Simple SIPP question(s)

JohnB47

To put it simply: in the tax year in which a lump sum equivalent to 25% is taken from a cash only SIPP, are you allowed to make another payment into that SIPP?

An explanation: There is an existing cash only SIPP and in this tax year, it is planned to make a payment of £2880 into it and HMRC will contribute £720 making it up to £3600.
The self employment is due to finish in June next year, so a further payment of £2880 could be made for the 2022-2023 tax year - around February next year.

I am just wondering about the timing of taking the 25% lump sum withdrawal and starting drawdown.

Could I pay £2880 into the SIPP in Feb this year, then in April, take 25%, then start drawdown and still be able to pay in another £2880 in Feb 2023? I have a feeling that this isn't allowed. A bit like taking a pension and still paying into it. Or maybe you can take 25% out but don't start drawdown - would that allow you to make one more payment before you start drawdown?

If neither of those is allowed, I'll just wait until April next year to kick things off, after I've made the last £2880 payment into the SIPP.

Second question - can I presume that the drawdown amount, per month, can be varied as time goes on?

It's a Hargreaves Lansdown Cash only SIPP.

Thanks for any help.

Dazed_and_C0nfused

Do you mean 25% TFLS

or

25% of the fund of which 25% will be TFLS and 75% taxable income?

You don't need to have any earnings to contribute £3,600.  

NoMore

AFAIK The only thing preventing putting 2880 p.a. into a pension is if your above 75 years old.

Its below the MPAA so that doesn't stop you, you don't need any relevant earnings, so that doesn't stop you. Can't think of anything else which prevents it. No doubt somebody will be along to tell me I'm wrong.

JohnB47

Dazed_and_C0nfused said:

Do you mean 25% TFLS

or

25% of the fund of which 25% will be TFLS and 75% taxable income?

You don't need to have any earnings to contribute £3,600.  

Hmmm. I just knew this would get complicated!

Let's use an example of a cash SIPP worth £25000. I'm thinking that 25% of that (£5000) can be taken tax free and the remainder goes into drawdown, subject to tax. The drawdown amount would be kept low enough to avoid tax (only other income would be State Pension).

I'm not sure which of your two options that example fits.

Thanks.

P.S I thought you had to be self employed or be earning at least something in order to open a SIPP. Obviously wrong.

QrizB

JohnB47 said:

Could I pay £2880 into the SIPP in Feb this year, then in April, take 25%, then start drawdown and still be able to pay in another £2880 in Feb 2023?

Are you earning enough currently that you could pay more than £2880 into a SIPP this tax year? Could you afford to? The 25% addiition would be worth having. From the sounds of it you're planning to start drawdown next tax year, so wouldn't have to wait too long to get it back again?

Albermarle

Let's use an example of a cash SIPP worth £25000. I'm thinking that 25% of that (£5000) can be taken tax free and the remainder goes into drawdown, subject to tax. The drawdown amount would be kept low enough to avoid tax (only other income would be State Pension).

Your thinking is OK , except that 25% of £25,000 is £6,250 , not £5,000 .

 I thought you had to be self employed or be earning at least something in order to open a SIPP. Obviously wrong.

If earning  income you can add a maximum gross amount to a SIPP an amount = to your earnings .

So if you earned £10K , then you could add £8K to your pensions and £2K tax relief would be added. If you have no earned income , you can still add £2880 to a pension and £720 tax releif will be added  

It seems a bit odd that you are working but adding the exact amount allowed for non working people?

JohnB47

Albermarle said:

Let's use an example of a cash SIPP worth £25000. I'm thinking that 25% of that (£5000) can be taken tax free and the remainder goes into drawdown, subject to tax. The drawdown amount would be kept low enough to avoid tax (only other income would be State Pension).

Your thinking is OK , except that 25% of £25,000 is £6,250 , not £5,000 .

 I thought you had to be self employed or be earning at least something in order to open a SIPP. Obviously wrong.

If earning  income you can add a maximum gross amount to a SIPP an amount = to your earnings .

So if you earned £10K , then you could add £8K to your pensions and £2K tax relief would be added. If you have no earned income , you can still add £2880 to a pension and £720 tax releif will be added  

It seems a bit odd that you are working but adding the exact amount allowed for non working people?

Darnit, I got my 25% and fifths mixed up.

In the last few years, my self employed income (backed up by a good employment pension) has been very low - under £3500, hence my investing the lower amount.

Thanks.

JohnB47

QrizB said:

JohnB47 said:

Could I pay £2880 into the SIPP in Feb this year, then in April, take 25%, then start drawdown and still be able to pay in another £2880 in Feb 2023?

Are you earning enough currently that you could pay more than £2880 into a SIPP this tax year? Could you afford to? The 25% addiition would be worth having. From the sounds of it you're planning to start drawdown next tax year, so wouldn't have to wait too long to get it back again?

Thank you. I did that a few years ago but recently the self employment income has been relatively low, hence the £2880 investments each year. I believe that you can't invest (total investment that is - personal and Government)) more than you actually earn.

JohnB47

OK folks, thanks again for all the replies. However, I think that the original question has yet to be answered.

So to repeat - once 25% of a cash SIPP is taken (free of tax), without going into drawdown, can you still invest in that SIPP?

Similarly, if 25% of a cash SIPP is taken, and drawdown is started, can you still invest in that SIPP?

QrizB

JohnB47 said:

OK folks, thanks again for all the replies. However, I think that the original question has yet to be answered.
So to repeat - once 25% of a cash SIPP is taken (free of tax), without going into drawdown, can you still invest in that SIPP?
Similarly, if 25% of a cash SIPP is taken, and drawdown is started, can you still invest in that SIPP?

We're all agreed that you can still invest in a SIPP in those circumstances.

Whether you can invest in that SIPP will depend on that SIPP's rules.

sheslookinhot

Best ask your SIPP provider, each provider will have their own conditions.