Can I swap between Contributing and Drawing Down ? Or even do both?

optoutDB

I'm 55, with a SIPP and a waiting DB pension. My self employed hobby business might earn nothing this year, and then next year it might earn £15k.

Could I drawdown my SIPP by £12570 this year (to get the money out tax free). And then next year contribute say £15k (and get the grossing up). 

And what are the options in a year where I earn say £8k?  I don't suppose I can contribute £8k (and get grossing up) and also drawdown £4.5k  ???

DE_612183

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Can you continue pension contributions after drawdown? | Financial Solutions | Financial Solutions

Marcon

optoutDB said:

I'm 55, with a SIPP and a waiting DB pension. My self employed hobby business might earn nothing this year, and then next year it might earn £15k.

Could I drawdown my SIPP by £12570 this year (to get the money out tax free). And then next year contribute say £15k (and get the grossing up). 

Contributions - you are limited to a gross contribution of your earnings in the tax year in which you make the contribution. You'd pay in 80% and the SIPP provider would add the 'tax top up', which would bring you up to 100% of earnings. So no, if you don't earn £15K, you can't contribute that.

Withdrawals - 25% of any withdrawal is tax free, so you could take out £16,760 (assuming no other taxable earnings) and get £4,190 tax free (25%) and the balance of 75% (£12,570) would be tax free. Remember that if you take anything in excess of the 25% tax free you will trigger the Money Purchase Annual Allowance, restricting you to future gross contributions of £10K in each and every tax year from then on.

optoutDB said:

And what are the options in a year where I earn say £8k?  I don't suppose I can contribute £8k (and get grossing up) and also drawdown £4.5k  ???

Yes. Recycling (where you withdraw a lump sum and then reinvest it and it's more than you'd normally contribute) shouldn't be an issue but just be aware of it. Good explanation here: https://www.unbiased.co.uk/discover/pensions-retirement/managing-a-pension/pension-recycling-what-is-it-and-what-are-the-rules

NoMore

Once you draw taxable income from your SIPP (note does not mean you have paid tax on it), you will trigger the MPAA. Which will limit you to 10k per year contributions to your SIPP. So your plan of drawing 12570 although no tax paid would trigger the MPAA. I have assumed you already have took the tax free lump sum.

Your DB pension income does not trigger the MPAA, neither does any tax free lump sums.

In the case of earning 8k, you would contribute 6.4k and the SIPP would claim the 20% tax relief.

SVaz

You can’t know that you’ll make no profit at all this year, not unless you stop your business. 

You could either only take tax free cash,  so your personal allowance is unaffected and you can use it for potential earnings, 
or,  you could use UFLPS and get £16k out tax free by using your full personal allowance + the 25% tax free element.   That would mean any profit is taxed and you would also be limited by the MPAA of £10k going forward. 

The £15k / £8k contribution you mention is the Gross figure so you would actually contribute £12k to get £15k.  But if you’ve used UFPLS you would be limited to £10k Gross so could only actually pay in £8k. 

If you only earn £8k you would pay in £6400. 

optoutDB

Thanks everyone,  I'm happy to see that I can contribute/drawdown flexibly in response to my earnings. 

I'll look up the MPAA rules, before I do any drawdown..

optoutDB

SVaz said:

You can’t know that you’ll make no profit at all this year, not unless you stop your business. 

Or I might have no products for sale this year because I'm just doing development work !.

This has led me to thinking about something else:  I've never recorded a loss before, but if I was to show a loss of £5k this year in my Tax return, that might let me draw another £5k taxable (+£1250 tax free)  from my SIPP without paying tax. 

Marcon

optoutDB said:

SVaz said:

You can’t know that you’ll make no profit at all this year, not unless you stop your business. 

Or I might have no products for sale this year because I'm just doing development work !.

This has led me to thinking about something else:  I've never recorded a loss before, but if I was to show a loss of £5k this year in my Tax return, that might let me draw another £5k taxable (+£1250 tax free)  from my SIPP without paying tax. 

Beware letting the tax tail wag the dog. Once you trigger the MPAA you're very limited in terms of how much you'll be able to top up your future pension provision, so eagerly (and understandably) getting your hands on tax free cash now could leave you pretty short in retirement...

Dazed_and_C0nfused

optoutDB said:

SVaz said:

You can’t know that you’ll make no profit at all this year, not unless you stop your business. 

Or I might have no products for sale this year because I'm just doing development work !.

This has led me to thinking about something else:  I've never recorded a loss before, but if I was to show a loss of £5k this year in my Tax return, that might let me draw another £5k taxable (+£1250 tax free)  from my SIPP without paying tax. 

You mean set a loss from an existing business against pension income of the same tax year?

Is this definitely a valid option 🤔.

Loss relief rules are fairly complex.  Do you use cash basis accounting?

Marcon

Dazed_and_C0nfused said:

optoutDB said:

SVaz said:

You can’t know that you’ll make no profit at all this year, not unless you stop your business. 

Or I might have no products for sale this year because I'm just doing development work !.

This has led me to thinking about something else:  I've never recorded a loss before, but if I was to show a loss of £5k this year in my Tax return, that might let me draw another £5k taxable (+£1250 tax free)  from my SIPP without paying tax. 

You mean set a loss from an existing business against pension income of the same tax year?

Is this definitely a valid option 🤔.

Loss relief rules are fairly complex.  Do you use cash basis accounting?

OP is running the business on a self employment basis so yes. It's called sideways loss relief.

Losses from self-employment can be set against other taxable income in the tax year in which the loss was made, and/or the tax year prior to that.

Albermarle

optoutDB said:

Thanks everyone,  I'm happy to see that I can contribute/drawdown flexibly in response to my earnings. 

I'll look up the MPAA rules, before I do any drawdown..

One issue is that what you are allowed to do under pension legislation and what your pension provider can actually facilitate are not always the same.
As a rule of thumb the more modern the pension the more options are available. Best to check with your provider before going ahead. In theory a SIPP should be OK but would be worth mentioning on here who the SIPP provider is.