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

MK62

I think the point Thrugelmir was making is that you could withdraw £16666 each pa from your SIPPs and pay no income tax using annual UFPLS withdrawals - the first 25% of each withdrawal is tax free....then you need only take £3334pa from each ISA.

Alternatively you could crystallise £80000 of each SIPP, taking the £20000 tax free lump sum from each and use that to top up your ISAs. Then take £12500 from each crystallised SIPP pot and £7500 from each ISA. Repeat for every year you still have uncrystallised funds.....then switch to your method in your OP.
(and if using flexible ISAs you might have even more flexibility)

All still tax free of course......

The state pension does throw a bit of a spanner in though - assuming it's a full new SP each of £8767, this will reduce your remaining PA down to £3733 each.....which means tax free SIPP withdrawals via UFPLS would be limited to £4977 each pa, so ISA withdrawals would then be £6256pa each, to make you up to £20000pa each.
However, you could also look at the pros and cons of deferring your state pensions (which then get uplifted when you do take them).....


PS, if your SIPPs aren't roughly equal in size, it might also be worth looking into claiming Marriage Allowance, which would transfer 10% of one partner's PA to the other (the one with the biggest SIPP)

Lois_and_CK

Ohhh okay thanks! That makes sense with the unchrstallised withdrawals and isn't something I had considered - thank you everyone.

michaels

With the state pension does it make sense to get as much out of the sipp rather than the isa prior to spa?

Audaxer

MK62 wrote: »

The state pension does throw a bit of a spanner in though - assuming it's a full new SP each of £8767, this will reduce your remaining PA down to £3733 each.....which means tax free SIPP withdrawals via UFPLS would be limited to £4977 each pa, so ISA withdrawals would then be £6256pa each, to make you up to £20000pa each.

Or if they wanted to increase their income when they reach SP age, they could presumably still take £40k tax free per year from their SIPPs and ISAs, and also take their SPs which would give them an extra £7,013 each per annum after tax. A nice position to be in.

jamesd

There's a small mistake in the calculation in cloud_dog's good post. 12,500 / 0.75 = 16,666. 25% of 16,666 is 4,166.50 tax free and 12499.50 taxable. It was an easy slip to make.

I assume that until age 75 you'll want to continue paying 3,600 gross into pensions. No initial increase in what you can take out free of tax, your money will just last longer because of the tax relief on the way in.

You could take an extra 20,000 tax free lump sum each year to use for ISA funding and leave the 60,000 75% taxable in a pension flexi-access drawdown pot until needed.

If it appears that you won't be able to get out all of the money tax free you could use some VCT buying to help. Take 50,000 - 12,500 = 37,500 extra taxable out of the pension. 7,500 tax due on this. 7,500 / 0.3 = 25,000 so buy 25,000 of VCTs. You keep the 37,500 - 25,000 = 12,500, HMRC pays you back the 7,500. In five years you can sell the 25,000 plus or minus investment gain or loss and costs. After selling that can do some ISA funding (so could the initial 12,500 + 7,500). Along the way any dividends are tax exempt. And that's another 37,500 taxable out of the pension at no net tax cost. By the time you're done most of the money will be out of the pension and in ISAs where it's tax free whenever you take it.

These are things I'm doing. I like income tax free for the rest of my life... Still have VAT and Council Tax to pay, though.

Lois_and_CK

jamesd wrote: »

There's a small mistake in the calculation in cloud_dog's good post. 12,500 / 0.75 = 16,666. 25% of 16,666 is 4,166.50 tax free and 12499.50 taxable. It was an easy slip to make.

I got the same result as cloud-dog by calculating it as 12,500 / 100 x 25 = 3,125. An easy mistake to make, so thank you for your alternative workings out.

jamesd wrote: »

I assume that until age 75 you'll want to continue paying 3,600 gross into pensions. No initial increase in what you can take out free of tax, your money will just last longer because of the tax relief on the way in.

