Move SIPP into ISA?

Duffone

I am receiving a Final Salary pension which is paying about £28k pa so am paying tax as it is above my personal allowance. I also have a SIPP held with Bestinvest which I am not yet drawing & an ISA with iWeb. I am not making contributions to the SIPP & I have not yet put anything in the ISA for this year.


I don't reach State Pension age for 7 years time, at which point I will get the full amount & so will then have less headroom before being due for higher rate tax.


I've seen a post on here (I think) where someone in a similar situation was advised to start taking money out of their SIPP, whether they needed it or not, & to put it into their ISA.


I'm assuming this means to drawdown (is that the correct phrase?) a sum that keep just below the Higher Tax Rate threshold each year until all of the SIPP is in the ISA & therefore not liable for any more tax.


Is that correct & if so, what would be the best way of doing this? Should I leave the SIPP with Bestinvest or transfer the whole lot to iWeb before starting to draw it?


Or is there a better (cheaper?) way of doing this. Can anyone see any pitfalls?


The value of the SIPP is about £100k so it will take several years to do this.

Dazed_and_confused

I don't reach State Pension age for 7 years time, at which point I will get the full amount

How do you know you will get the full amount?
Have you actually checked your State Pension forecast on gov.uk?

Where are you resident for tax purposes?

Duffone

I've checked on the Government website & rang the helpline. I have to make voluntary contributions which I intend to do. I live in the UK & always have done.
Thanks.

Dazed_and_confused

I don't reach State Pension age for 7 years time, at which point I will get the full amount & so will then have less headroom before being due for higher rate tax.

I've checked on the Government website & rang the helpline. I have to make voluntary contributions which I intend to do. I live in the UK & always have done.
Thanks.

Assuming you haven't applied for Marriage Allowance then the higher rate threshold is currently £50,000 (£12,500 Personal Allowance plus £37,500 basic rate band) so even with the full new State Pension you will still have £13k+ headroom before higher rate tax kicks in.

So would there really be much difference pre and post State Pension?

Tom99

For every £100 you take out of the SIPP you will have £85 after tax to put into the ISA so the gain is not as much as it might seem.

Duffone

Tom99 wrote: »

For every £100 you take out of the SIPP you will have £85 after tax to put into the ISA so the gain is not as much as it might seem.

Thanks for the reply. Part of my thinking was that (hopefully) there will be further gains on the investment. If it was withdrawn from the SIPP then I would have paid the tax on a lower amount.
Either way the tax will have to be paid so does this not make sense?
Or have I missed something? Extra costs etc? I believe that inside the ISA iWeb don't have any platform charges, only a £5 per deal cost when selling?

Will it make more or less difference if the next PM raises the HR tax band threshold as the changeover could be done quicker?

bearshare

If you are paying lower rate tax now, and are likely to be a higher rate tax payer later on, then yes it makes sense to take up to the threshold out now, and put it into an ISA.

Albermarle

you will still have £13k+ headroom before higher rate tax kicks in.

If you took money from the SIPP as UFPLS payment, then you could take approx. £17.5 pa from it each tax year.
25% would be tax free and £13K+ taxable .

Surprised nobody has mentioned one downside of moving money from a SIPP to an ISA.
.Pension money does not count for inheritance tax purposes whilst in an ISA it will .

jamesd

Duffone wrote: »

I am not making contributions to the SIPP

You should really pay in 2880 net a year. At all basic rate this makes you £180 a year in tax gain.

Duffone wrote: »

what would be the best way of doing this? Should I leave the SIPP with Bestinvest or transfer the whole lot to iWeb before starting to draw it?

Provided both offer the investments and service levels you want, use the cheapest.

Duffone wrote: »

I've seen a post on here (I think) where someone in a similar situation was advised to start taking money out of their SIPP, whether they needed it or not, & to put it into their ISA.

I'm assuming this means to drawdown (is that the correct phrase?) a sum that keep just below the Higher Tax Rate threshold each year until all of the SIPP is in the ISA & therefore not liable for any more tax.

Is that correct

That's correct but there should be some reason for doing it. Candidate reasons include:

1. expectation of paying higher rate income tax in the future
2. reducing the chance of a lifetime allowance charge at 75
3. expectation of higher income tax rates in the future
4. desire to make more capital available for capital drawing in the future without the higher rate income tax cost of directly drawing from the pension
5. typically, lower charges for ISAs than pensions
6. greater investment flexibility
7. the potential to mitigate income tax through VCT buying with the money becoming fully available five years later

What is your interest?