Withdrawal from SIPP or ISA?

junebaby

I have a small SIPP of around £18,000 which I have already taken cash from. I also have a fixed rate cash ISA that is about to mature. 

I am wanting to free up some money and am trying to decide where to take it from. 

I am retired and receiving my state pension. 

Any advice gratefully received. 

Smudgeismydog

Hello,

Can I ask a couple more questions?

- is your state pension your only income?
- if so, how much state pension do you receive?

I’m asking, as I’d like to know if you have any personal allowance available.


- how much money do you need?
- when do you need the money?

this is useful to know, to establish if you are able to stagger withdrawals over this tax year and next tax year

junebaby

Hi

I am receiving the full state pension of £11,973pa. I also have a small occupational pension of £4,000pa. 

I would like to free up around £5,000 in the next few months. 

Smudgeismydog

Thank you, so, as you’ve already taken all of your tax free cash from your SIPP, then as I’m sure you are aware, all future withdrawals will be taxable. Since you are already a 20% taxpayer, by virtue of your state and occupational pension utilising your personal allowance, any future withdrawals will be taxable at your marginal rate.

The cash ISA will provide you with tax free income.

For me, this now comes down to things like attitude to risk, investment knowledge, emergency fund, age and timescale of investment as well as peace of mind/simplicity.

I am presuming the SIPP is invested, and thus the value increases and decreases according to market movements. Do you monitor your SIPP, do you know where it is invested? If the answer is no, then if it were me, I would favour accessing the SIPP, and reinvesting the Cash ISA into another fixed term. It makes no difference if the £5,000 is fully accessed in this tax year, or spread over two, as the whole withdrawal will be taxed at 20%.  

There is no guarantee of future investment returns, this could be higher or lower than the rates available on the next cash rate. But this approach effectively de-risks your portfolio, and can provide peace of mind. 

It should be noted under current rules the SIPP currently sits outside the portfolio for IHT purposes, but this doesn’t feel hugely relevant. Perhaps more relevant might be the current rumours of the restricting of the Cash ISA allowance. My gut feeling is that rolling one over would fall outside of this.

junebaby

Thank you very much for your detailed reply. 

Albermarle

 as you’ve already taken all of your tax free cash from your SIPP, then as I’m sure you are aware, all future withdrawals will be taxable. 

It is not 100% clear what has happened previously as the OP only said .' I have a small SIPP of around £18,000 which I have already taken cash from.'

OP - Can you clarify what you have already taken from the SIPP, was it all of the 25% tax free cash ?

LHW99

If you did take from the (or another) SIPP, you could add back any surplus cash up to £2880pa (if under 75).

That would get 20% tax relief from the HMRC, and would build up a small amount of tax-free cash.

If you want to use the ISA for future income (from the interest) it would preserve that capital. of course the money could be added back to the ISA instead of the SIPP, but you wouldn't get any tax top-up and we don't yet know to what extent (particularly cash) ISA contributions may be changed by the Chancellor for future tax years.

junebaby

Yes I withdrew cash as before state pension age I was a non taxpayer and took it to use up my personal allowance. It is invested in HSBC Global Strategy Balanced Portfolio Class C  Acc. 

I won’t be adding to it. 

I am now wondering whether to close the account. It would be useful for some future home repairs and would tidy up my finances. 

I like the convenience of cash ISAs so would prefer to keep them. 

Smudgeismydog

junebaby said:

Yes I withdrew cash as before state pension age I was a non taxpayer and took it to use up my personal allowance. It is invested in HSBC Global Strategy Balanced Portfolio Class C  Acc. 

I won’t be adding to it. 

I am now wondering whether to close the account. It would be useful for some future home repairs and would tidy up my finances. 

I like the convenience of cash ISAs so would prefer to keep them. 

Sorry @junebaby, can I just clarify something?

If you took your tax free cash from the SIPP, then this would not utilise your personal allowance, as it is tax free.

I know this might sound pedantic, but it is quite important. Exactly what did you take from your SIPP before your state pension age?

junebaby

I took a lump sum so I think only part of it was tax free.   That was a couple of years ago. 

Sorry to be vague but I’m not really sure which is one of the reasons I am thinking of cashing it in. 

Should I speak to HL to clarify this?

QrizB

I'm assuming you've got no other savings or income? You've mentioned it all already in this thread?

Your income is large enough that you have no Personal Allowance left, and your pension pot is small enough that you're not going to get into 40% tax territory even if you take it all at once.

It'll be more convenient to take the money from your ISA but for that very same reason you might want to take it from your pot instead, just to keep the ISA as an emergency fund.