Questions about SIPP with bank income

dunstonh

It is income that I don't need. I could invest it outside the ISA wrapper but then over time would be liable to CGT.

CGT has an annual allowance and above that you would be taxed at 10%.  Taxation on pensions on drawing would be 15%.  

Plus, you can bed & ISA each year from the GIA.

I have a SIPP with Vanguard - will have to ask them whether I can contribute without the tax relief (!)

As others have said, that is no point doing that.   You would effectively be misselling to yourself.

Secret2ndAccount

First the positives. It is possible that what you suggest could work. If you retire early (or already have) there will be an opportunity to get some money (16k per year) out of your pension tax free until your State Pension starts. So you might be able to get the money back out without tax.
I'm pretty sure when you contribute to Hargreaves Lansdown there is just a tick-box which asks if the contribution is eligible for tax relief. So there is one of the big providers who can cope with non-relievable contributions.
However, for most people, these contributions are a bad idea.
Put 10,000 under the mattress. 5 years later you have 10,000. Put it into your SIPP, when you take it out you pay 1,500 in tax, and only have 8,500. Of course, you expect to grow it, but I wanted to illustrate that you are making the Principal taxable - you are taking money that isn't taxable and making it taxable.
Put 10,000 into a General Investment Account. If it doubles to 20,000 your capital gain is 10,000 and you only pay tax on the gain. That's 10% of 10k = 1,000. Sell your investment once per year and buy something else, and you can keep your gains under the 3,000 annual exemption, and never pay any CGT.
Choose investments that pay a dividend, and the first 1,000 in dividends is tax free every year too. This all requires some admin work on your part, but there's a good chance you pay no tax, rather than 15% on principal and gains in the pension. If you have 100k to squirrel away, it gets tricky to out-manouevre the tax-man, but with 10k, or even 10k times a few years, it's doable.

valmiki

There’s plenty to think about here, I’m going to spend a few days running some numbers before committing to any course of action. Thanks everyone 🙏

Qyburn

valmiki said:
I am not working presently and am fortunate to have bank interest of around £10k a year. 

Do you expect to start earning again, or receive the State Pension? Until then £10k/year interest isn't a problem as it's within the personal allowance. Even with the SP quite a lot of it won't be taxed either.

We're talking £200k cash savings, outside any ISA, correct? So given how long it'll take to push that lot into an ISA it might be worth looking at investments. But unless I'm missing something the CGT allowance of £6,000 soon to be £3,000 would mean a non-earner paying more tax than you would on interest.

Are there investment types which are taxed ideally as interest, or second best as income?

valmiki

I'm in my early 50s. In all likelihood won't be going back into work but never say never I guess.

I'm a few years short of full state pension so have been buying the years. I have a small amount of DB work pension (approx 5k per year at today's rates).

Qyburn

valmiki said:

I'm in my early 50s. In all likelihood won't be going back into work but never say never I guess.

I'm a few years short of full state pension so have been buying the years. I have a small amount of DB work pension (approx 5k per year at today's rates).

So just at the moment you could receive around £13.5k interest before paying any tax.

jamesd

xylophone said:

Any SIPP provider might refuse to accept non-tax relieved contributions regardless of the age of the contributor if it was considered that the contributions were made to  for IHT avoidance?

They could and might have decided that it's a niche business they didn't want to bother with. If using it you just pick one that accepts that contribution type.