Hl - SIPP : Tax Free Cash & Drawdown

Bravepants

snowyy said:

Bravepants said:

zagfles said:

dunstonh said:

The plan is to take the maximum up to my tax free allowance each year from my drawdown pot (after taking the initial 25% tax free cash)  so would there be no tax liability there even if there is some later growth in the drawdown pot?

Do you need the TFC upfront?
If not, then taking it on drip with the taxable element will be better in the long run.

For a start, HL don't offer that option. OP could crystallise a chunk periodically eg once a year, which would achieve much the same, but anyway the idea that it "will be better in the long run" as if that's some sort of certainty is a myth we keep seeing here. It might be, for instance if there's too much to fill an ISA, or if inheritance tax or benefits are an issue. Equally if LTA (or rather the associated TFLS cap which still exists) might even be an issue, it may be better to crystallise fully. But for many/most people, it won't make a difference either way.

I've been thinking about this issue too, as I too have a decision to make regarding this.

This is my thinking, and I may be wrong, so I'm hapopy to be corrected BEFORE I make my decision! ...

Imagine if one splits a SIPP's value into taxable and taxfree components. If we then imagine taking the tax free component and placing it into an ISA with the same investment product as in the SIPP you would expect both the tax free amount in the ISA and the remaining crystalised pot in the SIPP to grow proportionately by the same percentage as though they both remained in the SIPP. The components would grow in proportion to their original size in both cases. So the tax free amount in the ISA would grow exactly the same as the tax free component had it been left in the SIPP. The same principle applies to any magnitude of tax free sum taken from the SIPP, be it the whole amount or a smaller proportion of it.

There WILL be a difference though, in the longish term, if a tax free component is NOT invested in exactly the same product in the ISA as ther SIPP. The best example being if one takes a tax free component and keeps it as cash in an ISA or a savings account, while any remaining SIPP tax free component is invested in higher risk growth products.

In my case I would be investing it in an ISA in the same product as my SIPP, so in my case it makes no difference whether I take the full tax free completely up front. It would make a different though if I later decide to invest the remaining crystalised amount in a product with higher expected growth than the original product from which the tax free amount was taken.

Pheeww! I really hope that came across properly, I'm still on my first coffee of the day. Would welcome further dicussion on this if needed. 

Thanks for your explanation and i will be looking to do something similar. fairly new to this sipp withdrawl lark and have come to the conclusion it's a real pain in the...! I'm actually at the moment looking to take some money from my HL drawdown account but now have to wait for the next payroll! and because most of my money is invested i cant seem to be able to move it without selling some shares. This seems so inflexible and so i think i have come to the conclusion that i will get as much out of the fund and put it into S&S ISA so much easier to deal with and hopefully when i finally get the state pension in two years i won't have a sipp to worry about getting caught for tax.

Indeed. Many people, including me, plan to drawdown their SIPP completely tax free (within their annual allowance) over a few years before any other pension kicks in.