New SIPP with HL to create 3x Small Pots

sweeter_strudel

I have been doing lots of reading on here (thank you all) and think I understand a possible sensible path in the first couple of years of early retirement. Please tell me where this plan is likely go awry or incur the wrath of HMRC.

This or next tax year may be the last where I am a 40% taxed employee as I plan to retire early - I'm already over 55. To reduce that tax bill I had maxed out my (SIPP) pension contributions last year and had intended to do the same this year, paying into my established SIPPs.

Then I read about "small pots" and their tax treatment....

Should I open a new SIPP with Hargreaves Lansdowne this year to deliberately create a pension fund (including the 20% tax relief) in the region of £28 or £29k? This would then be the first pension savings I will ever access when retired. When ready to take some tax free cash I ask HL to split it into three small pots / or move £9999 into the first small pot (I'm not sure of the details of what HL will or will not do and how they do it) and then take that full amount immediately tax free, when I have no earnings as an employee. Repeat again two more times, and use this to live on for the first 12 to 18 months of my retirement and leave all my other pensions intact.

I won't have restricted future pension contributions in case, heaven forbid, I find I have to return to work to survive financially due to some unforeseen Armageddon event. And I will also have not encroached upon the ~£268k tax free allowance for lump sums paid out of pensions. Given a fair wind with my other SIPPs, I may well be on the cusp of eventually breaching this limit as I use pension savings to fund a decade or so before SPA, and hopefully a decade of two of life after SPA, while I try to manage how much of my income is taxable.

The biggest banana skin appears to be getting the size of the "small pot" wrong and blowing the whole scheme by ending up with £10,001 in a pot. I also presume there are no timing / time limits on when I start the first of the three small pot complete drawdowns - I think HMRC only mentioned time deadlines in relation to Defined Benefit schemes and their equivalent small pot rules.

QrizB

sweeter_strudel said:

.The biggest banana skin appears to be getting the size of the "small pot" wrong and blowing the whole scheme by ending up with £10,001 in a pot.

From what others have said, HL will happily slice 3x £10k off from a pot of £100k or more, so I don't think that's a genuine pitfall.

The worst case is that you start with a £30,001 pension fund, split off your three pots and have a £1 pension fund left that you need to do something with.

sweeter_strudel

Is the £100k a minimum pot size before you start peeling £9k lumps off it?

My starting point is zero with HL, and don't intend to go above £30k with my current plan.

Dazed_and_C0nfused

Should I open a new SIPP with Hargreaves Lansdowne this year to deliberately create a pension fund (including the 20% tax relief) in the region of £28 or £29k? This would then be the first pension savings I will ever access when retired. When ready to take some tax free cash I ask HL to split it into three small pots / or move £9999 into the first small pot (I'm not sure of the details of what HL will or will not do and how they do it) and then take that full amount immediately tax free, when I have no earnings as an employee. Repeat again two more times, and use this to live on for the first 12 to 18 months of my retirement and leave all my other pensions intact.

You would have ~£22,500 of taxable pension income so will need to spread it across at least two different tax years to actually end up with no tax liability.

And that assumes year 1 is not the same tax year as you have your final earnings in.

sweeter_strudel

That was where my thinking was going Dazed_and_C0nfused - two small pots in quick succession in a new tax year when I have zero other earnings, then the third small pot the following tax year....

af1963

They will split 10k chunks from any larger size of pot, so funding it with 30k would be OK. ( Doesn't need to be £9999 either, if you want that last £1 with its extra 25p of tax free cash !)

If you want to get particularly devious, and are not in a hurry to get the funds out, you could open a SIPP somewhere else and then transfer it later to H-L when they have a transfer cashback offer on, which seems to happen fairly regularly ...  Or transfer one or more of your existing SIPPS.   Although you may need to leave the cash in place  at H-L for a set period after transferring.   

You can do small pots withdrawals at any time.

If you do end up with any spare leftover funds at H-L as a result of interest/growth, or after transferring a larger fund, and don't want to keep the H-L account, you can subsequently transfer them to one of your other SIPPs.

Albermarle

Alternative you can open three new Sipps, whilst still working.
Add around £7500 to each ( tax relief will take them to £9375 )so leaves some room for growth.
You could use it as a way of seeing if you like dealing with a particular provider. Some offer perks for signing up sometimes.
Not all providers have the facility to take a small pot. These three definitely do.
HL
Fidelity
AJ bell

MallyGirl

Has anyone actually done the HL 'spin off a small pot' ? Do you need to call them as I can't find anything in the help on how to do it. I did a small partial transfer from my main SIPP which got me a small bonus and now I actually want to get £10K (minus whatever tax I get hit with) out

FIREDreamer

MallyGirl said:

Has anyone actually done the HL 'spin off a small pot' ? Do you need to call them as I can't find anything in the help on how to do it. I did a small partial transfer from my main SIPP which got me a small bonus and now I actually want to get £10K (minus whatever tax I get hit with) out

Yes I have taken 2 small pots with them. I have now retired and the one remaining small pot I can take (uses up no LSA) plus pcls taken from future contributions will just about use up my remaining LSA by 75.

They have a special form that you need to complete to take a small pot.

https://www.hl.co.uk/__data/assets/pdf_file/0010/19864405/split-small-pots.pdf

MallyGirl

FIREDreamer said:

MallyGirl said:

Has anyone actually done the HL 'spin off a small pot' ? Do you need to call them as I can't find anything in the help on how to do it. I did a small partial transfer from my main SIPP which got me a small bonus and now I actually want to get £10K (minus whatever tax I get hit with) out

Yes I have taken 2 small pots with them. I have now retired and the one remaining small pot I can take (uses up no LSA) plus pcls taken from future contributions will just about use up my remaining LSA by 75.

They have a special form that you need to complete to take a small pot.

https://www.hl.co.uk/__data/assets/pdf_file/0010/19864405/split-small-pots.pdf

Perfect- thanks for that

kinger101

Think HMRC may deliberately close this "loophole" at some point, but creating a series of transactions solely for tax benefit in this manner would very likely be fall foul of general anti-avoidance rules.

As well as potentially failing, you will also potentially invite HMRC to issue a formal enquiry. Which could cost you more if you need to hire an accountant to help you with


This to be sounds like poking a wasps nest and finding it doesn't contain honey.