Avoid higher rate tax in employment with additional SIPP UFPLS income

Planet_Rock_Fan

Hoping for any ideas please - early 60's (male) with an intention to work 4 or 5 more years. I've been taking UFPLS cash annually from a SIPP (ex SERPS, no new contributions) for a few years and putting most of it into a Stocks & Shares ISA, which has done very well while making it accessible for some large purchases/maybe help pay off a mortgage.
I have a final salary employer pension (salary sacrifice), and I also pay £2400 a year into AVCs which reduces my income enough to have been taking £5-10k further taxable income from the SIPP, whilst staying just below the 40% threshold. However I'll soon no longer be able to take any SIPP income without paying some tax at 40%.
I'm trying to work out the best (or a least a good) way to avoid or minimise tax at 40% for the next several years.
It seems my main options to reduce my main taxable income to leave some headroom for the SIPP income are:
1. Begin contributions into the SIPP (noting the £10k MPAA, also recycling rules; I could demonstrate that the contributions are not being directly recycled). So max ~£6k a year (pre relief) after AVCs due to MPAA?
2. Increase my AVCs (not desirable as it's tied up until retirement at a modest growth rate).
3. Begin contributions into a SIPP for spouse (basic rate taxpayer).
I'm leaning towards 1. but any views on that, or other suggestions please?
Alternatively could it be no detriment to pay 40% tax if I then got 40% relief on some of the pension contributions anyway (if that's what would happen).
Note that I'm not relying on the SIPP for long term pension income, hence making use of some of it before retirement - but in any case I've more than covered the withdrawals to date with share dealing.

Marcon

Planet_Rock_Fan said:

Hoping for any ideas please - early 60's (male) with an intention to work 4 or 5 more years. I've been taking UFPLS cash annually from a SIPP (ex SERPS, no new contributions) for a few years and putting most of it into a Stocks & Shares ISA, which has done very well while making it accessible for some large purchases/maybe help pay off a mortgage.
I have a final salary employer pension (salary sacrifice), and I also pay £2400 a year into AVCs which reduces my income enough to have been taking £5-10k further taxable income from the SIPP, whilst staying just below the 40% threshold. However I'll soon no longer be able to take any SIPP income without paying some tax at 40%.
I'm trying to work out the best (or a least a good) way to avoid or minimise tax at 40% for the next several years.
It seems my main options to reduce my main taxable income to leave some headroom for the SIPP income are:
1. Begin contributions into the SIPP (noting the £10k MPAA, also recycling rules; I could demonstrate that the contributions are not being directly recycled). So max ~£6k a year (pre relief) after AVCs due to MPAA?
2. Increase my AVCs (not desirable as it's tied up until retirement at a modest growth rate).
3. Begin contributions into a SIPP for spouse (basic rate taxpayer).
I'm leaning towards 1. but any views on that, or other suggestions please?
Alternatively could it be no detriment to pay 40% tax if I then got 40% relief on some of the pension contributions anyway (if that's what would happen).
Note that I'm not relying on the SIPP for long term pension income, hence making use of some of it before retirement - but in any case I've more than covered the withdrawals to date with share dealing.

You'd get 40% tax relief to the extent you've paid tax at 40%. As you've spotted, that is limited to £10K gross to a SIPP, given you've triggered the MPAA. There is no scope for carry forward once you've triggered the MPAA.

You may be able to pay more to your DB AVC scheme. The MPAA doesn't apply to DB schemes, although you'd still be subject to the annual allowance of £60K in respect of all pension contributions either made by you personally, or via salary sacrifice, or employer. 

If you ever give to charity, don't overlook the advantage to a higher rate taxpayer: https://www.gov.uk/donating-to-charity/donating-straight-from-your-wages-or-pension

Dazed_and_C0nfused

Planet_Rock_Fan said:

Hoping for any ideas please - early 60's (male) with an intention to work 4 or 5 more years. I've been taking UFPLS cash annually from a SIPP (ex SERPS, no new contributions) for a few years and putting most of it into a Stocks & Shares ISA, which has done very well while making it accessible for some large purchases/maybe help pay off a mortgage.
I have a final salary employer pension (salary sacrifice), and I also pay £2400 a year into AVCs which reduces my income enough to have been taking £5-10k further taxable income from the SIPP, whilst staying just below the 40% threshold. However I'll soon no longer be able to take any SIPP income without paying some tax at 40%.
I'm trying to work out the best (or a least a good) way to avoid or minimise tax at 40% for the next several years.
It seems my main options to reduce my main taxable income to leave some headroom for the SIPP income are:
1. Begin contributions into the SIPP (noting the £10k MPAA, also recycling rules; I could demonstrate that the contributions are not being directly recycled). So max ~£6k a year (pre relief) after AVCs due to MPAA?
2. Increase my AVCs (not desirable as it's tied up until retirement at a modest growth rate).
3. Begin contributions into a SIPP for spouse (basic rate taxpayer).
I'm leaning towards 1. but any views on that, or other suggestions please?
Alternatively could it be no detriment to pay 40% tax if I then got 40% relief on some of the pension contributions anyway (if that's what would happen).
Note that I'm not relying on the SIPP for long term pension income, hence making use of some of it before retirement - but in any case I've more than covered the withdrawals to date with share dealing.

Haven't you already triggered MPAA 🤔

Also, neither 1 or 3 will reduce your taxable income at all. 

1 would increase your basic rate band, which can have the same overall benefit but what you need to do to get the correct tax relief overall is going to differ to what you currently think.

Planet_Rock_Fan

Dazed_and_C0nfused said:

Haven't you already triggered MPAA 🤔

Also, neither 1 or 3 will reduce your taxable income at all. 

