SIPP withdrawals

sevenhills

Can a person that has an income less than the personal allowance pay in £2,800 in small amounts and withdraw each time once the tax rebate has been applied?
It seems like free money, must be a catch somewhere.

sultan123

don't think you can withdraw till your are like 60?

molerat

sevenhills said:

Can a person that has an income less than the personal allowance pay in £2,800 in small amounts and withdraw each time once the tax rebate has been applied?
It seems like free money, must be a catch somewhere.

Yes you can, you don't have to wait for the tax to be added as it will be calculated on what is paid in and added to the account balance accordingly.  You may need to time withdrawals to avoid paying tax though depending on circumstances.

sevenhills

sultan123 said:

don't think you can withdraw till your are like 60?

My relative that I am enquiring about is almost at retirement age, but even then the state pension is below the personal allowance and I believe PIPs are tax free?

sultan123

molerat said:

sevenhills said:

Can a person that has an income less than the personal allowance pay in £2,800 in small amounts and withdraw each time once the tax rebate has been applied?
It seems like free money, must be a catch somewhere.

Yes you can.  You may need to time withdrawals to avoid paying tax though depending on circumstances.

is this for anyone or just low incomes

Dazed_and_C0nfused

sultan123 said:

molerat said:

sevenhills said:

Can a person that has an income less than the personal allowance pay in £2,800 in small amounts and withdraw each time once the tax rebate has been applied?
It seems like free money, must be a catch somewhere.

Yes you can.  You may need to time withdrawals to avoid paying tax though depending on circumstances.

is this for anyone or just low incomes

Anyone under 75 can contribute £2,880 net each tax year (£3,600 gross).

The tax payable on the 75% that is taxable will depend on what other taxable income you have in the year you withdraw it. 

For example someone earning say £95k and with no other taxable income apart from the £2,700 in pension income would pay £1,080 in tax on it.  More than the £720 tax relief they received in the first place.  Although would subsequently be able to claim higher rate tax relief on the gross contribution so there would be a small profit overall.

dealyboy

sevenhills said:

Can a person that has an income less than the personal allowance pay in £2,800 in small amounts and withdraw each time once the tax rebate has been applied?
It seems like free money, must be a catch somewhere.

Hi sevenhills ... Are they working, i.e. have earnings? If so, they are not limited to £3,600 gross but up to their earnings (with conditions).

molerat

dealyboy said:

sevenhills said:

Can a person that has an income less than the personal allowance pay in £2,800 in small amounts and withdraw each time once the tax rebate has been applied?
It seems like free money, must be a catch somewhere.

Hi sevenhills ... Are they working, i.e. have earnings? If so, they are not limited to £3,600 gross but up to their earnings (with conditions).

But they want to pay in small amounts and withdraw taxable income so will be limited to £4K

sevenhills

Dazed_and_C0nfused said:

The tax payable on the 75% that is taxable will depend on what other taxable income you have in the year you withdraw it. 

After tax I believe you would still be 6% in front, so if there was a small amount of tax to pay, would that be calculated by the SIPP provider. Claiming back excess tax might not be easy for them.

Dazed_and_C0nfused

sevenhills said:

Dazed_and_C0nfused said:

The tax payable on the 75% that is taxable will depend on what other taxable income you have in the year you withdraw it. 

After tax I believe you would still be 6% in front, so if there was a small amount of tax to pay, would that be calculated by the SIPP provider. Claiming back excess tax might not be easy for them.

But the person you were originally referring to could be upto 25% in front.

Can a person that has an income less than the personal allowance pay in £2,800 in small amounts and withdraw each time once the tax rebate has been applied?

If they have sufficient spare allowances they could contribute £2,880 which becomes £3,600 with basic rate tax relief.

£900 can be taken as a TFLS and £2,700 is taxable income.  If that £2,700 is taken in year(s) where there are sufficient spare Personal Allowances then no tax will ultimately be due.

They don't need to claim any tax back, HMRC will automatically refund any tax overpaid after the end of the of the tax year.

https://www.gov.uk/tax-overpayments-and-underpayments

If they plan to do this they will need to consider which SIPP provider is best with regard to taking the payments and charges.  And if taking £2,700 in taxable income impacts any means tested benefits they may receive.

sevenhills

Dazed_and_C0nfused said

But the person you were originally referring to could be upto 25% in front.

I believe that is the case, but I am not sure how much they claim in benefits and they retire in twelve months, they will receive the full state pension. They have a private pension, which I believe pays around £400 year.