Sipp beneficiary

run_rabbit55

I'm the beneficiary of a sipp and understand that money taken out as a lump sum is taxed at my rate which is 20%. the SIPP provider says it will pay out using a emergency tax code at 40% and I'll get just over 60k. The SIPP is worth 107k and I earn just under 30k. Ive read that sipps will be taxed at the beneficiarys rate so expected to be taxed at the 20%.
Does the pay out push me over in to the higher tax bracket? Would this effect my tax rate on my earnings from work? Or is it a case of claiming back from hrmc as the SIPP was taxed at the emergency rate? 

Dazed_and_C0nfused

run_rabbit55 said:

I'm the beneficiary of a sipp and understand that money taken out as a lump sum is taxed at my rate which is 20%. the SIPP provider says it will pay out using a emergency tax code at 40% and I'll get just over 60k. The SIPP is worth 107k and I earn just under 30k. Ive read that sipps will be taxed at the beneficiarys rate so expected to be taxed at the 20%.
Does the pay out push me over in to the higher tax bracket? Would this effect my tax rate on my earnings from work? Or is it a case of claiming back from hrmc as the SIPP was taxed at the emergency rate? 

How much of the SIPP is taxable income, the £107k or 75% of that?

Is the just under £30k your only other taxable income?

The emergency tax code is 1257L so if won't be a flat 40%, it is more likely to be a mix of 0, 20, 40 and 45% tax deducted.

run_rabbit55

Dazed_and_C0nfused said:

run_rabbit55 said:

I'm the beneficiary of a sipp and understand that money taken out as a lump sum is taxed at my rate which is 20%. the SIPP provider says it will pay out using a emergency tax code at 40% and I'll get just over 60k. The SIPP is worth 107k and I earn just under 30k. Ive read that sipps will be taxed at the beneficiarys rate so expected to be taxed at the 20%.
Does the pay out push me over in to the higher tax bracket? Would this effect my tax rate on my earnings from work? Or is it a case of claiming back from hrmc as the SIPP was taxed at the emergency rate? 

How much of the SIPP is taxable income, the £107k or 75% of that?

Is the just under £30k your only other taxable income?

The emergency tax code is 1257L so if won't be a flat 40%, it is more likely to be a mix of 0, 20, 40 and 45% tax deducted.

Sorry if I'm not answering properly but Google has fried my brain searching about this. So I've been given the option to transfer into a pension or annuity and that total would be approximately 107k. For taking a lump sum it's 60k approximately. 
Yes I currently only have one income under 30k

Nebulous2

When you say you are the beneficiary, is this a SIPP you have inherited? Was the person who owned the SIPP over 75 when they died? 

It's almost certainly going to put you into higher rate tax, trying to draw it all if the owner was over 75. Tax-wise you would be much better leaving it invested and drawing it over a number of years to keep under higher rate tax. 

Reaching higher rate tax could cause additional problems, losing child benefit for instance, and only getting £500 tax free interest, instead of £1000. 

Dazed_and_C0nfused

run_rabbit55 said:

Dazed_and_C0nfused said:

run_rabbit55 said:

I'm the beneficiary of a sipp and understand that money taken out as a lump sum is taxed at my rate which is 20%. the SIPP provider says it will pay out using a emergency tax code at 40% and I'll get just over 60k. The SIPP is worth 107k and I earn just under 30k. Ive read that sipps will be taxed at the beneficiarys rate so expected to be taxed at the 20%.
Does the pay out push me over in to the higher tax bracket? Would this effect my tax rate on my earnings from work? Or is it a case of claiming back from hrmc as the SIPP was taxed at the emergency rate? 

How much of the SIPP is taxable income, the £107k or 75% of that?

Is the just under £30k your only other taxable income?

The emergency tax code is 1257L so if won't be a flat 40%, it is more likely to be a mix of 0, 20, 40 and 45% tax deducted.

Sorry if I'm not answering properly but Google has fried my brain searching about this. So I've been given the option to transfer into a pension or annuity and that total would be approximately 107k. For taking a lump sum it's 60k approximately. 
Yes I currently only have one income under 30k

That is the net amount, you need to understand what the gross taxable amount is. If it is £107k then not will you lose all your Personal Allowance (Google tapered Personal Allowance) but you are probably going to find 45% tax is due on some of your income.

