can hold in a SIPP and there will be plenty of low risk options.

You say your income comes a lot from dividends and interest. Are you aware that you can only get tax relief on your SIPP contributions to a maximise of your earned income? Maybe you run your own ltd company, hence the dividends, where the company make the contributions?

C_Mababejive

Hi,,yes i was aware of the earned income rule for SIPP contributions and i also have to adjust the SIPP contribution to take account of DB scheme inputs.

I'm slowly trying to manage down the dividend income and filter it into ISA's but that will take time. Cash in SIPPs doesnt make much interest if any though?? I'm currently trying to search and filter for decent "low risk" investments as a possibility ?

I guess i dont need the funds any time soon,maybe i just need to work less to manage down my gross income..

Audaxer

C_Mababejive wrote: »

I'm also not ready to retire yet.

If you are not retired but over 55, why not just pay cash into the SIPP to get the tax relief added and draw out the full amount of cash, less £1,000 cash or however much is needed to keep the SIPP open? There are quite a few threads on here about just keeping putting cash in SIPPs and drawing it out with the tax relief each year, and repeating each year.

C_Mababejive

Audaxer wrote: »

If you are not retired but over 55, why not just pay cash into the SIPP to get the tax relief added and draw out the full amount of cash, less £1,000 cash or however much is needed to keep the SIPP open? There are quite a few threads on here about just keeping putting cash in SIPPs and drawing it out with the tax relief each year, and repeating each year.

Hmm,,maybe this could be a partial solution..? I am almost 55 so this might work. So essentially i could dump a load of cash into a SIPP to chop my upfront tax bill,get the tax relief,,then draw it out as cash? But how would the withdrawn cash be taxed??

Thrugelmir

C_Mababejive wrote: »

Hmm,,maybe this could be a partial solution..? I am almost 55 so this might work. So essentially i could dump a load of cash into a SIPP to chop my upfront tax bill,get the tax relief,,then draw it out as cash? That sounds to good to be true ??

Part of the withdrawl may ultimately be taxable. Though of course inflation may eat some of the gain away.

Investing is ideally for the medium/longer term. Bonds offering limited shelter in the current environment.

Sometimes a gain is a gain however small.

Linton

Audaxer wrote: »

If you are not retired but over 55, why not just pay cash into the SIPP to get the tax relief added and draw out the full amount of cash, less £1,000 cash or however much is needed to keep the SIPP open? There are quite a few threads on here about just keeping putting cash in SIPPs and drawing it out with the tax relief each year, and repeating each year.

Don’t forget the MPAA. As soon as you drawdown £1 of taxable DC money your total DC annual contributions are limited to £4K. Also of course 75% of anything drawn down will be taxed as extra income. Which isn’t what the OP needs.

Some other potential problems come to mind...
Don’t forget the LifeTime Allowance of £1030000. If the total value of your pensions exceeds this there are large tax penalties.
If you accumulate too much in pensions and retire too late you may not be able to empty your SIPP without paying higher rate tax.

And Some thoughts...
It looks like the OP does not have a life plan. Managing money is a lot easier if you know what you are managing it for.
If you have more than enough in pensions and other savings to meet your objectives why get over excited about the tax you pay?
Charity payments are tax free.
If you want low risk investments I suggest you look at the Wealth Preservation Funds such as Trojan O, Ruffer, RIT etc

C_Mababejive

>It looks like the OP does not have a life plan. Managing money is a lot easier if you know what you are managing it for.<

You know,,despite re-reading your post a couple of times, my brain must have been sending subliminal messages as i kept reading it as.."it looks like the OP doesnt have a lifespan.."...which i guess is similar to not having a life plan !

Some great points raised though that i need to go think about.

You mean this Trojan fund ??

GB00B01BP952

Why do you say its a "wealth preservation" fund..?

thanks

Linton

C_Mababejive wrote: »

.....
You mean this Trojan fund ??

GB00B01BP952

Why do you say its a "wealth preservation" fund..?

thanks

Yes thats the one. "Wealth Preservation" is a standard objective/category of funds. Their aim is to produce a moderate long term return overall avoiding major crashes. For example Troy Trojan dropped about 13% in the Great Crash and averaged about 7% annual return over the past 10 years. Some like RIT (IT) dropped more but has produced a better return, others are more cautious.



If you Google "wealth preservation funds" you will find a number of similar funds (mainly ITs) and discussion on the topic.

atush

Maye id be a bit happier if i could find investments in the SIPP that were lower risk?

I'm also not ready to retire yet.

Well a bit f a mixed message here. You have a DB pension as a backstop- extremely low risk. So balancing that with some risk in a sipp is actually a good idea With a DB pension, goinng whole hog into cash and things like Ruffer arent really all that diversified. Investing soem mney for long term growth if using drawdown is a good idea.

The thing is,,you are then left in the position of having to chose what to invest in the sipp to generate a return. Thats the tricky bit.

So here we are in tax year 2018/19 and i am in the same position. I dont really feel like i want to keep dumping money in sipps to cut my upfront tax payments.

Why do you want to pay more tax? Investing to generate a return? yes, good idea. But you dont have to go for income if you arent retired- you could go for growth or a mix of both.

C_Mababejive

atush wrote: »

Well a bit f a mixed message here. You have a DB pension as a backstop- extremely low risk. So balancing that with some risk in a sipp is actually a good idea With a DB pension, goinng whole hog into cash and things like Ruffer arent really all that diversified. Investing soem mney for long term growth if using drawdown is a good idea.





Why do you want to pay more tax? Investing to generate a return? yes, good idea. But you dont have to go for income if you arent retired- you could go for growth or a mix of both.

I dont want to pay more tax. If i invested in Acc funds surely there are annual tax implications also?

I havent read up on the suggestion of putting cash through a sipp yet but surely if i put cash in then draw it out,i would incur tax again..?