Could I have a tax-free retirement with my SIPP and S&S ISA?

Lois_and_CK

My husband and I have a SIPP each and a S&S ISA each. When we retire, hopefully early, I'm wondering if we'd need to pay tax.

Say we wanted an income of £40k between the two of us. If we did drawdown on our SIPPs of £12,500 each, that would keep us under the income tax bracket I think.

Then we'd need another £7.5k each. If we sold shares and/or took dividends from our ISAs, then because they are ISAs would that money also be free of tax? Or does that £7.5k count towards our free £12.5k income tax bracket?

So in theory, we wouldn't pay any tax at all in retirement (assuming we drawdown less from our SIPPs once we get the state pension)?

Or have I missed something blindingly obvious? (I often do )

MallyGirl

That is what I plan to do, at least till SP kicks in

JGB1955

Don't forget that the first £5,000 of savings interest would also be taxed at 0%.... another option to consider.

Thrugelmir

I'd prefer an enjoyable retirement to worrying about paying some income tax. You appear to overlooked the fact that 25% of the monies held in the SIPP can be withdrawn tax free.

A SIPP maybe far more beneficial than an ISA if early retirement is your aim.

Lois_and_CK

Thanks Mally. That is really good news because I'd done my retirement budgets to include paying tax.

lisyloo

You are correct.
Your SIPP money is subject to income tax after the 25% tax free lump sum) but below personal allowance so within 0% band.
Your ISA money is not subject to income tax.


Bear in mind that state pension is subject to income tax also but you can also reduce your SIPP drawdown to stay below the personal allowance if you have flexi drawdown.

Lois_and_CK

I'm not worried about paying income tax - I'd actually budgeted for it :-D

Lois_and_CK

Thanks so much for the replies everyone. That's great news - am off to fiddle with my spreadsheet now!

Marcon

JGB1955 wrote: »

Don't forget that the first £5,000 of savings interest would also be taxed at 0%.... another option to consider.

Might be wise to read the above helpful comment in conjunction with a fuller explanation: https://www.moneysavingexpert.com/savings/tax-free-savings/

cloud_dog

Lois_and_CK wrote: »

Thanks so much for the replies everyone. That's great news - am off to fiddle with my spreadsheet now!

If you did uncrystalised draw down from your SIPPs each year you could extract your personal allowance plus 25% of that amount tax free, rather than taking the whole 25% TFLS.

So, with this years figures; £12500 personal allowance plus 25% (of this amount) tax free (£3125) equals £15625 (each) without paying any tax.

We are a number of years off this point but I am still deciding between taking the full 25% TFLS and using uncrystalised draw down (prior to DB / SP kicking in).

Paul_Herring

Lois_and_CK wrote: »

If we did drawdown on our SIPPs of £12,500 each, that would keep us under the income tax bracket I think.

It would. And that £12,500 would probably increase over the years.

Then we'd need another £7.5k each. If we sold shares and/or took dividends from our ISAs, then because they are ISAs would that money also be free of tax?

They would, indeed, be 'free of tax.'

Or does that £7.5k count towards our free £12.5k income tax bracket?

No - it wouldn't.

Or have I missed something blindingly obvious? (I often do )

The thing you're missing, but which isn't blindingly obvious, is that the money that was put into the ISA's was taxed to begin with.

So while there's no further tax due on things that are in them, the money put into them wasn't technically tax free.