Tax-free lump sum

valiant24

With the public finances seeming in a worse state than ever, and with the government seemingly unable to get even small cuts in spend past its own MPs, I'm worried again about another private-sector pension raid.

I have protected status within my SIPP so can take out £450k tax-free.  I almost did it last year - well actually I did but then paid it back within 30 days - and am wondering now if I should just bite the bullet and do it now in case the tax-free lump sum is removed in the autumn budget.

I've used up all my and Mrs Valiant's ISA allowances so the £450k re-invested would be subject to tax.   But the risk seems high that the benefit will eventually be too tempting a target.

(The constant tinkering and resultant absence of certainty over private pension rules really is scandalous!).

penners324

If it is announced they'll be plenty of time between the announcement and when it comes into force 

MDMD

penners324 said:

If it is announced they'll be plenty of time between the announcement and when it comes into force 

Not necessarily, they could change the rules immediately if they wanted to, by grandfathering the old rules, then bringing in new rules once systems and processes are in place backdated to budget date   - not suggesting the OP takes any rash decisions though based on speculation 

Dazed_and_C0nfused

MDMD said:

penners324 said:

If it is announced they'll be plenty of time between the announcement and when it comes into force 

Not necessarily, they could change the rules immediately if they wanted to, by grandfathering the old rules, then bringing in new rules once systems and processes are in place backdated to budget date   - not suggesting the OP takes any rash decisions though based on speculation 

And any new rules (if there were any) may allow existing protection to remain in place.

I have protected status within my SIPP so can take out £450k tax-free

dunstonh

I have protected status within my SIPP so can take out £450k tax-free.  I almost did it last year - well actually I did but then paid it back within 30 days - and am wondering now if I should just bite the bullet and do it now in case the tax-free lump sum is removed in the autumn budget.

Why would you do that? (logical reasons, not the illogical one you have given)

I've used up all my and Mrs Valiant's ISA allowances so the £450k re-invested would be subject to tax.   But the risk seems high that the benefit will eventually be too tempting a target.

ISAs and pensions are not the only tax wrappers.  You have onshore and offshore bonds, VCTs and unwrapped along with others.

(The constant tinkering and resultant absence of certainty over private pension rules really is scandalous!).

You mean the constant media coverage that doesn't actually result in much tinkering.

jimjames

valiant24 said:

(The constant tinkering and resultant absence of certainty over private pension rules really is scandalous!).

What changes have been made? The only recent one I can think of is actually beneficial by scrapping the LTA

valiant24

dunstonh said:

I have protected status within my SIPP so can take out £450k tax-free.  I almost did it last year - well actually I did but then paid it back within 30 days - and am wondering now if I should just bite the bullet and do it now in case the tax-free lump sum is removed in the autumn budget.

Why would you do that? (logical reasons, not the illogical one you have given)

At present, I can take out £450,000 from my SIPP tax free.   I don't, because I don't need the money at present, so I leave it in the SIPP and it carries on growing (hopefully!) tax-free.

If the rules are changed and the tax free sum is removed, I would have missed out on a benefit of £450k x my tax rate when withdrawn.  Impossible to know the exact amount but likely around £150k.

if I withdraw it and the rule isn't changed I have forgone tax-free growth between now and the time when I need the money, which I judge likely to be less than £150k.

Isn't this obvious?  I fear I must be missing something ...

valiant24

jimjames said:

valiant24 said:

(The constant tinkering and resultant absence of certainty over private pension rules really is scandalous!).

What changes have been made? The only recent one I can think of is actually beneficial by scrapping the LTA

None have.  But it would be hugely helpful if a minister could give a commitment that they won't mess further for the life of the current parliament.  One could plan properly to provide for one's dotage without too much reliance on the state then!

Albermarle

 I almost did it last year - well actually I did but then paid it back within 30 days -

If you made the same mistake once, why are you thinking of doing it again.?

valiant24

Albermarle said:

 I almost did it last year - well actually I did but then paid it back within 30 days -

If you made the same mistake once, why are you thinking of doing it again.?

Was it a mistake?
I took the money out in case the rules were changed.
They weren't, so I exercised my right to a cooling-off period and returned it.
How is this a mistake?

phlebas192

valiant24 said:

dunstonh said:

I have protected status within my SIPP so can take out £450k tax-free.  I almost did it last year - well actually I did but then paid it back within 30 days - and am wondering now if I should just bite the bullet and do it now in case the tax-free lump sum is removed in the autumn budget.

Why would you do that? (logical reasons, not the illogical one you have given)

At present, I can take out £450,000 from my SIPP tax free.   I don't, because I don't need the money at present, so I leave it in the SIPP and it carries on growing (hopefully!) tax-free.

If the rules are changed and the tax free sum is removed, I would have missed out on a benefit of £450k x my tax rate when withdrawn.  Impossible to know the exact amount but likely around £150k.

if I withdraw it and the rule isn't changed I have forgone tax-free growth between now and the time when I need the money, which I judge likely to be less than £150k.

Isn't this obvious?  I fear I must be missing something ...

How much have you got in the SIPP and what tax rate are you likely to pay when you finally withdraw it bearing in mind that it soon won't have any IHT advantage? Don't answer that here unless you want to, but I'm asking it to make you think. If you can take £450k out tax free then presumably the sum is pretty large. I don't know how your protection works but if the TFLS is still the standard 25%, just with a larger max amount then that would imply a fund in excess of £1.8m or £1.35m after the TFLS. Taking 4% of that lower sum a year would be an income of £54kpa so that "tax-free growth" is actually going to be taxed at 40% by the time you have it in your bank account and can spend it. Is it actually worth building it up to ever higher amounts within the SIPP? 

FWIW, in your situation, I probably would take the full TFLS immediately. None of us knows what the future might bring and a bird in the hand seems to apply. Yes, you will end up being taxed on however you invest it outside the SIPP but paying tax on investments is a sign of success, not something to be avoided at all costs!