Is a SIPP a no-brainer?

Marine_life

I'm trying to understand whether a SIPP is a no-brainer meaning that - other than tying the money up for a few years - are there any downsides?

Some further colour. Income this years means that after taper relief my maximum contribution is £10,000 (and also means I am a higher rate taxpayer).

As a newcomer to SIPPs I assume I pay in £8k which the government then uplifts to £10k. I then claim an additional £2k as higher rate relief i.e. effectively investing £6k to get £10k. Correct?

Anything else we should be thinking about? We have already maximized our ISA allowance.

Mnd

Are you over the lifetime allowance? 1million I think

Dazed_and_confused

effectively investing £6k to get £10k. Correct?

Probably but could be different if your adjusted net income was brought under £123.7k by the SIPP contribution.

are there any downsides?

Poor investment choice could lose you all the £8k you contributed (and the £2k tax relief added to the pension fund).

Don't invest it and suffer loss of value through inflation.

lisyloo

You say a few years.
You do realise this is until 55 right?

Main downsides are you can’t access until 55 and after that you’d ideally want to take it out slowly to minimise tax (the tax relief is provided in return for providing an income in retirement).

Another downside is that you are subject to tax rules at the time, so for example one change being discussed is moving main age from 55 to 57.

Do either of your employers offer schemes?
Sometimes these have NI benefits as well.

Marine_life

No - most of my pensions are overseas and therefore do not fall into the lifetime allowance calculation.

Two other points I should have added:

1. I will likely be a higher rate taxpayer in perpetuity so at some point if I want to touch the SIPP I will pay higher rate tax.

2. I have put some money into a VCT this year and would not be comfortable putting any more in.

Marine_life

lisyloo wrote: »

You say a few years.
You do realise this is until 55 right?

I'm 54

lisyloo wrote: »

Do either of your employers offer schemes?

I am an employee of my own limited company so...no

Dazed_and_confused

I am an employee of my own limited company so...no

Contributing to a pension is regularly seen (on this board) as a bad choice in this situation.

Have you spoken to your accountant about your options?

Marine_life

Dazed_and_confused wrote: »

Contributing to a pension is regularly seen (on this board) as a bad choice in this situation.

Have you spoken to your accountant about your options?

Yes. The issue is that I have income outside of the limited company which pushes me into the top tax bracket so the best way to get tax relief is via personal contributions (the contributions through the company would only attract Corporation Tax relief)

lisyloo

Dazed_and_confused wrote: »

Contributing to a pension is regularly seen (on this board) as a bad choice in this situation.

Have you spoken to your accountant about your options?

Can you point me to some info on this please.
My understanding is that this avoids Corporation tax as well as the usual income taxes.

Or did you mean from NET income?

Dazed_and_confused

I then claim an additional £2k as higher rate relief

which pushes me into the top tax bracket

You originally referred to claiming higher rate tax relief.

Are you now saying you will be paying additional rate tax (or the Scottish top rate of tax)?

HappyHarry

Marine_life wrote: »

Yes. The issue is that I have income outside of the limited company which pushes me into the top tax bracket so the best way to get tax relief is via personal contributions (the contributions through the company would only attract Corporation Tax relief)

Company contributions may only attract corporation tax relief, but you would avoid dividend tax too, which would be 38.1% for an additional rate taxpayer, or 32.5% if you waited until you were only a higher rate taxpayer.