Should I start planning to move money from my SIPP to ISAs?

Triumph13

If you are in (or move to) a modern scheme that allows you to just put part of your overall fund into FAD, UFPLS is essentially just a special case of FAD.

UPFLS is simple because it's a one stage process: "Please crystalise X amount of my fund and pay me 25% tax free and all the rest as taxable income"

FAD is more complicated as it's a two stage process: 1) "Please crystalise X amount of my fund, pay me 25% tax free and put 75% in a drawdown fund"; followed by  2)"Please pay me Y amount of taxable income from my drawdown funds"

UFPLS is easier, but it only works well if you are happy that it gives you the correct amount of both tax free and taxable withdrawals.  If you want to get more tax free cash than 1/3rd of the taxable income you want to take, then UFPLS won't let you do that.  FAD will.

You could do it all via UFPLS in your case, it would just slow the rate of getting the money rehomed in an ISA.  No big deal, unless you are worried about the availability of ISA allowance in the future, or exceeding the overall limit for tax free cash if your funds grow / the limit is cut.

WitsEnd101

Thank you all and specifically Triumph for the clear and detailed guidance. 

I am going to crunch some numbers using both UFPLS and FAD to set up a withdrawl / transfer strategy. I will also come back in Feb with an update on whether I decided to fully retire and trigger MPAA or otherwise.

Albermarle

WitsEnd101 said:

Thank you all and specifically Triumph for the clear and detailed guidance. 

I am going to crunch some numbers using both UFPLS and FAD to set up a withdrawl / transfer strategy. I will also come back in Feb with an update on whether I decided to fully retire and trigger MPAA or otherwise.

In many circumstances there is little/nothing to choose between UFPLS and FAD. However if you want to set up regular monthly payments, this can be done via FAD more easily, just because many providers are not set up for regular UFPLS payments, they are seen more as a way of taking irregular lump sums.
Not sure if it has been mentioned, but with either case you might well find the pension provider takes more tax off than you expect. However you can claim it back, or it will resolve itself through the tax system eventually.

WitsEnd101

Thanks Albermarle. My SIPP and ISA provider is Interactive Investor who I hope have the flexibility for both UFPLS and FAD?

It does concern me the emergency tax situation and the time it takes for HMRC to pay back. I have literally just received the HR tax relief for 2024/25 this morning after many months of chasing.

Dazed_and_C0nfused

WitsEnd101 said:

Thanks Albermarle. My SIPP and ISA provider is Interactive Investor who I hope have the flexibility for both UFPLS and FAD?

It does concern me the emergency tax situation and the time it takes for HMRC to pay back. I have literally just received the HR tax relief for 2024/25 this morning after many months of chasing.

It is only 4 and a bit months after the end of the tax year, could be a lot worse to be honest!

WitsEnd101

I said a few months back that I would provide an update on my circumstances as fully set out above.

My plan was to start draining down my SIPP for the express purpose of avoiding higher rate income tax once SP kicks in. One of my concerns was if I go down the UFPLS route I would trigger the MPAA as I was unsure whether I might return to work. Having had over 6 months to think about it, I am fairly clear I do not want to go back full time or anywhere near full time (if at all).

I have undertaken a quick calculation of income received plus pensions, car benefit etc for 25/26 and my projected gross earnings for the financial year is £36,721. Does this mean I can take an UFPLS of £13,549 within this financial year in order to max out my BR tax band?

In terms of logistics and timing, would it be worth taking a small withdrawal now and the rest of the lump sum in March to make the emergency tax situation easier? If so, can you suggest what this sum should be?

Lastly, is there any reason to do FAD instead of UFPLS in my circumstances? Thanks for reading.

DRS1

WitsEnd101 said:

my projected gross earnings for the financial year is £36,721. Does this mean I can take an UFPLS of £13,549 within this financial year in order to max out my BR tax band? Don't forget any other taxable income such as savings interest from a non ISA or dividends.

In terms of logistics and timing, would it be worth taking a small withdrawal now and the rest of the lump sum in March to make the emergency tax situation easier? If so, can you suggest what this sum should be?  I have seen references to a small amount of say £1000 - on the basis it would hopefully not be taxed under the emergency code.  

Lastly, is there any reason to do FAD instead of UFPLS in my circumstances? Not sure but some SIPPS are happier doing one than the other.  Thanks for reading.

Thoughts in bold

WitsEnd101

Thanks DRS1 - a quick follow up. My comments in bold.

Don't forget any other taxable income such as savings interest from a non ISA or dividends.

I am less than £1k in interest and no dividends outside a SIPP or ISA. Does this mean I can take an UFPLS of £13,549 or is there an additional 25% tax free on top?

DRS1

WitsEnd101 said:

Thanks DRS1 - a quick follow up. My comments in bold.

Don't forget any other taxable income such as savings interest from a non ISA or dividends.

I am less than £1k in interest and no dividends outside a SIPP or ISA. Does this mean I can take an UFPLS of £13,549 or is there an additional 25% tax free on top?

Being under £1k for interest is fine until you inadvertently get into the higher rate band and then you are limited to £500.  You also need to keep in mind that the £1k or £500 personal savings allowance is actually just a 0% tax band.  The income is still a factor in working out whether you are in the higher rate band. 

Someone like @Dazed_and_C0nfused can explain it better than me but I think if you have £36721 taxable earnings this tax year and say £1000 taxable interest then you add them together and take £37721 off the £50270 higher rate threshold to see how much taxable pension income you can take and stay under the higher rate band.  So I think it is £12549 of taxable pension income.

Yes with UFPLS you can add in 25% TFLS so make it £16732 of which £4183 is TFLS.

WitsEnd101

Thanks DRS1 - that's really helpful. 

I've had a good chat with ii this morning on the processes, so will commence my first UFPLS withdrawal later.