LTA abolished

gravlax

What are the implications for a SIPP now if it exceeds the old £1.07m  LTA? The amount of tax free income that can be withdrawn is now capped at £268,275 so growing a bigger pot has no added tax benefit over £1.07m. But within the SIPP at least investments can grow tax free (and potential IHT advantages) so probably better than using a general investment account if you have used your ISA allowance. Is that a fair assessment? Any other advantage to keep growing the SIPP?

Albermarle

gravlax said:

What are the implications for a SIPP now if it exceeds the old £1.07m  LTA? The amount of tax free income that can be withdrawn is now capped at £268,275 so growing a bigger pot has no added tax benefit over £1.07m. But within the SIPP at least investments can grow tax free (and potential IHT advantages) so probably better than using a general investment account if you have used your ISA allowance. Is that a fair assessment? Any other advantage to keep growing the SIPP?

Currently anything in a pension pot when you die, is not included in inheritance tax calculations, as it is not part of your estate.
However after the budget this might not be the case. Or at least there may be some tweaking of the rules. 

gravlax

Albermarle said:

gravlax said:

What are the implications for a SIPP now if it exceeds the old £1.07m  LTA? The amount of tax free income that can be withdrawn is now capped at £268,275 so growing a bigger pot has no added tax benefit over £1.07m. But within the SIPP at least investments can grow tax free (and potential IHT advantages) so probably better than using a general investment account if you have used your ISA allowance. Is that a fair assessment? Any other advantage to keep growing the SIPP?

Currently anything in a pension pot when you die, is not included in inheritance tax calculations, as it is not part of your estate.
However after the budget this might not be the case. Or at least there may be some tweaking of the rules. 

Yes I did mention IHT on my post.

gravlax

I could add, are there still any "traps" to be aware of, if deciding to max out the SIPP contributions and let it grow now the LTA has gone? 

Mark_d

I'm not concerning myself with IHT so tax-free growth is really the only advantage once you're maxxing out your tax free lump sum.  So rather than putting extra money in to a SIPP, ifr you've maxxed your ISAs he next best thing might be to look at mortgage overpayments.

MX5huggy

If you’re a 40% tax payer, then expect to be a 20% tax payer on the withdrawal there’s an advantage still. 

dunstonh

It has been well discussed in threads in the pension section.

So rather than putting extra money in to a SIPP, ifr you've maxxed your ISAs he next best thing might be to look at mortgage overpayments.

The offshore bond wrapper is predicted to come back into play for long term money.  Especially those looking at earlier retirement than state pension age who can use the personal allowance to offset gains.  (offshore bond wrapper has no CGT or dividend tax but gains on withdrawals are treated as income and taxed under income tax.

They went out of fashion when dividend tax and CGT were low.     They are coming back into the fashion again and platforms without offshore bond functionality have been rushing to get them in place again.

Reaper

MX5huggy said:

If you’re a 40% tax payer, then expect to be a 20% tax payer on the withdrawal there’s an advantage still. 

But beware it may be very easy to fall into the 40% tax bracket by the time you collect the pension. Tax rates have been frozen for years. Plus it has already been announced they will remain frozen until 2028, and now the government has said extending this beyond 2028 would not break their election pledge so is plainly on the cards.

Albermarle

Reaper said:

MX5huggy said:

If you’re a 40% tax payer, then expect to be a 20% tax payer on the withdrawal there’s an advantage still. 

But beware it may be very easy to fall into the 40% tax bracket by the time you collect the pension. Tax rates have been frozen for years. Plus it has already been announced they will remain frozen until 2028, and now the government has said extending this beyond 2028 would not break their election pledge so is plainly on the cards.

Or maybe just deliberately putting the idea out, as a distraction from what is really going to change.
They are already frozen until 2028. Why cause a storm by extending then now? It would not be logical.

However you are right that the current freeze will drag more people into paying some 40% tax. With pensions it is usually people with good DB schemes who get most affected. People with large DC pots, usually also have some money in savings and ISA's etc so can deliberately plan to keep their taxable income below the 40% level, especially if they use the tax free cash wisely.