Non earner - is paying my £2880 worth it?

kipperman

Having a bit of angst here and would appreciate some advice. I am 59 and a non earner from the tax point of view. 

Brief background - main income is from commercial property ( a rental income well into the realms of paying tax though not 40%), and therefore my wife's DC Pension and my SIPP ( of a value of around 420k)  hopefully will remain untouched for a long while if not for ever. Rental income split between the two of us, so both paying tax. Initially I thought paying my gross £3600 ( net £2880)  into the SIPP was a slam-dunk - but reading through here I realised that even though I would get my 20% from the government I would pay that back through tax should I draw anything down from the SIPP. Equally unlikely that I will need to/want to take my 25% tax free. So I am thinking that in my circumstances I would be just as well off  investing it next year  in a  Stocks and Shares ISA. I'm assuming that any (hopeful) gains will be tax free. 

Am I missing something though? Much appreciate any comments.

xylophone

Is not accessing the SIPP part of IHT planning?

https://www.hl.co.uk/help/sipp,-drawdown-and-annuity/sipp/retiring/what-happens-to-my-SIPP-when-i-die#:~:text=Any money left in your,be taxed as their income.

MX5huggy

You’re missing the 6.25% benefit of getting 25% added then taking 25% tax free then paying 20% tax on the rest. 

costs you £2880 but you get out £3060. Plus if you leave it in the pension it’s sheltered from IHT. 

Albermarle

If you add £2880 to your SIPP, it will become £3600. Assuming no growth, if you withdraw it you will pay 15% tax, so you will receive £3060 - a profit of £180, compared to investing in a S&S ISA.
If you do not withdraw it, it will not be included in any IHT calculations, so potentially could save you ( or your estate to be precise) 40% tax on it.

Linton

The only benefit to you for going through the £3600 contribution loop would be the tax you save on the tax-free lump sum, ie 20% of £900=£180, so 6.25% return on your initial £2880, ignoring charges.

Personally I cannot be bothered to do it as £180 over a year is pretty irrelevent to my and most other people's well-being.   Better to avoid the hassle and add the £2880 to your other investments.  Then devote the time to thinking about options with a greater payback in £ terms.

kipperman

Thanks for the input - probably the IHT implication is the most significant but I tend to agree with @Linton that it may well be more hassle than it's worth.  I'd rather not salt it away for the benefit of my progeny ( they are likely to benefit not unreasonably anyway): I think I'll hide it away from the taxman in a S&S ISA

NedS

Linton said:

The only benefit to you for going through the £3600 contribution loop would be the tax you save on the tax-free lump sum, ie 20% of £900=£180, so 6.25% return on your initial £2880, ignoring charges.

Personally I cannot be bothered to do it as £180 over a year is pretty irrelevent to my and most other people's well-being.   Better to avoid the hassle and add the £2880 to your other investments.  Then devote the time to thinking about options with a greater payback in £ terms.

Wow, OK. I view it as the easiest £180 I'll ever likely make. Debit card and 2 mins 'work' to add the £2880 into the SIPP and it will get invested or withdrawn as part of the next drawdown as appropriate. What could be easier, it's just moving money around? I jump through more hoops for £5 monthly rewards on my bank accounts so this is a complete no-brainer.

Marcon

Linton said:

The only benefit to you for going through the £3600 contribution loop would be the tax you save on the tax-free lump sum, ie 20% of £900=£180, so 6.25% return on your initial £2880, ignoring charges.

Personally I cannot be bothered to do it as £180 over a year is pretty irrelevent to my and most other people's well-being.   

Probably true of many people who frequent this forum, but for those on the breadline (and in many cases well below it), an extra £15 a month would mean a lot.

WYSPECIAL

Linton said:

The only benefit to you for going through the £3600 contribution loop would be the tax you save on the tax-free lump sum, ie 20% of £900=£180, so 6.25% return on your initial £2880, ignoring charges.

Personally I cannot be bothered to do it as £180 over a year is pretty irrelevent to my and most other people's well-being.   Better to avoid the hassle and add the £2880 to your other investments.  Then devote the time to thinking about options with a greater payback in £ terms.

Paying it into another investment will probably take just as long as paying it into a SIPP. Laptop and debit card ready and it’s done in about a minute.

Pat38493

WYSPECIAL said:

Linton said:

The only benefit to you for going through the £3600 contribution loop would be the tax you save on the tax-free lump sum, ie 20% of £900=£180, so 6.25% return on your initial £2880, ignoring charges.

Personally I cannot be bothered to do it as £180 over a year is pretty irrelevent to my and most other people's well-being.   Better to avoid the hassle and add the £2880 to your other investments.  Then devote the time to thinking about options with a greater payback in £ terms.

Paying it into another investment will probably take just as long as paying it into a SIPP. Laptop and debit card ready and it’s done in about a minute.

So fundamentally is there any reason that you can't pay in your £2880, and then turn around the next day and take it all out again getting the £180 benefit (as long as you are still within the same marginal tax band)?

Also do you have to pick the correct provider for this?  I assume providers (or at least some of them) will charge you for the transactions involved?

zagfles

Pat38493 said:

WYSPECIAL said:

Linton said:

The only benefit to you for going through the £3600 contribution loop would be the tax you save on the tax-free lump sum, ie 20% of £900=£180, so 6.25% return on your initial £2880, ignoring charges.

Personally I cannot be bothered to do it as £180 over a year is pretty irrelevent to my and most other people's well-being.   Better to avoid the hassle and add the £2880 to your other investments.  Then devote the time to thinking about options with a greater payback in £ terms.

Paying it into another investment will probably take just as long as paying it into a SIPP. Laptop and debit card ready and it’s done in about a minute.

So fundamentally is there any reason that you can't pay in your £2880, and then turn around the next day and take it all out again getting the £180 benefit (as long as you are still within the same marginal tax band)?

Also do you have to pick the correct provider for this?  I assume providers (or at least some of them) will charge you for the transactions involved?

You'll need to wait around 2 months for the SIPP to get the tax relief from HMRC. You may need to jump through a few hoops to withdraw it. Most people just pay in, invest, and withdraw as part of their usual drawdown, you get the same benefit. Although some people seem to see it as a loophole if you take it straight out, it's the same benefit as any normal pension contribution.