Honestly, no I hadn't even considered this. In fact - and now you've made me think this could be a huge mistake - up to now, we've been ploughing most of our money into our SIPPs and don't have much in our S&S ISAs at all, so we were going to stop paying into our SIPPs in around a year's time, leave them alone to grow, and instead direct that money into the ISAs for a few years. The reason is that we didn't want the bulk of our money in pensions and wanted a good chunk in ISAs as well. Maybe a better idea would be to pay half into the ISAs and half into the SIPPs in that case.

So even once retired, is it considered a sensible thing to take extra money from the ISAs and pay £3,600 a year into the SIPPs, at the same time as withdrawing £16,666 a year from them?

jamesd wrote: »

You could take an extra 20,000 tax free lump sum each year to use for ISA funding and leave the 60,000 75% taxable in a pension flexi-access drawdown pot until needed.

So this is £20,000 + the £4,166.50 I've already taken to roughly equal the 25% that I can take tax free from my pension? What's the advantage of having that £20,000 invested in a S&S ISA rather than invested in a SIPP?

jamesd wrote: »

If it appears that you won't be able to get out all of the money tax free you could use some VCT buying to help. Take 50,000 - 12,500 = 37,500 extra taxable out of the pension. 7,500 tax due on this. 7,500 / 0.3 = 25,000 so buy 25,000 of VCTs. You keep the 37,500 - 25,000 = 12,500, HMRC pays you back the 7,500. In five years you can sell the 25,000 plus or minus investment gain or loss and costs. After selling that can do some ISA funding (so could the initial 12,500 + 7,500). Along the way any dividends are tax exempt. And that's another 37,500 taxable out of the pension at no net tax cost. By the time you're done most of the money will be out of the pension and in ISAs where it's tax free whenever you take it.

These are things I'm doing. I like income tax free for the rest of my life... Still have VAT and Council Tax to pay, though.

Thank you so much.

MallyGirl

Lois_and_CK wrote: »

So this is £20,000 + the £4,166.50 I've already taken to roughly equal the 25% that I can take tax free from my pension? What's the advantage of having that £20,000 invested in a S&S ISA rather than invested in a SIPP?

Thank you so much.

Once it is in an ISA, no matter how it grows, it will be tax free when you take it out

Lois_and_CK

MallyGirl wrote: »

Once it is in an ISA, no matter how it grows, it will be tax free when you take it out

Ah okay, of course. Thanks Mally.

jamesd

Lois_and_CK wrote: »

The reason is that we didn't want the bulk of our money in pensions and wanted a good chunk in ISAs as well.

Why in the ISA rather than pension?

Lois_and_CK wrote: »

Maybe a better idea would be to pay half into the ISAs and half into the SIPPs in that case.

So even once retired, is it considered a sensible thing to take extra money from the ISAs and pay £3,600 a year into the SIPPs, at the same time as withdrawing £16,666 a year from them?

Yes, it's a good idea to use the pension to get the 25% extra added. So best to give pensions first priority and ISA after... or with the tax free money from the pension.

Even if you were to immediately take the money out and pay 20% income tax on 75% of it using the pension still adds 6.25% to your money. £2,880 in, add 25% to get to £3,600. Take out £900 tax free and pay 20% tax on the other £2,700 so it's £2,160 after tax and £3,060 total out. £180 gain. But of course you'll be trying to get it all out tax free and make a £720 gain instead.

Lois_and_CK wrote: »

So this is £20,000 + the £4,166.50 I've already taken to roughly equal the 25% that I can take tax free from my pension?

Yes.

Lois_and_CK wrote: »

What's the advantage of having that £20,000 invested in a S&S ISA rather than invested in a SIPP?

A few:

1. like the SIPP there's no capital gains tax inside.
2. unlike the SIPP you can take out any amount with no income tax to pay or even think about.
3. when you take money out of the pension the taxable portion is taxable at the tax rate then. I expect higher tax rates in the future so I prefer early moving from pension to ISA - but not losing the gain from going via the pension first.
4.charges for pensions tend to be higher than ISA, particularly when taking money out, so moving to ISA can cut costs.

Johnnyboy11

The SIPP also has post-retirement (death) benefits too...
https://www.youinvest.co.uk/pensions-and-retirement/accessing-your-pension/sipps-and-death