taxation of income under SIPP flexi-access drawdown

A_T

I'm planning to use my SIPP soon. My plan for the next few years is each year to take a £4000 TFLS and with the 12K in drawdown I plan to take £1000 income per month with other income coming from my ISA. I am assuming that this is possible with most SIPP providers and that none of the 1K per month will be taxed at source as this will be assumed to be my usual monthly income and will fall below the personal allowance.

Melvinsmum58

yes, in theory this should be correct.

However, I started drawdown recently in exactly the same way and got taxed on month 2. Not much, but I shouldn’t have been taxed anything!

A quick view of my online tax account showed that my tax code had been reduced by the same amount as they predicted my bank interest for the year would be. It seems that the £1000 tax free interest allowance is only applied when your PA has been used up!

My actual interest this year will be virtually nothing, but HMRC predicted ~950, using figures from about 6yrs ago (and accounts long closed) and reduced my PA accordingly.

It took me 2 phone calls (first advisor was useless, second brilliant) for HMRC to remove closed accounts, update my predicted interest and restore my PA. 

HMRC also sometimes supply a tax code which treats each month separately (rather than cumulative across the year). This shouldn’t be a problem unless you are drawing more than PA/12 in any one month, but the brilliant advisor did change my code to be cumulative. In my case, it means my deducted tax has been refunded this month.

Hopefully your SIPP provider will provide a ‘payslip’ monthly, showing tax code and any tax deducted, as mine (HL) does.

zagfles

Yes this is a bug in the HMRC PAYE system which they don't seem to what to fix - it's clearly nonsense to reduce the tax code of a pension/employment due to interest income of someone who they don't expect to earn above the PA, unless the interest income is expected to be over £6000

The easiest way round it might be to give them an income estimate for the SIPP of exactly the PA, or maybe £1 above. Then bank interest won't affect the tax code.

Albermarle

A_T said:

I'm planning to use my SIPP soon. My plan for the next few years is each year to take a £4000 TFLS and with the 12K in drawdown I plan to take £1000 income per month with other income coming from my ISA. I am assuming that this is possible with most SIPP providers and that none of the 1K per month will be taxed at source as this will be assumed to be my usual monthly income and will fall below the personal allowance.

You might pay some tax to begin with until tax codes are sorted out but you will get it back anyway.
Also some providers ask that you always make sure that you have enough cash available to make the payments. Most I think will just sell some of your investments for you if there is not enough cash available, but some will charge you for doing this.

A_T

thanks for the replies

I have SIPPs with AJ Bell Youinvest, HL, Vanguard and Fidelity. Most of my pot will remain in Fidelity for the £45 pa charge with the occasional £9.99 trade. But I may move some over periodically to one provider that gives a particularly good service in drawdown.

I would be interested in hearing experiences of drawdown with the providers I mention.

zagfles

The tax issues will likely be the same whoever you use, as HMRC set the tax codes. Other aspects of drawdown may be different

NannaH

I’m currently drawing £1040 a month with HL,  it’s only for a few months so I didn’t set up a regular payment - I request it on their website at the start of the month ( can’t do it on the app for some reason) and it goes into my bank on the 28th,  or it should - this month’s money has been delayed due to an ‘issue’ (tech I assume) yesterday they said it would be in by midnight but I had a message today saying it will now be Tuesday,  not a problem for me but if people have bills going out it’s not good. 

I’ve always found them good to deal with,  responding quickly etc. 

Melvinsmum58

NannaH said:

I’m currently drawing £1040 a month with HL,  it’s only for a few months so I didn’t set up a regular payment - I request it on their website at the start of the month ( can’t do it on the app for some reason) and it goes into my bank on the 28th,  or it should - this month’s money has been delayed due to an ‘issue’ (tech I assume) yesterday they said it would be in by midnight but I had a message today saying it will now be Tuesday,  not a problem for me but if people have bills going out it’s not good. 

I’ve always found them good to deal with,  responding quickly etc. 

Same here, I checked my bank this morning, having had the email last night saying it would be in by midnight. I then sent them a message, and got a very nice phone call, although the lady was evasive as to what caused the issue (but admitted it shouldn’t happen with a large Co like HL, not paying their drawdown customers on time). I did mention compensation, doubt anything will be forthcoming but worth a try - they take enough in fees after all.

She did imply only a few were affected but I suspect it is most of their drawdown customers. As NannaH says, it could cause problems for some people.

But other than this issue, I am happy with their drawdown process. I might change my mind though if the the payment isn’t  made on Tuesday!!

L9XSS

I have SIPPS with AJ Bell, Fidelity, HL and Vanguard.
Vanguard have been the most efficient in terms of pension transfers, email replies, phone calls both planned and unplanned.
Not started drawdown yet.