Extra drawings from SIPP or ISA?

Stoodles

What should I consider when deciding whether to draw an additional lump sum from SIPPs or ISAs?

Currently drawing from SIPP each year, by TFPLS, to use the whole tax allowance, and usually paying part or all of those drawings into an investment ISA. The investments held in both are roughly the same.  None of the money in the SIPP is crystallised, and neither of us has needed to pay Income Tax in our first four years of retirement.

I want to draw an extra £25k this year for house alterations, and probably another £15k next year. I can't work out where to source it from, and if from the SIPP, whether to start to crystallise and take it tax free, or whether to pay tax on this lump.

dunstonh

What should I consider when deciding whether to draw an additional lump sum from SIPPs or ISAs?

As ISAs and pensions can share the same investments and same charges, the only difference is going to be taxation.

So, you would look at the taxation but not just the year of the withdrawal but also map out your withdrawal plan over the rest of your life.    Just in case, its a scenario where paying some tax now may save more later vs not paying tax now (from ISA or PCLS or mixture).

poseidon1

You have not indicated the comparative size of sipp V isa, however now that you are in retirement I see your strategy has been to top up isas each year where you can. Obviously circumstances differ, but my own opinion would be to continue siphoning/ living off sipp and build isa ( this despite the fact isa ultimately liable to iht down the line, whilst sipp is not). Therefore consider taking UFPLS for the coming home improvement project, even if it triggers 20% tax each, in that tax year.

As dunstonh intimated, a tax hit now could make more sense in the long term than to dip into your isas and so diminish that valuable source of tax free income.

My own situation has been to max fund the isa each year and living off a combination of taxable portfolio investment  income, rents and tax free isa income.   Sipp has been left to accumulate untouched for last eight years as a fall back when/if rental income dries up ( its a commercial property). 

This year state pension came on stream, therefore now firmly a 40% tax payer so the isa income stream more valuable then ever. For as long as £20k annual contribution limit  subsists, will continue to fully load up with additional income producing investments  for a ( hopefully ) ever growing tax free income stream.

In passing looking at the medium term  political landscape, and the parlous state of the nation's finances, a potential Labour administration may feel compelled to dial back current sipp/pensions benefits/opportunities/advantages ( tories have already capped the tax free pension cash at £250k). One can only hope the tax free outflows of isas will remain  untouched  even if Labour feel a need to reduce the present annual contribution limit , after all it was Gordon Brown who introduced isas to replace Peps and Tessas! 

Generally, re isas my philosophy is to 'make hay whilst the sun shines'!