Large SIPP; Tax and Drawdown Strategies

xxx75

I have been a long time lurker on the MSE Forums and have garnered a great deal of information from the well informed posters on this board whom I thank for their expertise and time.

As the title suggests I am looking at tax and drawdown strategies and my situation is as follows;

Age 54, married (wife is 49) and we have 2 adult children.

We are both retired.

My SIPP has a current value of £3,400,000 (mainly due to a great DB transfer) with Fixed Protection at £1,500,000.

My wife's SIPP is worth £60,000 (making maximum contributions of £3,600 to this) and she has a small DB pension of £2,500 starting at 60.

Our evenly split ISA's current total value is £1,050,000.

We have other assets (cash, VCTs, gold etc) current total value of £400,000 and live in a mortgage free house. State pension wise I have effectively 32 qualifying years and my wife has 25 years.

In a few months time when I am 55 I plan to start drawing down on my SIPP and take the maximum TFLS of £375,000.

We would look for an annual income from all sources of £80,000 to £100,000.

Any thoughts and strategies would be most welcome please.

MallyGirl

I am a great fan of DIY but for those sort of numbers I would be paying a professional. A decent IFA could save you from some expensive mistakes if you aren't fully up on all the options/workarounds etc.
Do you have a plan on what you are going to do with that £375k if you take it all at once?

Linton

What do you want the £3.4M for? Are you going to spend it all whilst alive or leave much of it as an inheritance.  You could reasonably hope it would  generate all the income you  need along with your other investments/income without decreasing the capital.

To drawdown that amount of money in a lifetime a quick calculation suggests you would have to be a £100K+ tax payer for much of that period.  On the other hand it could be highly tax efficient (though I do not know the effect of LTA) to leave the SIPP as an inheritance.

You should check your State Pension (not that it matters much in your case) - https://www.gov.uk/check-state-pension.  Do not assume that the number of qualifying years is 100% relevent.  35 years only applies to people who have only paid NI after April 2016.  In your case most of your NI will be pre-2016 and so the number of NI years for full SP could be significantly more than 35 especially as you seem to have had a large DB pension.

For the amount of money involved I strongly suggest you consult an Independent Financial Advisor (IFA) and dont rely on what people on the net tell you.

xxx75

The £375,000 I am planning a property purchase abroad.

The SIPP would be used to provide an income and leave as a highly tax efficient inheritance (though I am aware that future governments could change this).
I feel I am in a privileged position to pass on generational wealth.

Seeking as much advice and strategies is my priority and this would obviously include consulting with IFAs.
Just wondered what the well informed posters here would do in my position as regards the tax and drawdown implications.

Linton

xxx75 said:

The £375,000 I am planning a property purchase abroad.

The SIPP would be used to provide an income and leave as a highly tax efficient inheritance (though I am aware that future governments could change this).
I feel I am in a privileged position to pass on generational wealth.

Seeking as much advice and strategies is my priority and this would obviously include consulting with IFAs.
Just wondered what the well informed posters here would do in my position as regards the tax and drawdown implications.

As far as I can remember over the past 15-20 years on this forum no-one has ever admitted to having your level of wealth.  So the number of really well-informed replies may be rather limited.  Perhaps you can tell us what happens.

NoMore

I agree with Linton, not many have admitted to that wealth (and I suspect its a very small amount who do) and I assume most who do take professional advice, so not sure how much advice you will get here, and it could be expensive if its wrong.

Albermarle

Presume you are aware that the amount in your SIPP above £1.5 Million will at some point be hit with a Lifetime Allowance charge, which is likely to be 55% ?

As others have said, this forum caters for a wide range of posters, from people on low incomes, completely befuddled by personal finance issues, right through to people with Million Pound plus retirement assets wanting to discuss the finer points of LTA etc.

However I agree with other posters, that these types of amounts are off our normal radar, so the amount of detailed comment is going to be limited to a small number of posters I guess.

Seeking as much advice and strategies is my priority and this would obviously include consulting with IFAs

AIUI, your typical  local IFA may not have the experience of dealing with funds this size, so you may have to go to more of a specialist/experienced advisor.

dunstonh

AIUI, your typical  local IFA may not have the experience of dealing with funds this size, so you may have to go to more of a specialist/experienced advisor.

Generically they should do.  However, VCTs are used by less than 1% of the population and the invested assets indicate someone in the top 2% of the population.     So, it's not a common occurrence and firms where advisers deal more with the mainstream may not have the day-to-day experiences with someone in that scenario.  Like most things in life, being qualified is one thing, but being experienced in those areas is something different.

A city based firm in a wealthy area may well be the sort of firm that has those types of advisers (it may only be one adviser at a firm with multiple advisers)

Cus

Do you manage your own investments or do you use a professional service? 

ader42

The LTA alowance charge woul dbe 55% if you take everything above the LTA as a lump sum.

It doesn’t sound like you intend to do this so it would more likely be the £375k TFLS, a 25% LTA charge on everything above the LTA so a LTA charge of £475k, and then everything left (£2.5m)  taxed at normal rates, 0%, 20%, 40%

I think many would suggest trying to invest relatively safely and maybe taking your income from dividends.

The oft touted 4% rule shows a £100k annual income from £2.5m without running down the principal and you could use your ISAs as a buffer. 

One thing springs to mind… you take the max 25% TFLS, thereby crystallizing the whole pot and don’t need to worry about the LTA until you are aged 75 - at which point it is tested again and you would have another LTA charge? Does anyone know if that is correct? E.g. if the pot was still £2.5m at age 75 would there be another LTA charge of £250k (assuming protecton at the £1.5m level remains). 

NedS

Given you are so far over the LTA, I wouldn't do anything before the budget in 2 weeks - which you can't anyway as you are not 55 yet. There has been much speculation about the Chancellor increasing or otherwise tweaking the LTA threshold given the impact it is having on NHS doctors etc. Once you've crystallised 100% of the LTA, any increase in the threshold doe not help you.

Perhaps someone knowledgeable can comment on the use of VCTs as a method of mitigating tax liability?