Invest in SIPP short term purely for tax relief

DBdoobydoo

I am just on the point of retiring completely. I am currently working full time on a £60K salary but also drawing my £7K state pension & a £10K DB occupational pension so I I am a higher rate tax payer. I have about £16K in cash savings that I would like to wash through a SIPP to maximise tax relief before the end of the current tax year. I don't want to invest long term & don't want any risk so I believe it is possible to just have an interest bearing cash deposit within a SIPP.
I'm looking for recommendations on the SIPP platform & the investment within the SIPP. Obviously I want to minimise the cost of running the SIPP. The actual interest on the deposit is moot really as it's the tax relief & TFLS that will be of most valuable.

In round figures I think if I have my numbers right that I can pay £16K into a SIPP & get £4K added by the SIPP provider as standard rate tax relief then I have to claim another £4K from HMRC who will probably just adjust my tax code. I will immediately be able to take out £5K as a TFLS then will have £15K left in the SIPP which I can draw out over the next few years making sure that I stay below the higher rate threshold.

I welcome recommendations & comments.

Dazed_and_C0nfused

I don't want to invest long term & don't want any risk so I believe it is possible to just have an interest bearing cash deposit within a SIPP.

I'm looking for recommendations on the SIPP platform & the investment within the SIPP.

Which is it you want, cash or investment?

In round figures I think if I have my numbers right that I can pay £16K into a SIPP & get £4K added by the SIPP provider as standard rate tax relief

Yes, the £16k gets the 25% uplift so you have a pension pot of £20k.

then I have to claim another £4K from HMRC who will probably just adjust my tax code.

It's getting quite late in the tax year for that to be possible (given you haven't contributed anything yet).

More likely outcome would be that you notify HMRC once you have your P60's and details of any savings interest or other taxable income after the year ends and they calculate your tax position for 2019:20 taking into the pension contribution.  You don't get a fixed 20%, the gross contribution simply increases the amount of basic rate tax you can pay which in turn reduces any higher rate tax payable.

Looking at your figures you should have paid sufficient higher rate tax that this will save you £4k personal income tax.

NB.  Salary isn't necessarily all taxable but I'm assuming the P60 pay value will be similar or at least high enough for you to have paid higher rate tax on at least 20k.  If you make large DB contributions that may not be the case though.

HL have been mentioned before on here as not charging for holding cash but only pay 0.1% interest I think.  Not sure about any withdrawal fees.

xylophone

Have you considered Hargreaves Lansdown?
https://forums.moneysavingexpert.com/discussion/comment/76860405#Comment_76860405

tigerspill

I have just done this for my wife.
I went with Hargreaves Lansdown as they seemed the cheapest for our circumstances.  Basically there are no charges for holding cash.  There are no withdrawal fees for cash either.  I called them on Thursday to confirm this.
Others I considered were AJ Bell and Halifax Share Dealing.  Both had fees.  HSD has a higher interest rate (base rate 0.75%), but the fees killed that.
She will be taking the funds in three years so didn't want investment risk.  Interest rates are rubbish, but the 25% uplift makes it worth it.

Audaxer

DBdoobydoo said:

I am just on the point of retiring completely. I am currently working full time on a £60K salary but also drawing my £7K state pension & a £10K DB occupational pension so I I am a higher rate tax payer. I have about £16K in cash savings that I would like to wash through a SIPP to maximise tax relief before the end of the current tax year. I don't want to invest long term & don't want any risk so I believe it is possible to just have an interest bearing cash deposit within a SIPP.
I'm looking for recommendations on the SIPP platform & the investment within the SIPP. Obviously I want to minimise the cost of running the SIPP. The actual interest on the deposit is moot really as it's the tax relief & TFLS that will be of most valuable.

In round figures I think if I have my numbers right that I can pay £16K into a SIPP & get £4K added by the SIPP provider as standard rate tax relief then I have to claim another £4K from HMRC who will probably just adjust my tax code. I will immediately be able to take out £5K as a TFLS then will have £15K left in the SIPP which I can draw out over the next few years making sure that I stay below the higher rate threshold.

I welcome recommendations & comments.

There are no charges for drawdown in an HL SIPP. There is no point in investing it if wanting to withdraw it all over a few years. If you just leave it in cash you will have made a significant profit from the tax relief alone. 

DBdoobydoo

Thanks for the suggestions. I'll take a look at Hargreaves Lansdown as that seems to be the consensus.

I just want to hold cash short term. I'll look at putting in about £16K this tax year & should be able to manage £16K next tax year too but will make sure that I earn sufficient that I pay enough higher rate tax to make it worthwhile before I give up work completely.

Can someone confirm that my calculations are correct?

Before the end of this tax year I will pay into the SIPP £16K which will be made up to £20K with standard rate tax relief then I will contact HMRC regarding the other £4K & either get that as a refund or they will adjust my tax code for next tax year.

I will then draw out £5K as a TFLS leaving £15K in the SIPP which will have cost me £7K (£16K-(£4K tax refund & £5K TFLS)).

