SIPP advice for a non tax payer over 55.

Dazed_and_C0nfused

toomuchinfo said:

Well, this looks interesting. Do you mean that I could put £2880 in a SIPP, and the Gov.would put in £700? I could then leave it in the SIPP and do the same the following year or I could take it all out again and still do the same the following year?

Does it matter that I’ll start getting my State Pension in July, I’m currently an unpaid carer getting Carers Allowance (which finishes in July when my pension starts)

Yes, if you have no earnings for pension contribution purposes then you are limited to a gross contribution of £3,600.

£2,880 paid by you and £720 tax relief added by the pension company.

Whether you have paid £720 in tax is irrelevant.

Stubod

NB, if you do earn over your basic allowance, then you will pay 20% when you "cash in" your SIPP....but in general it's still of a bit of a no brainer assuming you have the spare cash...

RG2015

Thanks for all the replies. It does sound like a no brainer for spare cash with the added option of investing for a future pension.

I do now have an additional question.

Would there be any tax benefit in me opening a SIPP?

I had assumed that as I am already drawing down two pensions (above my personal allowance) that any withdrawal from a SIPP would be taxable at my marginal rate.

Dazed_and_C0nfused

RG2015 said:

Thanks for all the replies. It does sound like a no brainer for spare cash with the added option of investing for a future pension.

I do now have an additional question.

Would there be any tax benefit in me opening a SIPP?

I had assumed that as I am already drawing down two pensions (above my personal allowance) that any withdrawal from a SIPP would be taxable at my marginal rate.

It's worth 6.25%.

You chip in £2,880.

You take £900 TFLS plus £2,700 taxable income, which will add £540 to your tax liability.

£900 + £2,160 (net of tax) = £3,060 total return.

molerat

If you are a 20% tax payer you make £180 profit.  £2880 in, add £720 tax, withdraw £900 tax free and £2700 taxed at 20% (£2700- £540) so £2160 net = £3060.

RG2015

Many thanks, and in this case the calculations are quite straight forward.

This whole topic keeps throwing up new questions for me.

I guess if I keep a SIPP as cash that any interest earned is taxable alongside any other interest income. And if I move the funds into investments that any gains are taxed in accordance with investment income rules.

Dazed_and_C0nfused

RG2015 said:

Many thanks, and in this case the calculations are quite straight forward.

This whole topic keeps throwing up new questions for me.

I guess if I keep a SIPP as cash that any interest earned is taxable alongside any other interest income. And if I move the funds into investments that any gains are taxed in accordance with investment income rules.

Not within a SIPP no.  But the interest you earn is highly unlikely to be as much as you can get outside the SIPP.

Taking the money out (ignoring the 25% TFLS) is what makes it taxable (as pension income).  

Same for investments, tax exempt within the SIPP.

RG2015

Dazed_and_C0nfused said:

RG2015 said:

Many thanks, and in this case the calculations are quite straight forward.

This whole topic keeps throwing up new questions for me.

I guess if I keep a SIPP as cash that any interest earned is taxable alongside any other interest income. And if I move the funds into investments that any gains are taxed in accordance with investment income rules.

Not within a SIPP no.  But the interest you earn is highly unlikely to be as much as you can get outside the SIPP.

Taking the money out (ignoring the 25% TFLS) is what makes it taxable (as pension income).  

Same for investments, tax exempt within the SIPP.

Thanks again.

I hope you are aware that your invaluable advice on this site is appreciated beyond measure.

cloud_dog

RG2015 said:

Many thanks, and in this case the calculations are quite straight forward.

This whole topic keeps throwing up new questions for me.

I guess if I keep a SIPP as cash that any interest earned is taxable alongside any other interest income. And if I move the funds into investments that any gains are taxed in accordance with investment income rules.

You could consider using one of the many money market funds, which should be yielding now c. 4.x%.

Albermarle

RG2015 said:

Many thanks, and in this case the calculations are quite straight forward.

This whole topic keeps throwing up new questions for me.

I guess if I keep a SIPP as cash that any interest earned is taxable alongside any other interest income. And if I move the funds into investments that any gains are taxed in accordance with investment income rules.

For example .
You start with £3,600 . You invest it and markets pick up and you gain 10% in a year, so now you have £3960 minus say £15 in platform fees, so £3,945.
Then you withdraw it all,
You get 25% tax free - £986 and rest is taxable at 20% as you have already used up your personal allowance.

So because the investments grew, you will pay more income tax, but you will get more tax free cash, so the overall tax benefit always remains at 6.25%, regardless of growth ( or losses) in the SIPP.

If you left it in the SIPP, there would be no tax to pay at all.