SIPP contribution... or not? Help please.

soulsaver

There's only a slight chance that  she'd need the cash in the short term, but we'd like to plan for that eventuality. 

Contribution c.£40k gross, 40% rate tax payer. The plan was to was to maximise it, not access it until BRT payer.

What would be the implications of making the SIPP contribution and then finding one needed to almost immediately access some of it while a 40%er? 

Would it be more sensible not to make the SIPP contribution and retain the cash? ... but she's

contracting - so the earned income is not guaranteed to cover the carry back/forward(?) next FY.

We're over 55.

TIA.







 

Sarahspangles

soulsaver said:

There's only a slight chance that she'd need the cash in the short term, but we'd like to plan for that eventuality. 

Contribution c.£40k gross, 40% rate tax payer. The plan was to was to maximise it, not access it until BRT payer.

What would be the implications of making the SIPP contribution and then finding one needed to almost immediately access some of it while a 40%er? 

Would it be more sensible not to make the SIPP contribution and retain the cash? ... but she's contracting - so the earned income is not guaranteed to cover the carry back/forward(?) next FY.

We're over 55.

I’ve highlighted the bit that needs addressing first. There are two limits for pension contributions. The first is relevant UK earnings. We can contribute up to this amount each year but there is no carry forward. Someone with no earnings all tax year is limited to £3,600 gross contribution. The second limit is the Annual Allowance of £60k. We can contribute up to whichever is the lower of these two. If earnings exceed £60k then it is possible to carry forward unused AA from specific earlier years.

If the person you’re asking about needs to draw from their SIPP and they only take the tax free cash they won’t trigger the MPAA which replaces AA going forward when someone takes taxable income from a DC type pension. It sounds like you need to avoid triggering this as it limits future contributions to £10k a year. It also means that you crystallise a chunk of your SIPP pot and it will all be taxable when it is drawn, including any investment growth.

The usual advice for contractors is to keep a year’s income somewhere easy access i.e not a SIPP. It doesn’t sound though like your scenario is needing cash for a ‘gap between contracts’ if she will still be earning enough to be a higher rate taxpayer.

For other scenarios where cash may be needed (new car, relocation?) it comes down to looking at the pros and cons of drawing on the SIPP versus other options like mortgages loans and leases.

Albermarle

As above , would just taking the available tax free cash be enough to cover any need for cash ? 

soulsaver

Albermarle said:

As above , would just taking the available tax free cash be enough to cover any need for cash ? 

Sarahspangles said:

soulsaver said:

There's only a slight chance that she'd need the cash in the short term, but we'd like to plan for that eventuality. 

Contribution c.£40k gross, 40% rate tax payer. The plan was to was to maximise it, not access it until BRT payer.

What would be the implications of making the SIPP contribution and then finding one needed to almost immediately access some of it while a 40%er? 

Would it be more sensible not to make the SIPP contribution and retain the cash? ... but she's contracting - so the earned income is not guaranteed to cover the carry back/forward(?) next FY.

We're over 55.

I’ve highlighted the bit that needs addressing first. There are two limits for pension contributions. The first is relevant UK earnings. We can contribute up to this amount each year but there is no carry forward. Someone with no earnings all tax year is limited to £3,600 gross contribution. The second limit is the Annual Allowance of £60k. We can contribute up to whichever is the lower of these two. If earnings exceed £60k then it is possible to carry forward unused AA from specific earlier years.

If the person you’re asking about needs to draw from their SIPP and they only take the tax free cash they won’t trigger the MPAA which replaces AA going forward when someone takes taxable income from a DC type pension. It sounds like you need to avoid triggering this as it limits future contributions to £10k a year. It also means that you crystallise a chunk of your SIPP pot and it will all be taxable when it is drawn, including any investment growth.

The usual advice for contractors is to keep a year’s income somewhere easy access i.e not a SIPP. It doesn’t sound though like your scenario is needing cash for a ‘gap between contracts’ if she will still be earning enough to be a higher rate taxpayer.

For other scenarios where cash may be needed (new car, relocation?) it comes down to looking at the pros and cons of drawing on the SIPP versus other options like mortgages loans and leases.

I think I have enough understanding from your replies to run the numbers whether to contribute all this years AA and, in the eventuality, take (some) tax free lump sum and avoid MPAA restriction - or not make/ maximise contribution.

Also plan to leave until the 'death' this FY to see if the variables are likely to favourably resolve.

Thanks