Are there benefits in moving sums from ISA to SIPP in these circumstances?

Toucan13

I am debating whether to make personal pension contributions to my SIPP over the next 2 tax years before I hit 55 using funds already wrapped in ISA's.

I am a director of a Ltd Co which makes pension contributions to my SIPP and pays a small salary and dividend income which uses my annual dividend allowance.  I am 53 and can access my SIPP at 55.  This current tax year and next tax year I also have a separate PAYE income from another source and am trying to work out if there is any benefit in making personal SIPP contributions on this which would have to be funded from my existing ISA holdings.  I can't seem to work out in my head whether the BRT relief on those contributions trumps the flexibility of keeping the ISA money where it is in my circumstances.

In my planning I anticipated using my SIPP to provide income up to my personal allowance with the ISA's used for any additional expenditure. I don't think I need to take a full 25% TFLS from the pension so was working on taking just enough to use up my basic rate allowance from the SIPP - say £16,666p.a.

I am a BRT tax payer and should remain so even after the separate PAYE earnings.  My SIPP pot is £550k and I have £140k in ISA's.  I'd aim for around £25k p.a. in retirement.  Already have a full state pension entitlement from age 67.

Be grateful if anyone could enlighten me! Thank you.

TVAS

Always take tax free cash.

If you take income up to your personal allowance in Month 12 which is £12,500 you will be limited on future pension scheme contribution of £4,000 total employer and employee. 

You will therefore have a mixture of crystallised and uncrystallised  funds you want to do this under Flexi Access drawdown not UFPPLS. The latter is where you take part TFC part income. However the income means future pension contributions are restricted to £4,000.   

This transferring of ISA to DD the comparison is, is the tax relief gained worth paying the tax on the income. As you will be BRT it is cost neutral. For me you have more pension than ISA fund so the pension is taxable and will be when you are taking 25k p.a. As you say the flexibility of the ISA fund is useful and although no tax benefits (tax relief) going in there is no tax going out.

Good Luck. 

cloud_dog

Toucan13 said:

I am debating whether to make personal pension contributions to my SIPP over the next 2 tax years before I hit 55 using funds already wrapped in ISA's.

I am a director of a Ltd Co which makes pension contributions to my SIPP and pays a small salary and dividend income which uses my annual dividend allowance.  I am 53 and can access my SIPP at 55.  This current tax year and next tax year I also have a separate PAYE income from another source and am trying to work out if there is any benefit in making personal SIPP contributions on this which would have to be funded from my existing ISA holdings.  I can't seem to work out in my head whether the BRT relief on those contributions trumps the flexibility of keeping the ISA money where it is in my circumstances.

In my planning I anticipated using my SIPP to provide income up to my personal allowance with the ISA's used for any additional expenditure. I don't think I need to take a full 25% TFLS from the pension so was working on taking just enough to use up my basic rate allowance from the SIPP - say £16,666p.a.

I am a BRT tax payer and should remain so even after the separate PAYE earnings.  My SIPP pot is £550k and I have £140k in ISA's.  I'd aim for around £25k p.a. in retirement.  Already have a full state pension entitlement from age 67.

Be grateful if anyone could enlighten me! Thank you.

As a director of your own Limited company, the most efficient way to get money out of the business any in to an account in your name is to make contributions from Company X in to Mr X pension account.  You could always use liquidated ISA investments to supplement any reduction in income from the Ltd company.

It may not necessarily be best to always take the full TFLS when you start to draw your pension monies, and as you have indicated using UFPLS, supplemented with additional monies would be a way of removing money from the SIPP tax free.

Toucan13

Thanks both - sounds like I'm better carrying on as I am for now then.  I'm not sure how long I'll keep working for after 55 so keeping the ISA flexibility and the Ltd pension contributions seems the most sensible.

Secret2ndAccount

Maybe you have misunderstood the previous posters. They are saying you SHOULD pay more money into your SIPP.

Very simple example. You earn £5000 PAYE. Pay £4000 into your SIPP. Taxman tops it up to £5000. When you retire, you can take £1250 tax free, and the remaining £3750 is taxed at 20%, so £3750 - £750 = £3000.  So you paid in £4000 and got  out £1250 + £3000 = £4250. So you are 6% better off cycling the money through your SIPP.

As cloud_dog suggests, if your business is making enough profit to pay tax, then use the business to pay into the SIPP. This will reduce your business profits and therefore your business taxes, so even better value for you.

It doesn't matter if you have to take money out of your ISA to be able to afford to do this. Just make sure you invest the SIPP money so that it makes as much gain as it would have in the ISA. You have enough in your ISAs to keep you going until you are 55, and to cover an emergency. When you retire you can get the money out of your SIPP pretty quickly if you need it - up to about 60k per year without going into higher rate tax. So you can move the money back into your ISA if you want to.

Toucan13

Secret2ndAccount said:

Maybe you have misunderstood the previous posters. They are saying you SHOULD pay more money into your SIPP.

Very simple example. You earn £5000 PAYE. Pay £4000 into your SIPP. Taxman tops it up to £5000. When you retire, you can take £1250 tax free, and the remaining £3750 is taxed at 20%, so £3750 - £750 = £3000.  So you paid in £4000 and got  out £1250 + £3000 = £4250. So you are 6% better off cycling the money through your SIPP.

As cloud_dog suggests, if your business is making enough profit to pay tax, then use the business to pay into the SIPP. This will reduce your business profits and therefore your business taxes, so even better value for you.

It doesn't matter if you have to take money out of your ISA to be able to afford to do this. Just make sure you invest the SIPP money so that it makes as much gain as it would have in the ISA. You have enough in your ISAs to keep you going until you are 55, and to cover an emergency. When you retire you can get the money out of your SIPP pretty quickly if you need it - up to about 60k per year without going into higher rate tax. So you can move the money back into your ISA if you want to.

Ah the penny finally drops....thank you for the example, that makes sense now.  I have a total mental block with this whole thing - understand the paying from Ltd company part which I already do, it was the personal contribution I was mystified about. Appreciate you clarifying.