Rinse & repeat next tax year leaving me £30K in the SIPP which will have cost £14K. I will then withdraw money from the SIPP over the next 2-3 years after I retire ensuring that when taken with other pensions that I only pay standard rate tax so I will have eventually have received £24K net giving me a profit of £10K.

tigerspill

DBdoobydoo said:

Thanks for the suggestions. I'll take a look at Hargreaves Lansdown as that seems to be the consensus.

I just want to hold cash short term. I'll look at putting in about £16K this tax year & should be able to manage £16K next tax year too but will make sure that I earn sufficient that I pay enough higher rate tax to make it worthwhile before I give up work completely.

Can someone confirm that my calculations are correct?

Before the end of this tax year I will pay into the SIPP £16K which will be made up to £20K with standard rate tax relief then I will contact HMRC regarding the other £4K & either get that as a refund or they will adjust my tax code for next tax year.

I will then draw out £5K as a TFLS leaving £15K in the SIPP which will have cost me £7K (£16K-(£4K tax refund & £5K TFLS)).

Rinse & repeat next tax year leaving me £30K in the SIPP which will have cost £14K. I will then withdraw money from the SIPP over the next 2-3 years after I retire ensuring that when taken with other pensions that I only pay standard rate tax so I will have eventually have received £24K net giving me a profit of £10K.

I looked at doing this - contacting the HMRC to get the additional "tax relief".  Because of the interactions with everything else, it has turned out easier to complete a self assessment.

Dazed_and_C0nfused

Before the end of this tax year I will pay into the SIPP £16K which will be made up to £20K with standard rate tax relief then I will contact HMRC regarding the other £4K & either get that as a refund or they will adjust my tax code for next tax year.

HMRC never allow tax relief in respect of pension contributions in the tax code of  a different tax year to the tax year you made the contribution in.

You either need to do this extremely quickly or if it too late to adjust your current tax code you will get any tax relief due either by HMRC sending you a calculation for the 2019:20 tax year that will reflect your increased basic rate tax band or you will need file a Self Assessment return.

If you aren't already required to complete a Self Assessment return then it isn't usually necessary just because you are making relief at source pension contributions. 

DBdoobydoo

Dazed_and_C0nfused said:

Before the end of this tax year I will pay into the SIPP £16K which will be made up to £20K with standard rate tax relief then I will contact HMRC regarding the other £4K & either get that as a refund or they will adjust my tax code for next tax year.

HMRC never allow tax relief in respect of pension contributions in the tax code of  a different tax year to the tax year you made the contribution in.

You either need to do this extremely quickly or if it too late to adjust your current tax code you will get any tax relief due either by HMRC sending you a calculation for the 2019:20 tax year that will reflect your increased basic rate tax band or you will need file a Self Assessment return.

If you aren't already required to complete a Self Assessment return then it isn't usually necessary just because you are making relief at source pension contributions. 

I'm not doing Self Assessment nor do I want to. I just received my notice of coding for next tax year. My situation is very simple just my state pension paid gross as normal plus occupational pension & salary on PAYE.

DBdoobydoo

Please can someone confirm that my calculations are correct?

Before the end of this tax year I will pay into the SIPP £16K which will be made up to £20K with standard rate tax relief then I will contact HMRC regarding the other £4K & either get that as a refund or they will adjust my tax code for next tax year.

I will then draw out £5K as a TFLS leaving £15K in the SIPP which will have cost me £7K (£16K-(£4K tax refund & £5K TFLS)).

Rinse & repeat next tax year leaving me £30K in the SIPP which will have cost £14K. I will then withdraw money from the SIPP over the next 2-3 years after I retire ensuring that when taken with other pensions that I only pay standard rate tax so I will have eventually have received £24K net giving me a profit of £10K.

Dazed_and_C0nfused

Before the end of this tax year I will pay into the SIPP £16K which will be made up to £20K with standard rate tax relief then I will contact HMRC regarding the other £4K & either get that as a refund or they will adjust my tax code for next tax year.

No.  You will either get a new tax code for the current tax year (but time is running out for that) or a tax calculation for 2019:20 to increase your basic rate band by £20k.  The result of which will pay 20% on an additional £20k instead of 40% tax.  So if you have paid sufficient 40% tax the tax benefit is £4k (£20,000 x 20%) but any other adjustment due to finalise that tax year will be taken into account within the calculation so it is unlikely you will get exactly £4,000 refund.

As far as the overall benefit is concerned then I wouldn't quite describe it how you have but the end outcome is the same.

Across two years you will contribute £32k.

The basic rate tax relief will uplift that to £40k.

TFLS would be £10k.

Taxable element would be £30k so at current tax rates £6k tax would be paid leaving £24k net pension income.

At that point you have contributed £32k and received £34k back.

If you have paid sufficient 40% tax in each tax year for the contribution to save you £4k each year then your personal tax liability will be £8k less than it would normally be.

So overall cost to you is £24k with return of £34k.