Drawdown SIPP to invest in S&S ISA?

frogonalog

Secret2ndAccount said:

frogonalog said:

But isn't this calculation only looking at the short to mid term? 

Nope.

Surely it's only considering what is happening during the drawdown period?

Nope.

....  After that, if I'm lucky, there's possibly a couple of decades or more of further growth that currently would be tax free.

Assuming the tax rate stays at 20%, and you withdraw the money sensibly, then you end up with 15% less than you had in the SIPP.  If you invest it for 10 years, and double it, it will still be 15% less. Wait another decade and double it again. It will still be... yep, 15% less.

100k in the SIPP = 100k. 10 yrs later = 200k. Carefully withdrawn, you get out 170k

100k withdrawn = 85k. 10 yrs later = 170k - that's 15% less than inside the SIPP.

I'm about the 6th person to illustrate this for you, so let me try to clarify it in a slightly different way:

The amounts of tax you pay between the two scenarios are different. Pay no attention to that. It doesn't matter. Not one bit. Makes no difference. It's the final amount you receive after tax that matters. And that amount will be the same, SIPP or ISA, assuming you use the same investments.

Reasons why you might wish you'd taken the money out (or left it in).

1. You need a large amount of money in a hurry. You wish you had withdrawn it as you could end up paying extra tax to get it out of the SIPP.

2. Changes to the 20% tax rate, the 25% lump sum rule, or the rules for ISA's. Impossible to predict future legislation changes.

3. Inheritance tax issues. ISA forms part of your estate; SIPP can, to an extent, pass outside your estate. Doesn't seem to be a concern for you.

4.  Pension approaching lifetime allowance. Then you would want to get the money out of the pension. You can quickly assess whether this should be a concern for you. Do you think your total payments from all your pensions, over your lifetime, might be more than £1 million? If so, then you need to start looking into this sooner, rather than later. If you won't hit the million, it is not a concern.

Looks like my quest to reduce tax has blinded me to the bigger picture.  Still, at least I've achieved the original intention of being able to reclaim any HR tax while I was working.

AlanP_2

frogonalog said:

Secret2ndAccount said:

frogonalog said:

But isn't this calculation only looking at the short to mid term? 

Nope.

Surely it's only considering what is happening during the drawdown period?

Nope.

....  After that, if I'm lucky, there's possibly a couple of decades or more of further growth that currently would be tax free.

Assuming the tax rate stays at 20%, and you withdraw the money sensibly, then you end up with 15% less than you had in the SIPP.  If you invest it for 10 years, and double it, it will still be 15% less. Wait another decade and double it again. It will still be... yep, 15% less.

100k in the SIPP = 100k. 10 yrs later = 200k. Carefully withdrawn, you get out 170k

100k withdrawn = 85k. 10 yrs later = 170k - that's 15% less than inside the SIPP.

I'm about the 6th person to illustrate this for you, so let me try to clarify it in a slightly different way:

The amounts of tax you pay between the two scenarios are different. Pay no attention to that. It doesn't matter. Not one bit. Makes no difference. It's the final amount you receive after tax that matters. And that amount will be the same, SIPP or ISA, assuming you use the same investments.

Reasons why you might wish you'd taken the money out (or left it in).

1. You need a large amount of money in a hurry. You wish you had withdrawn it as you could end up paying extra tax to get it out of the SIPP.

2. Changes to the 20% tax rate, the 25% lump sum rule, or the rules for ISA's. Impossible to predict future legislation changes.

3. Inheritance tax issues. ISA forms part of your estate; SIPP can, to an extent, pass outside your estate. Doesn't seem to be a concern for you.

4.  Pension approaching lifetime allowance. Then you would want to get the money out of the pension. You can quickly assess whether this should be a concern for you. Do you think your total payments from all your pensions, over your lifetime, might be more than £1 million? If so, then you need to start looking into this sooner, rather than later. If you won't hit the million, it is not a concern.

Looks like my quest to reduce tax has blinded me to the bigger picture.  Still, at least I've achieved the original intention of being able to reclaim any HR tax while I was working.

frogonalog said:

Secret2ndAccount said:

frogonalog said:

But isn't this calculation only looking at the short to mid term? 

Nope.

Surely it's only considering what is happening during the drawdown period?

Nope.

....  After that, if I'm lucky, there's possibly a couple of decades or more of further growth that currently would be tax free.

Assuming the tax rate stays at 20%, and you withdraw the money sensibly, then you end up with 15% less than you had in the SIPP.  If you invest it for 10 years, and double it, it will still be 15% less. Wait another decade and double it again. It will still be... yep, 15% less.

100k in the SIPP = 100k. 10 yrs later = 200k. Carefully withdrawn, you get out 170k

100k withdrawn = 85k. 10 yrs later = 170k - that's 15% less than inside the SIPP.

I'm about the 6th person to illustrate this for you, so let me try to clarify it in a slightly different way:

The amounts of tax you pay between the two scenarios are different. Pay no attention to that. It doesn't matter. Not one bit. Makes no difference. It's the final amount you receive after tax that matters. And that amount will be the same, SIPP or ISA, assuming you use the same investments.

Reasons why you might wish you'd taken the money out (or left it in).

1. You need a large amount of money in a hurry. You wish you had withdrawn it as you could end up paying extra tax to get it out of the SIPP.

2. Changes to the 20% tax rate, the 25% lump sum rule, or the rules for ISA's. Impossible to predict future legislation changes.

3. Inheritance tax issues. ISA forms part of your estate; SIPP can, to an extent, pass outside your estate. Doesn't seem to be a concern for you.

4.  Pension approaching lifetime allowance. Then you would want to get the money out of the pension. You can quickly assess whether this should be a concern for you. Do you think your total payments from all your pensions, over your lifetime, might be more than £1 million? If so, then you need to start looking into this sooner, rather than later. If you won't hit the million, it is not a concern.

Looks like my quest to reduce tax has blinded me to the bigger picture.  Still, at least I've achieved the original intention of being able to reclaim any HR tax while I was working.

You hear "I want to pay less tax" so often and we all fall into the trap of missing the bigger picture sometimes.

I used to work in the private sector for companies selling IT software, hardware and services back in the early 2000s. The sales people were extremely well paid once their commission kicked in. There was one particular one who was probably on £100k plus who constantly moaned about how much tax he paid. Suggesting that he could fix that problem by getting a lower paid job but it would mean he had less to spend didn't seem to help.