Savings interest and payments from SIPPs

lvegas2009

I am thinking of using UFPLS to withdraw from a SIPP over time, and also have savings interest.  I am trying to calculate how much savings interest I can receive before paying tax. I will have no other source of income.

Assuming the following:

Withdraw 17K from a SIPP as a payment.  25% of this is treated as tax free, so net amount is 12750.  As this is the personal allowance no tax should be due.  (Pension service has advised this seems correct)

I am unclear how much interest I can then receive as income .  This article on MSE implies that it is 

"Simply put, for most people these two terms mean that if you earn less than £18,570 a year in income and savings interest combined, you won't have to pay any tax on the interest paid on the savings. This £18,570 figure is made up of three separate allowances:"

In my example is it

18570 - 12750 (eg the tax free amount is not treated as income)  = 5820 as interest

Or is it 18570 - 17000 = 1570 as interest

Any thoughts gratefully received?

ColdIron

lvegas2009 said:

Withdraw 17K from a SIPP as a payment.  25% of this is treated as tax free, so net amount is 12750.  As this is the personal allowance no tax should be due.  (Pension service has advised this seems correct)

The Personal Allowance is £12,570 not £12,750 so you might want to rejig your figures (£16,760) to reach the desired £6,000 but you are on the right track

EthicsGradient

Where did you get the figure of "17000" from? (Oh, I see - the gross withdrawal amount - no, I don't think that counts)

I believe "18570 - 12750 (eg the tax free amount is not treated as income)  = 5820 as interest" is correct (though, as ColdIron said, 12750 is above the 12570 allowance, so you would pay a small amount of tax on that).

lvegas2009

Thanks  - that was what I was thinking

One other thing, how do I declare the income if completing a self assessment eg 12570 net from the pension.  I have not completed a SA for some time...

(or does the SIPP provider inform the revenue, and I only declare the interest on SA?

dunstonh

One other thing, how do I declare the income if completing a self assessment eg 12570 net from the pension.  I have not completed a SA for some time...

Pension income goes through payroll. So, it uses PAYE.   You get payslips and P60s.

lvegas2009

As I will be 'retired' and no other income , there is no payroll?

ColdIron

Pensions use PAYE and will issue a P60

Albermarle

lvegas2009 said:

As I will be 'retired' and no other income , there is no payroll?

Your taxable pension income is handled exactly the way employment income is, via the PAYE system. The pension provider will tell HMRC of the pension details, and HMRC will issue the pension provider with a tax code.
The savings providers will inform HMRC of the interest you have earned.
There is no need to fill in a tax return for either.
Everything will be calculated automatically.

molerat

lvegas2009 said:

As I will be 'retired' and no other income , there is no payroll?

You will be on the "payroll" of the pension provider.  The only difference between a job and a pension is the lack of NI deductions.

lvegas2009

How does the savings provider notify hmrc? They would not have ni number details ( I thought ?)

I am used to declaring interest via self assess.,,

ColdIron

lvegas2009 said:

How does the savings provider notify hmrc? They would not have ni number details ( I thought ?)

Electronically, banks etc have been doing this since 2016. They don't need your NI number

I am used to declaring interest via self assess.,,

Few people need to complete a self assessment and looking at your figures they may not allow you to. It's all done by HMRC reporting and tax codes now for the majority of people