A question re SIPP drawdown and tax.

rothers

Morning all,

My wife works for the nhs however the pension that she will receive will not be very much as she won’t have worked there very long and we plan on her retiring early to coincide with my retirement. When I say low I mean way under the threshold for paying income tax! 

I am currently putting at least £500 per month into a S&S ISA, as she won’t get enough from her pension to pay tax I am thinking of moving the £500 per month along with other savings into a SIPP for her thus gaining the cash that the government adds. I presume that is a sensible thing to do??
My question surrounds drawing down the money when she retires, I understand that the SIPP provider automatically pays HMRC the tax on 75% of the cash she takes out however a lot of the taxable cash that she takes would not take her above her tax free allowance, how would she go about getting that cash back? Would she have to do a tax return at the end of each year or is there an easier way of doing it on a more regular basis?

Thanks for any advice given. 

Costabit

rothers said:

Morning all,

I am currently putting at least £500 per month into a S&S ISA, as she won’t get enough from her pension to pay tax I am thinking of moving the £500 per month along with other savings into a SIPP for her thus gaining the cash that the government adds. I presume that is a sensible thing 

She will be 55 yrs old when you retire ?
Otherwise she wouldn’t be able to draw on it, but in most ( not all ) cases a SIPP will beat the ISA contributions in a Tax relevant way

AlanP_2

The SIPP provider will be an "employer" basically when she is withdrawing. HMRC will issue a tax code and they will run the equivalent of a PAYE payroll system.

The first year / regular payments are likely to be wrong until tax codes are sorted so a reclaim may be necessary or it may come out in the wash over the remainder of the tax year depending on when (in year) it all starts.

Dont forget that State Pension is not taxed at source and so tax codes for SIPP and / or NHS pension will be adjusted when that starts to ensure overall tax paid is correct.

rothers

She will be at least 57, I just wanted to know how she would get the tax back up to her personal allowance as it’s automatically taken by the SIPP provider. 

rothers

AlanP_2 said:

The SIPP provider will be an "employer" basically when she is withdrawing. HMRC will issue a tax code and they will run the equivalent of a PAYE payroll system.

The first year / regular payments are likely to be wrong until tax codes are sorted so a reclaim may be necessary or it may come out in the wash over the remainder of the tax year depending on when (in year) it all starts.

Dont forget that State Pension is not taxed at source and so tax codes for SIPP and / or NHS pension will be adjusted when that starts to ensure overall tax paid is correct.

That’s great, thank you. I was typing my previous reply as you posted this. Cheers. 

sevenhills

rothers said:

I am currently putting at least £500 per month into a S&S ISA, as she won’t get enough from her pension to pay tax I am thinking of moving the £500 per month along with other savings into a SIPP for her thus gaining the cash that the government adds. I presume that is a sensible thing to do??

Surely it's a better idea for you both to be getting the tax relief and paying into a SIPP. You can still pay in when you retire, to get the tax relief.

rothers

Just a thought, she will have two pensions, one with the nhs and one with the sipp. Does that mean that a self assessment will need to be done at the end of the tax year?

Dazed_and_C0nfused

No, not unless the taxable income exceeds £100k or she is liable to the High Income Child Benefit Charge.

And as the emergency tax code will be used on the first taxable payment taken from the SIPP all she needs to do is ensure that that is less than £1,042 and then tax wouldn't be deducted anyway so there would be nothing to claim back.

Once the first payment is made by the pension company HMRC should allocate a tax code for future payments.

For example if her NHS pension is £8,000 she might have tax codes of 800L for the NHS and 450T for the SIPP.

If if she has applied for Marriage Allowance it could be 800N for the NHS and 325T with the SIPP

rothers

Dazed_and_C0nfused said:

No, not unless the taxable income exceeds £100k or she is liable to the High Income Child Benefit Charge.

And as the emergency tax code will be used on the first taxable payment taken from the SIPP all she needs to do is ensure that that is less than £1,042 and then tax wouldn't be deducted anyway so there would be nothing to claim back.

Once the first payment is made by the pension company HMRC should allocate a tax code for future payments.

For example if her NHS pension is £8,000 she might have tax codes of 800L for the NHS and 450T for the SIPP.

If if she has applied for Marriage Allowance it could be 800N for the NHS and 325T with the SIPP

That’s great, thank you. 

newatc

Just to add that my wife was in a similar situation and when she went into SIPP drawdown, we kept the SIPP income just below her tax threshold. Her SIPP income was further reduced when she was received her State Pension. So she has had several years of non-taxable income and her SIPP is still strong enough to give her extra support when necessary.

elouise01582

Have you looked at the NHS AVC schemes?