Should I used an inherited SIPP to pay off my mortgage?

jzdarko

A few years ago I inherited a SIPP from my father similar in the amount I owe on my mortgage. I am trying to work out if it is worth cashing up to pay off the debt. This is more important at the moment given the large interest rates.

Trying to assess the performance of the SIPP is difficult because the website doesn't show overall growth figures or simple dividend amounts (its all wrapped up in loyalty bonuses, dividend payments and reinvested income).

Ignoring growth in the portfolio, I've received about £1800 over the last year but this is tiny compared to my mortgage interest payments.

(I also have an ISA that was supposed to be the capital repayment since I've an interest only mortgage - it also has enough to pay off most of the mortgage. I also know this ISA is growing at an annualized 6% on average).

What are the arguments for (apart from not having £1300 of mortgage interest a month) and against doing this? What haven't I thought of? For example, do I pay capital gains tax on the SIPP if I cash it in?

ColdIron

No CGT but withdrawals will probably be taxed as income

boingy

Do you mean SIPP, as in pension? I'm confused by "I've received about £1800 " 
Is that an annuity or drawdown or something else? 

dunstonh

Trying to assess the performance of the SIPP is difficult because the website doesn't show overall growth figures or simple dividend amounts (its all wrapped up in loyalty bonuses, dividend payments and reinvested income).

SIPPs are whole of market and have over 30,000 investment options.  Past performance is irrelevant as you can pick anything from that 30,000+

This is more important at the moment given the large interest rates.

Historically, investment returns beat mortgage interest rates in most years.  However, in some years they wont. 2022 was a year they didnt.   2023, for most people, will be a year they did.

What are the arguments for (apart from not having £1300 of mortgage interest a month) and against doing this? What haven't I thought of? For example, do I pay capital gains tax on the SIPP if I cash it in?

SIPPs are tax free whilst the money is invested.   However, you will pay income tax on the money you draw.   So, you could lose 20-40-45% of the money you draw in tax depending on amounts.

 I've received about £1800 over the last year

So, you have already chosen to draw some money out this year?

jzdarko

I have sold some shares and withdrawn some money yes, but this $1300 was reinvested dividends. As I mentioned - this isn't my SIPP - it belonged to my father but he died before his 75th birthday so this was an inheritance with tax free withdrawals.

To add some specifics to this: my monthly mortgage interest is £1300 and my SIPP is nearly 400k so 4% growth on the SIPP will be roughly the same as the annual interest payments. 

jzdarko

Sorry, getting my amounts mixed up - the reinvested dividends was £1800 not as I said above.

Rudyson

One option: pay off the mortgage and put the repayment amounts into a SIPP of your own every month, getting a further 25% top up in tax relief.

Zopa_Trooper

When I was 18 I was given the advice to pay as much as I could afford a month towards my mortgage and pay it off as soon as I could. I followed that advice, nearly lost my house thanks to Margaret Thatcher but my Mortgage was paid off when I was 46, since which time I've never worried about money again. I'm now 67. Obviously there will have been ways I could have been richer but I've enough to ensure that when I die there will be money in the bank so from my own experience, that would be the way to go. There is something very satisfying knowing you don't owe anybody any money.

Hoenir

As your mortgage is interest only. How do you intend to repay the capital balance owed at the end of the term? 

jzdarko

To repay the current mortgage I have an ISA which has a similar amount as the SIPP but not quite enough to pay it off.

penners324

Use the ISA to pay off the mortgage then put the mortgage payments into your own SIPP