Contribute to SIPP and then commence drawdown in the same tax year?

sxgirl

Just finished self-employment but still 3 years off State Pension and small DB pension. Will be using 2 small DC pots, small SIPP and savings until pensions kick in. My question is can I pay into my SIPP up to my income this year, get the tax relief credited, then later in the same tax year commence drawdown (either TFLS or UFPLS)? I know once I take any taxable pension out I can’t contribute more than the MPAA in future years, but not sure if some kind of recycling rule applies in this tax year. TIA

dunstonh

 My question is can I pay into my SIPP up to my income this year, get the tax relief credited, then later in the same tax year commence drawdown (either TFLS or UFPLS)?

Yes.   The MPAA kicks in the day you do the UFPLS.

but not sure if some kind of recycling rule applies in this tax year. 

It wouldn't be recycling as you are putting the contributions in first.

sxgirl

Thanks for the swift reply dunstonh !

Just to be double sure, my self-emp income is only c£6k for the 3 months so far, and not intending to do any more paid work. So I was hoping to pop £4,800 in the SIPP, and then use up the remains of this year’s Personal Allowance by drawing down later in the year. 

zagfles

dunstonh said:

 My question is can I pay into my SIPP up to my income this year, get the tax relief credited, then later in the same tax year commence drawdown (either TFLS or UFPLS)?

Yes.   The MPAA kicks in the day you do the UFPLS.

but not sure if some kind of recycling rule applies in this tax year. 

It wouldn't be recycling as you are putting the contributions in first.

Putting contributions in first can still be caught by the recycling rules.

zagfles

sxgirl said:

Thanks for the swift reply dunstonh !

Just to be double sure, my self-emp income is only c£6k for the 3 months so far, and not intending to do any more paid work. So I was hoping to pop £4,800 in the SIPP, and then use up the remains of this year’s Personal Allowance by drawing down later in the year. 

You'll be OK as far as the MPAA goes, there's a tiny chance you'll get caught by the recycling rules if you take a TFLS, google "HMRC recycling rules", lot of useful articles with flow charts etc.

jamesd

dunstonh said:
It wouldn't be recycling as you are putting the contributions in first.

That could be caught by the rules, though. What I did was some UFPLS to use remaining basic rate band immediately followed - in the same batch of instructions - as some PCLS and flexible drawdown entry. The taxable part of the UFPLS then able to cover the contributions made and not subject to recycling restrictions. Contributions and drawing also using different bank accounts by happenstance since it didn't matter for me.

sxgirl

Thanks for the tips. Having read a page on the recycling I think my lump sum will be small enough not to trigger the recycling issue but I will check it out properly before going ahead.

nigelbb

Provided the tax-free lump sum is no more than £7,500 it does not infringe pension recycling rules.

https://www.pensionsadvisoryservice.org.uk/about-pensions/saving-into-a-pension/pensions-and-tax/pension-lump-sum-recycling