Any tax deducted when the payment is made is only ever provisional.  You could owe more, or as is more likely in this instance, you could pay more than is going to actually going to be due.

run_rabbit55

Nebulous2 said:

When you say you are the beneficiary, is this a SIPP you have inherited? Was the person who owned the SIPP over 75 when they died? 

It's almost certainly going to put you into higher rate tax, trying to draw it all if the owner was over 75. Tax-wise you would be much better leaving it invested and drawing it over a number of years to keep under higher rate tax. 

Reaching higher rate tax could cause additional problems, losing child benefit for instance, and only getting £500 tax free interest, instead of £1000. 

Yes they were over 75. I'm just concerned the provider has only given me 3 options, transfer to pension, annuity(I'm only 43) or lump sum. 

dunstonh

run_rabbit55 said:

Nebulous2 said:

When you say you are the beneficiary, is this a SIPP you have inherited? Was the person who owned the SIPP over 75 when they died? 

It's almost certainly going to put you into higher rate tax, trying to draw it all if the owner was over 75. Tax-wise you would be much better leaving it invested and drawing it over a number of years to keep under higher rate tax. 

Reaching higher rate tax could cause additional problems, losing child benefit for instance, and only getting £500 tax free interest, instead of £1000. 

Yes they were over 75. I'm just concerned the provider has only given me 3 options, transfer to pension, annuity(I'm only 43) or lump sum. 

Three options are the typical.  
1 - Transfer to a pension of your choice
2 - Transfer to buy an annuity
3 - Draw the lump sum in full.

What other options were you looking for?

Why are you not considering transfer to a pension and drawing some or all of it later?

Albermarle

dunstonh said:

run_rabbit55 said:

Nebulous2 said:

When you say you are the beneficiary, is this a SIPP you have inherited? Was the person who owned the SIPP over 75 when they died? 

It's almost certainly going to put you into higher rate tax, trying to draw it all if the owner was over 75. Tax-wise you would be much better leaving it invested and drawing it over a number of years to keep under higher rate tax. 

Reaching higher rate tax could cause additional problems, losing child benefit for instance, and only getting £500 tax free interest, instead of £1000. 

Yes they were over 75. I'm just concerned the provider has only given me 3 options, transfer to pension, annuity(I'm only 43) or lump sum. 

Three options are the typical.  
1 - Transfer to a pension of your choice
2 - Transfer to buy an annuity
3 - Draw the lump sum in full.

What other options were you looking for?

Why are you not considering transfer to a pension and drawing some or all of it later?

Is it not possible for the SIPP just to be redesignated to the beneficiary? If not I presume the SIPP provider could just do some kind of internal transfer to a new SIPP, if the OP requested it?

OP - Regarding Option 1 - Transfer to a new pension- This is probably a lot easier than you imagine. It is simple to open a new pension online in a few minutes and request a transfer.
Then you can withdraw the money in stages/over several tax years, and keep within the 20% tax bracket.
The money left in the pension can remain invested. 

ali_bear

Of those three options. 
1) transfer to a pension. The money stays invested until you are of pension age at least, and helps to pay for your retirement. 
2) buy an annuity. The money buys you an income for life. Based on your age, the income will be very small compared to your current earnings. You could get a quote for how much it would be. 
3) take it as cash. This one will give you what's left over as a lump sum after a whopping load of tax has been deducted. 

I don't know if you can split the money between, say, three quarters into option 1 and the rest as option 3. 

If it was me I would put it all into a pension that is option 1. 

artyboy

Isn't the key question here though is whether the OP wants/needs the money now rather than at age 57 (or possibly later if the minimum age is changed again)?

Because it sounds like the only 'now' option is the lump sum, and a big chunk of HR tax to pay.

QrizB

artyboy said:

Isn't the key question here though is whether the OP wants/needs the money now rather than at age 57 (or possibly later if the minimum age is changed again)?

Yes, OP might need a lump sum (eg. to clear debts) or might simply not have considered the other options.