SIPP fees - pay by card to avoid Annual Allowance?

DoctorStrange

If you max out your Annual Allowance and have zero cash in the SIPP, can you pay your fees by card to avoid selling units?

Or would this still count as a contribution for AA purposes?

kinger101

Technically, yes.  If the platform allows it.  Of course, it's not as tax-efficient.  

dunstonh

If you max out your Annual Allowance and have zero cash in the SIPP, can you pay your fees by card to avoid selling units?

No directly, but indirectly you could but you would get a tax penalty clawing back the tax relief.  

deltrotter

Here's how AJ Bell do it:

https://www.youinvest.co.uk/faq/how-are-charges-collected

zagfles

deltrotter said:

Here's how AJ Bell do it:

https://www.youinvest.co.uk/faq/how-are-charges-collected

Most others are similar, there's usually the option to pay charges from outside the pension. Some inflexible old fashioned providers may not provide the option.

Albermarle

Fidelity have a cash management account , that fees for SIPP; ISA etc can be paid from . You can add to it by debit card.

dunstonh

Albermarle said:

Fidelity have a cash management account , that fees for SIPP; ISA etc can be paid from . You can add to it by debit card.

That is interesting as HMRC ruled many years back that collecting charges from outside the wrapper would be considered a contribution to the pension.     Although they took the opposite stance with ISAs.      They must have changed their view at some point.

Albermarle

dunstonh said:

Albermarle said:

Fidelity have a cash management account , that fees for SIPP; ISA etc can be paid from . You can add to it by debit card.

That is interesting as HMRC ruled many years back that collecting charges from outside the wrapper would be considered a contribution to the pension.     Although they took the opposite stance with ISAs.      They must have changed their view at some point.

I double checked and this is what Fidelity say on their website.

What’s more, we will give you a Cash Management Account that is separate from your other accounts. We collect fees from any cash held there before we look to take money or sell from investments held in other accounts, for example your tax-wrapped ISA or SIPP.

dunstonh

I have rung two platforms to ask them and they say they couldn't do it as it's not allowed with pensions.    Basically, they mirrored what I said.       I doubt Fidelity and AJ Bell would do it without being sure it's possible.  So, if it has changed, it doesn't appear to have filtered down to the masses.

MallyGirl

I pay my fees (SIPP and ISA) by direct debit

dunstonh

I just spoke with another and they said it is a relatively recent change that allowed it they are thinking about bringing it in but are unsure of the benefit of it for the vast majority as its unclear as to whether it would actually be tax efficient to draw charges externally from the pension.  The ISA makes sense to do that but the pension is questionable.

Drawing the charges within the pension means you have got tax relief on the contributions going in but the charges take money out of the pension with no tax charge. So, you are effectively getting tax relief on your charges. Your pension would be lower (also helpful with LTA) but your external cash would be higher. 
Whereas paying the charge externally means your pension value will be higher but eventually subject to tax and your external non-taxable balance will be lower.

So, for the vast majority, it would not be tax efficient to draw the pension charges externally. If you are not hitting your annual maximum contributions every single year then you shouldn't pay the charges externally.

With a couple, you have both pension allowances, both ISA allowances and you can hold around £150k in a GIA each without tax (exc shareholding directors).  It would really only be someone in a niche scenario where it may make sense.  Those with money sufficient to use the annual pension and ISA allowances every year tend to be more concerned about the LTA.  So taking charges from the pension is more beneficial.

Thank you DoctorStrange for starting this thread.  Nice to have something different in respect of pensions.