SIPP/Savings

eastcorkram

Just checking I've got this right.

Is there no point in me adding money to a SIPP, that's just held as cash, given that I'm never going to have any spare tax free allowance? 

So, say  if I have a spare £500 at the end of a month. I could move it into a savings account, or the SIPP. If I use the SIPP, then when I take it out, 75% of it will be taxed. If I use the savings, then when I take it out, there's no tax to pay. 

I have another SIPP, that's all invested, but in this case, I'm talking only about the cash one. 

MX5huggy

What’s do you mean “no spare tax free allowance”.

if you put £500 in a SIPP 25% is added to it as tax relief (it’s actually 20% of the gross amount) so £500 becomes £625. You can then take out 25% of that tax free so £156.25 and maybe pay 20% on the other £468.75 so £93.75 tax to pay. Total back in your pocket £375+£156.25 =£531.25 or simply 6.25% better than using cash savings. 

eastcorkram

MX5huggy said:

What’s do you mean “no spare tax free allowance”.

if you put £500 in a SIPP 25% is added to it as tax relief (it’s actually 20% of the gross amount) so £500 becomes £625. You can then take out 25% of that tax free so £156.25 and maybe pay 20% on the other £468.75 so £93.75 tax to pay. Total back in your pocket £375+£156.25 =£531.25 or simply 6.25% better than using cash savings. 

Ah yes. So sort of an instant 6.25%, rather than waiting a year in savings to earn that. That makes sense.
 
What I mean by no spare tax free allowance, is simply that. Whatever my tax code is, my income will be higher. 

af1963

What are you aiming to do ? Why do you want to put it in the SIPP and not invest it ? Maybe worth checking what intrest is paid on cash in the SIPP, or stick it in a cash-like investment like a money market fund ?

Bear in mind that if you take any taxable income from the SIPP, you'll trigger the reduced limit on future pension contribuitions. If it's spare money that you think you might need soon, that might be a factor. 

Nebulous2

Uninvested cash in your SIPP may receive interest, which grows tax-free. Fidelity for instance pays 3.25%

How we manage your cash

eastcorkram

af1963 said:

What are you aiming to do ? Why do you want to put it in the SIPP and not invest it ? Maybe worth checking what intrest is paid on cash in the SIPP, or stick it in a cash-like investment like a money market fund ?

Bear in mind that if you take any taxable income from the SIPP, you'll trigger the reduced limit on future pension contribuitions. If it's spare money that you think you might need soon, that might be a factor. 

I have enough in a different sipp that is invested. I don't really want to add to that now, as I'm about to start drawing it pretty soon. 

As regards what I'm trying to do, it's simply putting aside left over money if you like. So, either into the cash sipp or just a savings account. Seems like the SIPP is still the better option .

bjorn_toby_wilde

Maybe a Short Term Money Market Fund as someone has already suggested? That is a very low risk option and they’re currently giving a better rate of return than the interest you’ll get from the SIPP provider. Many people park their SIPP cash in them.

Albermarle

eastcorkram said:

af1963 said:

What are you aiming to do ? Why do you want to put it in the SIPP and not invest it ? Maybe worth checking what intrest is paid on cash in the SIPP, or stick it in a cash-like investment like a money market fund ?

Bear in mind that if you take any taxable income from the SIPP, you'll trigger the reduced limit on future pension contribuitions. If it's spare money that you think you might need soon, that might be a factor. 

I have enough in a different sipp that is invested. I don't really want to add to that now, as I'm about to start drawing it pretty soon. 

As regards what I'm trying to do, it's simply putting aside left over money if you like. So, either into the cash sipp or just a savings account. Seems like the SIPP is still the better option .

Unless you are only getting 20% tax relief, but will be paying 40% tax when you withdraw it ( apart from on the 25% tax free cash)