Moving money from S+S ISA to SIPP- Top rate tax

lk2025

Hi All 

I've got my head in a spin about this and I'm not sure i'm thinking clearly... I'm hoping someone can provide some clarity. 

Last year I got a promotion and became a top rate tax payer. I'll pay 40% on around £10,000 of earnings this year. 

Since I started working I have always saved in a S+S ISA, putting a monthly into that for 15 years or so with the aim of supplementing my pension- it's sitting at about £40k now and I'm 38. We have plenty of spare income left at the end of the month and it's not money I'm planning on using before retirement in late 50s. 

I've recently become aware that SIPPs even exist and given my circumstances of not needing the money until I retire I feel reasonably sure they are a more tax efficient way of investing for my retirement instead of contributing to my S+S ISA further. 

My question is- should I be looking at moving money out of my S+S ISA and into a SIPP every year to ensure I get the maximum tax relief. I currently save/invest £250pm/£3000pa... would it make sense to move a further £7000 from my S+S ISA to bring my total SIPP contributions to £10,000 a year (equal to the portion I pay 40% tax on). 

I am a nurse in the NHS so cannot make additional contributions through them to reduce my tax burden. 

I know one downside is the ISA money can be withdrawn to spend all at once at any time, whereas SIPP would likely be taken in a 25% lump at 57 then slowly drawn down over years of income (fine by me...)

Thanks in advance for any views/help. 

JoeCrystal

It is called the Higher rate, not the top rate, that would be the Additional rate, which kicks in at over £125,140 @ 45%.   Have you considered Additional Pension or/and even ERRBO, that might allow you to make additional "contribution"? 

LHW99

Do you have an emergency fund, or is that the ISA? If the ISA is the emergency fund, IMO it may be best to preserve at that level as £40k is presumably less than 12 months salary. having it takes the pressure off needing to immediately find a new job if anything went wrong with this one.

What about AVC's with your NHS pension? I don't know much about those, but some schemes let you use them to "buy back" the reductions made in annual pension if you retire before NRA. They could be suitable for your additional payments even if the main scheme would be expensive.

lk2025

LHW99 said:

Do you have an emergency fund, or is that the ISA? If the ISA is the emergency fund, IMO it may be best to preserve at that level as £40k is presumably less than 12 months salary. having it takes the pressure off needing to immediately find a new job if anything went wrong with this one.

What about AVC's with your NHS pension? I don't know much about those, but some schemes let you use them to "buy back" the reductions made in annual pension if you retire before NRA. They could be suitable for your additional payments even if the main scheme would be expensive.

An Emergency fund is covered elsewhere (Cash ISA). I should have said

I have searched AVCs and looks like the likes of Standard Life run these for NHS. Is this any more tax efficient or will it just mean I get the same total tax relief? 
The flexibility of being able to invest where I want does appeal to me with SIPPs, whereas it could be limited into a managed plan with the likes of Standard Life I guess. 

DRS1

With that level of salary you should think about sticking enough into a pension to get you down to basic rate again.

You should also keep up with the ISA.

ISAs and pensions do two different jobs.  You might decide to retire at 53 and be glad of the ISA then.

Albermarle

My question is- should I be looking at moving money out of my S+S ISA and into a SIPP every year to ensure I get the maximum tax relief

For sure 40% tax relief on pension contributions is not to be sniffed at, as it is very generous. It is often rumoured that it will not last forever as it costs the Govt Tens of Billions of Pounds a year.
The only downside is that the money is tied up until you are 57, but that is younger than when most people retire.
You will be contributing to the NHS pension, so presumably you will be getting some higher rate relief already and and so can  add less than £10K to a SIPP to maximise the 40% relief.
Be aware that the money you add to a SIPP will only have basic rate tax relief added to it by the SIPP provider and you will have to claim the extra back from HMRC.

I have searched AVCs and looks like the likes of Standard Life run these for NHS. Is this any more tax efficient or will it just mean I get the same total tax relief? 
The flexibility of being able to invest where I want does appeal to me with SIPPs, whereas it could be limited into a managed plan with the likes of Standard Life I guess. 

It would not be more or less tax efficient. 

I know one downside is the ISA money can be withdrawn to spend all at once at any time, whereas SIPP would likely be taken in a 25% lump at 57 then slowly drawn down over years of income (fine by me...

The ISA can be withdrawn at any time tax free. You could take it all at once or gradually.
The SIPP can be withdrawn from age 57/58. 25% tax free and the rest is taxable income. How much you pay in tax will depend on how much you take and any other taxable income.
There is no requirement to take all the tax free lump sum at once, and no rules about how quickly you can take the pension.

A common scenario ( but only one of many ) for people like you, is to retire before the NHS pension is normally due and live off the SIPP for a few years. Depending on how all the figures add up obviously.

lk2025

Albermarle said:

You will be contributing to the NHS pension, so presumably you will be getting some higher rate relief already and and so can  add less than £10K to a SIPP to maximise the 40% relief.

Yes I hadn't even factored that in stupidly, I'll need to do the sums on this to ensure I don't go over unnecessarily.

Thanks for your response.