1 would increase your basic rate band, which can have the same overall benefit but what you need to do to get the correct tax relief overall is going to differ to what you currently think.

Yes, already triggered MPAA - as the DB and AVC is salary sacrifice it does currently have the effect of reducing my (employment) taxable income enough to allow me to take cash from the SIPP (25% tax free, rest taxable at basic rate as I vary it each year to make the total no more than 50k).
But with fiscal drag and a reduction in my DB % I'll soon be unable to do that, so I'm looking for the most tax efficient way to still draw down from the SIPP annually. I've read that SIPP contributions do reduce taxable pay, so 1 seems viable to me, subject to the MPAA limit?

Marcon

Planet_Rock_Fan said:

Dazed_and_C0nfused said:

Haven't you already triggered MPAA 🤔

Also, neither 1 or 3 will reduce your taxable income at all. 

1 would increase your basic rate band, which can have the same overall benefit but what you need to do to get the correct tax relief overall is going to differ to what you currently think.

Yes, already triggered MPAA - as the DB and AVC is salary sacrifice it does currently have the effect of reducing my (employment) taxable income enough to allow me to take cash from the SIPP (25% tax free, rest taxable at basic rate as I vary it each year to make the total no more than 50k).
But with fiscal drag and a reduction in my DB % I'll soon be unable to do that, so I'm looking for the most tax efficient way to still draw down from the SIPP annually. I've read that SIPP contributions do reduce taxable pay, so 1 seems viable to me, subject to the MPAA limit?

Unfortunately not everything you read about pensions is correct. That would only be the case if your SIPP contributions are paid by salary sacrifice, which your employer probably isn't going to do even if you ask very nicely!

Have a look at this thread: https://forums.moneysavingexpert.com/discussion/6604690/tax-relief-on-pension-contributions-for-higher-rate-tax-payers#latest

and in particular a beautifully clear explanation from @hugheskevi on 1 May which might help clarify things.

Planet_Rock_Fan

Marcon said:

Unfortunately not everything you read about pensions is correct. That would only be the case if your SIPP contributions are paid by salary sacrifice, which your employer probably isn't going to do even if you ask very nicely!

Have a look at this thread: https://forums.moneysavingexpert.com/discussion/6604690/tax-relief-on-pension-contributions-for-higher-rate-tax-payers#latest

and in particular a beautifully clear explanation from @hugheskevi on 1 May which might help clarify things.

Thanks will do - didn't see any mention of the salary sacrifice (good ol' internet for you hence coming here for some proper knowledge!). I did type but seem to have lost a reply to your previous post celebrating what seemed to be some good numbers for the SIPP approach at basic rate - but maybe it's still workable with a 40% payment/relief element - will have a read, cheers. 

Planet_Rock_Fan

Well I've had a read but whilst the numbers made sense (just!) I'm not good enough at this to see how it would be enacted in my specific case. I guess I want the best of both worlds by minimising tax while not making things too complicated for myself. I'd prefer not to have to do complex calculations/tax returns/manual claims to save what might only end up being a few hundred quid in tax, which is why my process to date has been nice as it all just works at basic rate.
Seems that won't be possible for much longer unless I plough the extra into the AVCs, which as stated isn't my preference as it's locked in until retirement. What it would do at least is build a larger pot to form a tax free lump sum without affecting my DB income as much. The sad loss of a friend recently has concentrated the mind a bit on reaping some benefit now though to be honest, not piling in money to see me into my 80's or 90's when I might not get there, or may have long lost my marbles.

Dazed_and_C0nfused

Planet_Rock_Fan said:

Dazed_and_C0nfused said:

Haven't you already triggered MPAA 🤔

Also, neither 1 or 3 will reduce your taxable income at all. 

1 would increase your basic rate band, which can have the same overall benefit but what you need to do to get the correct tax relief overall is going to differ to what you currently think.

Yes, already triggered MPAA - as the DB and AVC is salary sacrifice it does currently have the effect of reducing my (employment) taxable income enough to allow me to take cash from the SIPP (25% tax free, rest taxable at basic rate as I vary it each year to make the total no more than 50k).
But with fiscal drag and a reduction in my DB % I'll soon be unable to do that, so I'm looking for the most tax efficient way to still draw down from the SIPP annually. I've read that SIPP contributions do reduce taxable pay, so 1 seems viable to me, subject to the MPAA limit?

Contributions you make to a SIPP could never be salary sacrifice as salary sacrifice is where you agree not to contribute and take a reduction in salary in return for extra employer contributions.

And you are not entitled to any pension tax relief on employer contributions.

Personal contributions to a SIPP have basic rate tax relief added within the pension, so £100 from you becomes £125 in the pension.

And you have to make a claim to HMRC to get your basic rate band extended (more income taxed at 20% and less at 40%).

Not sure why you are getting so hung up on reducing your taxable income really 🤔

GunJack

Am I missing something.....you want to minimise tax but are working and withdrawing from the sipp? Seems counter-intuitive..

QrizB

GunJack said:

Am I missing something.....you want to minimise tax but are working and withdrawing from the sipp? Seems counter-intuitive..

There's a 6.25% advantage if you pay into a DC pension then take it back out.

Planet_Rock_Fan

Dazed_and_C0nfused said:

Not sure why you are getting so hung up on reducing your taxable income really 🤔

Basically seems to be the simplest way to only pay 20% tax when I'm getting closer to higher rate already on my basic salary. If I up my salary sacrifice AVCs into the DB scheme to say £10k a year it would reduce my taxable income by £10k and allow another £10k taxable out of the SIPP at 20%, rather than all at 40% (plus the tax free amount). Seems like quite a large benefit to me. I'm looking for the same effect via a different route, ideally into the SIPP as I can get my hands back on it the year after, so to speak, without breaking recycling rules (I believe).