SIPP advice for a non tax payer over 55.

RG2015

Albermarle 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.

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.

Thank you, that is very clear.

Does this make a SIPP like any other pension fund that is tax fee until drawn down?

Forgive my ignorance, but being lucky enough to have had a DB pension I never really familiarised myself with all the rules of pensions.
 

Albermarle

Does this make a SIPP like any other pension fund that is tax fee until drawn down?

All DC pensions are the same in this respect, whether they are a SIPP, personal pension, auto enrolment pension, stakeholder etc 

where_are_we

RG2015 - From 2015 - 2016 tax year onwards my OH contributed £2880 each year into her HL SIPP and after HMRC added £720 tax relief making her balance up to £3600, she withdrew £3550 (UFPLS) to leave a minimum £50 balance in her SIPP to carry on until the next year. Your wife will have to claim back tax in her first year using a UFPLS of £3550 but in subsequent years she will have a tax code for her SIPP. There are ways of avoiding paying too much tax in your first year eg contributing a regular monthly payment of 1/12 of £2880?

Remember there is a "use it or lose it" element to making a £3550 withdrawal each tax year your wife does not pay tax on her income. Is there a reason not to accept risk free gain of almost 25% each tax year?

When your wife becomes a tax payer eg when she reaches state pension age or an occupational pension kicks in the the benefit is greatly reduced to just over 6%. Then it is time to consider your options. When my OH started to pay tax she decide to stop making any withdrawals and invest (she transferred her SIPP from HL to Vanguard for lower charges), the advantage being SIPP`s are not included in Inheritance tax calculations. House price inflation, freezing of IHT allowances or even changes to the IHT rules could mean you might want to mitigate possible IHT payments by shielding assets by using a SIPP.

RG2015

where_are_we said:

RG2015 - From 2015 - 2016 tax year onwards my OH contributed £2880 each year into her HL SIPP and after HMRC added £720 tax relief making her balance up to £3600, she withdrew £3550 (UFPLS) to leave a minimum £50 balance in her SIPP to carry on until the next year. Your wife will have to claim back tax in her first year using a UFPLS of £3550 but in subsequent years she will have a tax code for her SIPP. There are ways of avoiding paying too much tax in your first year eg contributing a regular monthly payment of 1/12 of £2880?

Remember there is a "use it or lose it" element to making a £3550 withdrawal each tax year your wife does not pay tax on her income. Is there a reason not to accept risk free gain of almost 25% each tax year?

I am looking for some clarification on the "use it or lose it" element to making a £3,550 withdrawal each tax year my wife does not pay tax on her income.

If the £720 has already been added to the HL SIPP cash balance, how would it be lost if it wasn't withdrawn in the current tax year?

Albermarle

RG2015 said:

where_are_we said:

RG2015 - From 2015 - 2016 tax year onwards my OH contributed £2880 each year into her HL SIPP and after HMRC added £720 tax relief making her balance up to £3600, she withdrew £3550 (UFPLS) to leave a minimum £50 balance in her SIPP to carry on until the next year. Your wife will have to claim back tax in her first year using a UFPLS of £3550 but in subsequent years she will have a tax code for her SIPP. There are ways of avoiding paying too much tax in your first year eg contributing a regular monthly payment of 1/12 of £2880?

Remember there is a "use it or lose it" element to making a £3550 withdrawal each tax year your wife does not pay tax on her income. Is there a reason not to accept risk free gain of almost 25% each tax year?

I am looking for some clarification on the "use it or lose it" element to making a £3,550 withdrawal each tax year my wife does not pay tax on her income.

If the £720 has already been added to the HL SIPP cash balance, how would it be lost if it wasn't withdrawn in the current tax year?

It would not be lost. I think what @where_are_we is saying is that if you leave it too many years, then the withdrawal maybe big enough that you have to pay tax on it and/or you might have another source of taxable income come along.
So in this case you might not be able to utilise the annual personal allowance fully.

Qyburn

RG2015 said:
I am looking for some clarification on the "use it or lose it" element to making a £3,550 withdrawal each tax year my wife does not pay tax on her income.

I think it's referring to the personal allowance not carrying over. For example if I received taxable income of £12,570 this tax year and next, I'd pay no tax either year. If I take nothing this year but take £24,140 next year, i would pay tax on half of it.

LHW99

And if you sadly pass away before age 75, your beneficiary (named by you) would receive anything left in the SIPP tax free, as things are at the moment.

drumtochty

If RG2015's wife receives the full amount of the new state pension when she reaches state pension age, the following should be taken into account by RG2015. 

 

The state pension today is £10,600 per year and the annual PAYE earnings personal allowance is £12570. The chancellor has advised the personal allowance will not be increased above £12,570 until April 2028.

 

I will allow RG2015 to use his own state pension and personal allowance inflation assumption but a number of published commentators assume roughly around 2026 to 2028. The state pension may increase to an extent that the state pension will use up the complete personal allowance. It may well be that certain or all taxable amounts drawn down from the SIPP could be chargeable at the basic tax rate.

 

Depending on his good ladies age today, he may wish to calculate according to his own assumptions when to advise his good lady which years to withdraw the whole £3,600 per year from her SIPP less a small figure to allow the minimum amount of funds required to keep the SIPP account open and which years if there is no personal allowance left after the personal allowances is exhausted by her state pension, that she may wish to allow the funds to possibly grow and be taken when it suits or it can be left for inheritance by others.

 

Just a reminder the £2,880 input to a person’s SIPP pension if there is no earned income in that year only attracts the tax relief until the person reaches their 75th birthday.

 

Also, when his wife extinguishes her personal allowance and also from now for RG2015, the actual effect of the tax relief is £180 per person per year, rather than £720 per year that has been advised by a number of previous posters.

touch*my*food*feel*myfork

This has made very interesting reading and I am sorry to hijack this thread RG2015 I just have a couple of questions to clarify this information myself

-I am in a LGPS pension and aim to retire in two years

-My pension will be below the tax threshold

I see that the £2660 is the limit if you are not currently earning

Can I pay into a SIPP for the next two years whilst still employed (as well as my LGPS) and still get the tax relief paid at 20% on any amount up to the current pension limits?

Could I then take out the year after I retire alongside my pension and pay no tax on it if I keep it under my tax allowance and top up and take out each year thereafter until 75?

Thanks in advance for your help

Dazed_and_C0nfused

I see that the £2660 is the limit if you are not currently earning

Not sure where you've got that from but it's what happens in the whole tax year that matters. 

You might not be earning today but if you were earlier in the tax year or will do later then the amount you can contribute could well be more (than £2,880 not £2660).

Contributing to two pensions isn't a problem providing you keep within the limits.