SIPP Limit Starting from scratch?

amblonia

My wife is over 60, does not work and has never had a private pension. She has around £24k in a building society bond, but now wishes to put it into a cash SIPP.


For non-earners, there's a limit of a £2,880 annual contribution into an existing SIPP, but in this case, starting absolutely from scratch can she put her £24k in and still receive tax relief making the total £30,000?


If so, would I be correct in saying that over 2 tax years, she could withdraw £15k each time, less the 25% tax free portion, leaving £11,250 which being her tax allowance means there would be zero tax to pay?

Brynsam

amblonia wrote: »

For non-earners, there's a limit of a £2,880 annual contribution into an existing SIPP, but in this case, starting absolutely from scratch can she put her £24k in and still receive tax relief making the total £30,000?

Only at the rate of £2,880 a year. There's no special concession for non-earners who have no previous pension provision.

She could pay in more, but the pension provider would only be able to claim tax on her behalf on the first £2,880 each year.

bowlhead99

amblonia wrote: »

For non-earners, there's a limit of a £2,880 annual contribution into an existing SIPP, but in this case, starting absolutely from scratch can she put her £24k in and still receive tax relief making the total £30,000?

Well, she is very welcome to put her £24k in but with the limit of £2880 per tax year, and starting with 0 in the pension, it will take her nine tax years to get all £24k in the pension.

She could put the first £2880 in today and the second a week on Saturday when we tick over to a new tax year on 6th of April. So in practice, nine tax years only takes about 8 calendar years from now.

If so, would I be correct in saying that over 2 tax years, she could withdraw £15k each time, less the 25% tax free portion, leaving £11,250 which being her tax allowance means there would be zero tax to pay?

Yes, but if she wants to withdraw £30k and currently has £0k and will take her until 2027 to get to £30k, those "2 tax years in which she withdraws £15k each time" are quite a long way away. So leaving the money as cash in the pension rather than investing it in investment funds, may not be appropriate.

The fact that it would take 8 years to put all her money in and out again doesn't mean she should give up on the idea of using a pension - because even putting in £2880 a year, getting tax relief and taking out £3600 a year, is creating £720 of free money for her every tax year.

It takes a while for the provider to obtain the tax relief from HMRC, so while she could put in £2880 tomorrow, she wouldn't have the full £3600 in the account available for withdrawal for a couple of months. And with most providers you will incur some fees if you create a pension and quickly withdraw every penny leaving nothing in the account, then repeat the next year.

But for example she could put £2880 in before 6 April, put another £2880 in after 6 April, wait until the summer by which time there is £7.2k in the account due to tax relief, and then withdraw some smaller amount, e.g. £6k of it, to put back in the building society. She then has £1200 available in the pension to invest, keeping the pension account open.

After 6 April 2020 she adds another £2880 and that summer takes out another £3600 , and she keeps doing that until she reaches age 75 when she's no longer allowed to contribute to a pension and get tax relief. Meanwhile the £1200 is still invested in the pension in some low risk fund generating a bit of return in the background, likely better than building society rates. She could withdraw the £1200 whenever she likes really, but taking out every penny and closing the account and then having to open up a brand new pension every year, is a hassle and may incur more fees than just running the small pension.

This is a much longer answer than you needed as I pretty much cut and paste it from another answer I'd given elsewhere - the point is just that putting £24k in and 30k out in two quick lumps is a non-starter given her annual contribution limit, but maxing out the annual contribution limit and taking annual free money is still an easy option available to her.

Dazed_and_confused

For non-earners, there's a limit of a £2,880 annual contribution into an existing SIPP,

Where have you got the impression that limit was for existing SIPPs?

bowlhead99

Dazed_and_confused wrote: »

amblonia wrote: »

For non-earners, there's a limit of a £2,880 annual contribution into an existing SIPP

Where have you got the impression that limit was for existing SIPPs?

Well, the limit is for existing pensions, but it's also for new pensions too

AnotherJoe

amblonia wrote: »

My wife is over 60, does not work and has never had a private pension. She has around £24k in a building society bond, but now wishes to put it into a cash SIPP.
For non-earners, there's a limit of a £2,880 annual contribution into an existing SIPP, but in this case, starting absolutely from scratch can she put her £24k in and still receive tax relief making the total £30,000?
If so, would I be correct in saying that over 2 tax years, she could withdraw £15k each time, less the 25% tax free portion, leaving £11,250 which being her tax allowance means there would be zero tax to pay?

Well, you can't put it into a non existent SIPP can you ?!
And it doesn't need to be a SIPP, it's a pension the tax rules refer to.
And as said by others the rules are neutral on whether you've previously had or contributed to pension, they are per tax year, you cannot accumulate previous non contributory years

LHW99

Has she checked her state pension provision? Buying extra years for that (if available) could give a better return.

AnotherJoe

LHW99 wrote: »

Has she checked her state pension provision? Buying extra years for that (if available) could give a better return.

Good point but Not mutually exckusive options she could do both.

amblonia

Thanks to all of the above who replied. It answers my basic question.
I was under the impression that tax relief is given on any amount contributed to a cash SIPP by a non-earner, when a brand new one is opened.

JoeCrystal

amblonia wrote: »

Thanks to all of the above who replied. It answers my basic question.
I was under the impression that tax relief is given on any amount contributed to a cash SIPP by a non-earner, when a brand new one is opened.

That is quite an impression. What did you read that give you that impression?

amblonia

JoeCrystal wrote: »

That is quite an impression. What did you read that give you that impression?

You can start a SIPP from scratch or transfer money in

You can either start your SIPP from scratch with money that hasn't been held in a pension, or you can move it from an existing pension.




The above is copied/pasted from this very site. No mention of a tax relief limit.

• New contributions
  
  If you don't have a pension already and decide you want to start investing in a SIPP, you can open one either by making monthly contributions, or if you have a big lump sum you can invest that.