Cashing in sharedealing account to pay into SIPP - tax gain?

Xbigman

I contributed to the 'Paying 2880 into a SIPP...' thread and received the following reply which I misunderstood at the time. 

How liquid are your 11k investments? Wouldn`t maximum gain be realised by contributing to your pension in 20-21 as much as you can afford to? Use your 5K cash plus some of your 11K investments. What will your earned income for 20-21 be? Do not include your pension income. You will receive pension tax relief on pension contributions up to 100% of your earned income. You will be able to withdraw up about £11,200 (£8400 taxable 75% + £2,800 untaxed 25%)(£12500 PA - £4000 pension = up to £8500 to get you up to your personal allowance ) untaxed from your pension in 21-22 and every year until your SP kicks in providing the £12500 personal allowance remains the same. You can contribute £2880 to your pension each tax year you are not working but this tax year only you can contribute much more - "use it or lose it". Maximise completely tax free withdrawals from your pension by contributing as much as possible before this tax year ends.

If I understand this correctly.
I took a DB pension three years ago. I've not paid into a pension of any description since.
My gross earnings from employment this year should be £19200. I'd pay about £1350 tax on that.
My tax set up is that my DB pension is taxed and my full tax allowance is used by my employer. DB pension tax is about £780 this year.
I can sell my current investments (in a share dealing account) and add some cash so I'm in a position to pay £14000 into a SIPP (HL)
HL claim £3500 from HMRC despite the fact I never paid that in tax this year.
I would then buy back the shares I sold spending the £14k that's now in the SIPP.
When the 3500 tax arrives (probably early next tax year but claimed for this tax year) I can take it out. I have plenty of income tax allowance for this.
I then pay in 2880 for the 21-22 tax year, get the 720 tax back and then take 3600 out. And repeat each year.
My investments will now sit in the SIPP rather than a vanila share dealing account.


Am I reading this right?


Darren


 

Xbigman

The quote above should be credited with thanks to 'where_are_we'


Darren

Dazed_and_C0nfused

You won't necessarily be able to buy the same number of shares though within the SIPP as the price you can buy for is unlikely to be the same as you get for the sale.  Could leave you with more or less depending on price changes in the intervening period.

Flexibly accessing the £3,600 will limit future contribution to £4,000 (gross) so something to be aware of if you ever work again.

If I have understood your figures correctly in 2021:22 you will have the following taxable pension income,

DB pension c£4,000
Drawdown 1 £2,625
Drawdown 2 £2,700

Total £9,325

Xbigman

Yes, the drawdown figures are the same as I worked out. 
I'm aware I won't buy back the same number of shares as I sell but the 3500 tax break will outweigh any conceivable loss on the share sale and buyback. 

I have no plans to work again. Having hardly been ill in 57 years I find the concept of long term health problems too horrible to think about. Having to work as well is beyond anything I'm contemplating. I was so new to being ill I googled what to do. Apparently you just sit around and, well, you're ill. It wasn't complicated. 

Darren

Xbigman

Possible fly in the ointment time.
I stated I took a DB pension 3 years ago. That's not quite true. The final salary scheme was closed in 2013 and became a DC scheme linked to the DB scheme. I actually took my DB pension as income and used the  linked DC pot for most of the tax free lump sum just using a few hundred of the DB income to make up the full 25% TFLS.

Does this restrict me to putting in £4000 this tax year?

Darren

garmeg

Xbigman said:

Possible fly in the ointment time.
I stated I took a DB pension 3 years ago. That's not quite true. The final salary scheme was closed in 2013 and became a DC scheme linked to the DB scheme. I actually took my DB pension as income and used the  linked DC pot for most of the tax free lump sum just using a few hundred of the DB income to make up the full 25% TFLS.

Does this restrict me to putting in £4000 this tax year?

Darren

No it doesn't.

Xbigman

Many thanks. I am somewhat relieved. 


Darren