Avoiding 40% tax in SIPP drawdown

Linton

I avoid the need to pay higher rate tax on pension income by taking as much ongoing  income as reasonably possible from income funds in an ISA. A steady 5-6% not increasing with inflation has been sustainable.

feetupgininhand

PropertyGuru_Wannabe said:

Getting to your point means that you are going to be financially secure so congratulations on that. Once you breach the 40% tax threshold on retirement income and reached the maximum lump sum allowance, there is no reason why you should put more funds into your pension. 

You could consider taking out a lump sum and using those to contribute to your wife’s pension. If that is maxed out, you could consider putting the funds into both your Stocks and Shares ISA’s. You could also consider off shore bonds and even trusts although this may not work for some.

You could consider the order you withdraw your funds each year as this would affect the tax efficiency. We all have allowances and some allowances allow us to withdraw more due to taxation rules. Speaking to a tax planner is probably a good option for you.

Most of all, plan to enjoy your life as much as possible on retirement with your family and do the things you like to do. Setting some personal goals would help in this regards. Take care of your health and do some regular exercises. Life passes by so quickly that you don’t want to miss out anything if possible at this chapter of your life.

Thanks for your comments. Tax planner seems like a sensible approach.

Health and happiness for me and mine are my priorities in amongst all this.  

feetupgininhand

NoMore said:

feetupgininhand said:

I guess from the comments so far I don’t think there’s anything I’m missing. The main focus of the question was around avoiding excessive payments of 40% tax if there were any thoughts on strategies to avoid that. Isn’t the basis of a lot of pension planning around being as tax efficient on the provision side? I’m just trying to apply the same on the accessing side. I may now be in a privileged position, but it hasn’t come easy. Too many years of full time work and saving to get to this point. It’s natural to try and think these lines now. If there’s no avoiding the 40% tax ceiling that’s fine. With the 25% tax free it isn’t really 40%. I will explore the topping up wife/children SIPP option if I have residual funds.

I think its more that if your withdrawal strategy to get the lifestyle you require involves you having to pay some 40% tax then pay the tax. I.e. once optimised, don't just avoid 40% tax for the sake of it. Pensions are generally tax efficient as long as you withdraw at the same or lower tax rate you contribute at, up until the LSA is exceeded.

I'm very much aligned with this line of thinking. Just cautious about tripping over this if there's an approach I may have missed

incus432

I avoid paying 40% tax on SIPP income by donating to charity. You can open an account with CAF, pay in a lump sum, then make one-off donations to as many charities as you like.

Pat38493

Linton said:

I avoid the need to pay higher rate tax on pension income by taking as much ongoing  income as reasonably possible from income funds in an ISA. A steady 5-6% not increasing with inflation has been sustainable.

For how many years so far?  If this approach was sure to work over several decades, everyone would be doing it wouldn’t they as it provides a better solution than any kind of SWR strategy?

Linton

Pat38493 said:

Linton said:

I avoid the need to pay higher rate tax on pension income by taking as much ongoing  income as reasonably possible from income funds in an ISA. A steady 5-6% not increasing with inflation has been sustainable.

For how many years so far?  If this approach was sure to work over several decades, everyone would be doing it wouldn’t they as it provides a better solution than any kind of SWR strategy?

I have invested in income funds to some extent for more than 20 years starting when HYP (High Yield Portfolios) were popular. But they have only provided over 10% of my ongoing expenditure for about 10 years.  This has now risen to about 25%.

Income funds are only a partial solution in that the income will not generally increase with inflation and so are not comparable with an SWR.  One needs to also hold growth investments to provide long term inflation matching by adding to the income portfolio when required.  The key advantages are that the income is steady in £ terms over time and that the payments appear in one's current account automatically.

penners324

incus432 said:

I avoid paying 40% tax on SIPP income by donating to charity. You can open an account with CAF, pay in a lump sum, then make one-off donations to as many charities as you like.

Always find this very odd. You're just depriving yourself of the money you give to charity.

incus432

penners324 said:

incus432 said:

I avoid paying 40% tax on SIPP income by donating to charity. You can open an account with CAF, pay in a lump sum, then make one-off donations to as many charities as you like.

Always find this very odd. You're just depriving yourself of the money you give to charity.

I have always given to charity because I want to support their work. You can look at it as 'depriving yourself of money' if you wish.

penners324

incus432 said:

penners324 said:

incus432 said:

I avoid paying 40% tax on SIPP income by donating to charity. You can open an account with CAF, pay in a lump sum, then make one-off donations to as many charities as you like.

Always find this very odd. You're just depriving yourself of the money you give to charity.

I have always given to charity because I want to support their work. You can look at it as 'depriving yourself of money' if you wish.

Which is perfectly fine. Doing it to avoid paying 40% tax isn't though. 

Pat38493

Linton said:

Pat38493 said:

Linton said:

I avoid the need to pay higher rate tax on pension income by taking as much ongoing  income as reasonably possible from income funds in an ISA. A steady 5-6% not increasing with inflation has been sustainable.

For how many years so far?  If this approach was sure to work over several decades, everyone would be doing it wouldn’t they as it provides a better solution than any kind of SWR strategy?

I have invested in income funds to some extent for more than 20 years starting when HYP (High Yield Portfolios) were popular. But they have only provided over 10% of my ongoing expenditure for about 10 years.  This has now risen to about 25%.

Income funds are only a partial solution in that the income will not generally increase with inflation and so are not comparable with an SWR.  One needs to also hold growth investments to provide long term inflation matching by adding to the income portfolio when required.  The key advantages are that the income is steady in £ terms over time and that the payments appear in one's current account automatically.

Sorry yes I had missed reading the “not” in your original comment so I thought you said you were matching inflation.