Comments on this Cash SIPP Drawdown strategy please
The plan is to avoid paying tax on the proceeds. Is there a better/alternative way to do this? Or some other strategy available?
The money is not
needed for any urgent purpose. It’s just that the time seems right
to ‘take profits’, bearing in mind that the Personal Tax
Allowance will not increase now for a few years and therefore the
amount of tax free amounts drawn down will probably reduce over time.
The person is aged
67 and has a cash only SIPP which, after 5th April 2023
will hold approx. £36000. The person is a ‘new’ State Pensioner,
has no other income and has the full Personal Tax Allowance.
The plan is, early
in the next tax year (2023-2024), to take 25% of the SIPP fund as a
tax free lump sum and move that into an existing ISA, earning 3% per
year. The remainder will be drawn down at approx. £164 per month.
This will avoid the person paying any income tax, as the £164 per
month uses all of the available tax allowance, after the State
Pension is taken into account.
The SIPP provider
(Hargreaves Landsdown) allows up to £4000 to be invested after
Drawdown is initiated, so the person may invest £3600 each year, in
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Perhaps deferring the state pension is an option?
I would question the need to keep it all in cash, including the 25% tax free, earning maybe two or three per cent and losing out to inflation. It will be > 10 years before the pot is exhausted so keeping some of it invested would be the usual way forward. Especially if the plan is to feed back in £3600 some years, that makes the timescales and the logic behind investing even stronger.
Can you suggest a suitable investment strategy? Will check with Hargreave Lansdown too if course.
HL will not offer you personal investment advice, ( unless you pay for it) only general guidance. Although their website will nudge you towards one of their expensive multi manager funds.
They could have a look at something like these which are available on the HL platform. There is a choice of 5 risk levels. I would avoid the most cautious and the most adventurous.
HSBC Global Strategy Portfolios - HSBC Asset Management UK
and the risk of poor returns (and maybe actual reduction of investment)
There is always this risk, but the longer you stay invested, the smaller the risk becomes and the chance of good growth increases. So could be suitable for any money unlikely to be needed for a few years, with rest still held in cash .