SIPP advice for a non tax payer over 55.

AlanP_2

touch*my*food*feel*myfork said:

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

£3600 gross is the limit for a NON EARNER which is £2880 paid in and £720 tax relief.

If you are employed that limit does not apply. Instead you are limited to annual salary basically into all pensions. For you this would mean:

Annual Salary - LGPS contribution form you (not your employer) = gross amount that can go in to SIPP.


Once you retire you will be on the £3600 limit and can adjust your withdrawals to keep just under personal allowance but don't forget State Pension is taxable income as and when that starts.

molerat

£2880 is the limit of net contributions with no relevant income.

Whilst employed you can add an amount which takes your gross pension contributions up to your current income or £60K whichever is lower.  With a DB scheme the gross contribution is the the capital value of the increase in the benefits of the pension over the tax year so working out how much headroom you have is quite difficult, you need to ask your employer for that figure.

Once retired you can take out however much you need each year and keep topping up to age 75, all that happens at 75 is that you can no longer receive the tax relief on contributions.

AlanP_2

molerat said:

£2880 is the limit of net contributions with no relevant income.

Whilst employed you can add an amount which takes your gross pension contributions up to your current income or £60K whichever is lower.  With a DB scheme the gross contribution is the the capital value of the increase in the benefits of the pension over the tax year so working out how much headroom you have is quite difficult, you need to ask your employer for that figure.

Once retired you can take out however much you need each year and keep topping up to age 75, all that happens at 75 is that you can no longer receive the tax relief on contributions.

It looks like the 2 applicable pension contribution limits have been conflated as regards DB schemes.

The Pension Input Amount (PIA) is the increase in value of the benefits and is normally notified to the member around August / September following the end of the relevant tax year. This then forms part of the test against the £60k annual allowance.

For "relevant income", which for most people typically means salary, limit then gross contribution means gross contribution.

Your pension contributions in a tax year need to meet both criteria (ignoring AA carry forward for now).

So for the OP it is employee's LGPS deduction + (private pension contribution and associated tax relief).

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?

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.

Can you confirm that every UFPLS withdrawal required the HL paper form to be completed and submitted to HL?

And also, to receive the form each year, HL needed to go though 15 questions with you to ensure that you understood the risks involved with withdrawing money from your SIPP?

molerat

RG2015 said:

Can you confirm that every UFPLS withdrawal required the HL paper form to be completed and submitted to HL?

And also, to receive the form each year, HL needed to go though 15 questions with you to ensure that you understood the risks involved with withdrawing money from your SIPP?

Yes and yes.

The questions can be answered on line and the form is sent after that.

RG2015

molerat said:

RG2015 said:

Can you confirm that every UFPLS withdrawal required the HL paper form to be completed and submitted to HL?

And also, to receive the form each year, HL needed to go though 15 questions with you to ensure that you understood the risks involved with withdrawing money from your SIPP?

Yes and yes.

The questions can be answered on line and the form is sent after that.

Many thanks.

We asked if the form could be completed online and were told not. So that is as you say.

We did not ask if the 15 questions had an online option and did this over the phone. They did say that they had to go through the questions every six months so we may be covered for a withdrawal in June 2024.

On the plus side, we completed the the phone call at 11:30 yesterday and received the form in this morning's post!

Notepad_Phil

RG2015 said:

molerat said:

RG2015 said:

Can you confirm that every UFPLS withdrawal required the HL paper form to be completed and submitted to HL?

And also, to receive the form each year, HL needed to go though 15 questions with you to ensure that you understood the risks involved with withdrawing money from your SIPP?

Yes and yes.

The questions can be answered on line and the form is sent after that.

...

We did not ask if the 15 questions had an online option and did this over the phone. They did say that they had to go through the questions every six months so we may be covered for a withdrawal in June 2024.

...

Mrs Notepad uses the online UFPLS request option at https://www.hl.co.uk/retirement/ufpls/illustration (got to on the desktop via the Pensions menu option and choosing "UFPLS illustration").

I think that way always takes you through the 15 questions, but it's all done online and no need to talk to anyone on the phone. They'll then send out the relevant forms and they just need filling in and posting back.

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?

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.

Does this mean that in year 2 and thereafter HL will not deduct any tax, and what code allows for no tax to be deducted?

Dazed_and_C0nfused

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?

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.

Does this mean that in year 2 and thereafter HL will not deduct any tax, and what code allows for no tax to be deducted?

Any code that gives more tax code allowances than are being used at the pay period the pension income is taken.

For example code 400L (or 400T, S400L, S400T, C400L or C400T) will give 334 allowances each month.  So by month 12 of the tax year (period 6 March to 5 April) you could take £4009 without any tax being deducted.

If you took £4009 in month 10 of the tax year you would pay tax on £668 as you only have 10/12ths of the tax code allowances available.

The above is referring to cumulative tax codes.

RG2015

I have posted a thread on the cutting tax board as per the link below.

https://forums.moneysavingexpert.com/discussion/comment/80658555#Comment_80658555

In short, my wife withdrew £3,550 (using UFPLS) from her HL SIPP.

75% was taxable so £2,662.50 along with the tax of £322.80 appeared on her PTA online dated 4 January 2024.

From receiving this amount on 4 January, HMRC grossed this up to produce an income estimate of £247,612  for this tax year.

There are 93 days from 4 Jan to 5 Apr and 93 x £2662.50 = £247,612.50. Hence I am assuming that this is how HMRC came up with the figure.

Has anyone else experienced anything like this?