SIPP drawdown without taking tax free lump sum

aroominyork

Thanks - so it's taxed at source. I currently file because of CGT. 

Dazed_and_C0nfused

aroominyork said:

Thanks - so it's taxed at source. I currently file because of CGT. 

It is provisionally taxed at source.  In your case it will be your Self Assessment return which determines the final position.

Albermarle

aroominyork said:

How does drawdown actually operate? Say I want £25k cash from my SIPP. Do I liquidate £100k of assets in my SIPP, of which £75k is transferred into a new drawdown pot (which appears on my Interactive Investor portfolio as a fourth account, alongside SIPP, ISA and Trading?)… and I can then invest that £75k in whatever assets I wish, and when I withdraw from it (the funds may have grown or shrunk) I pay income tax through self-assessment?

Presuming you meant to say ' I want to take £25K tax free cash from my SIPP'

The process can vary from provider to provider. Normally though you would only have to liquidate £25K in cash, and you can request that £75K of investments are transferred to the drawdown account. Although with II there is no separate drawdown account. They will just note that £75K of the pot is crystallised, and the rest still uncrystallised. 
Some providers will liquidate the £25K for you, although it could delay the process a few days.

Note as well that your first withdrawal will not happen instantaneously, and you may have to answer some questions/fill in a form/have a phone interview. Mine took around 3 weeks in all.

aroominyork

Albermarle said:

aroominyork said:

How does drawdown actually operate? Say I want £25k cash from my SIPP. Do I liquidate £100k of assets in my SIPP, of which £75k is transferred into a new drawdown pot (which appears on my Interactive Investor portfolio as a fourth account, alongside SIPP, ISA and Trading?)… and I can then invest that £75k in whatever assets I wish, and when I withdraw from it (the funds may have grown or shrunk) I pay income tax through self-assessment?

Although with II there is no separate drawdown account. They will just note that £75K of the pot is crystallised, and the rest still uncrystallised. 

I guess there's some logic to that, since which assets would you identify as crytallised. Does ii's SIPP account that I view show the crystallised amount?

Also, if I withdraw £25k tax free, will ii's 'note' that £75k is crystallised remain a static amount or will it take account of market gains/losses? If the former, then if markets rise you are paying tax on more than 25% of the gross withdrawals (and should the market fall, you are paying tax on less than 25%). Since markets trend upwards, that seems an argument for crystallising the total amount you want to withdraw at any time (is that UPFLS?) rather than taking excessive tax free amounts while storing up crystallised funds for future use.

EdSwippet

aroominyork said:

I guess there's some logic to that, since which assets would you identify as crytallised. Does ii's SIPP account that I view show the crystallised amount?

It shows as a percentage; that is, what percentage of your SIPP is crystallised (and by extension, what percentage remains as yet uncrystallised), so it handles market gains/losses more or less as you'd expect given the framework. Interactive Investor has published a good description, with examples, of exactly how they operate this.

aroominyork

EdSwippet said:

aroominyork said:

I guess there's some logic to that, since which assets would you identify as crytallised. Does ii's SIPP account that I view show the crystallised amount?

It shows as a percentage; that is, what percentage of your SIPP is crystallised (and by extension, what percentage remains as yet uncrystallised), so it handles market gains/losses more or less as you'd expect given the framework. Interactive Investor has published a good description, with examples, of exactly how they operate this.

Thanks, Ed. That is a very good description and set of examples from Interactive Investor.

I'm still keen to get a view on whether, given markets trend upwards, it is best to crystallise the total amount you want to withdraw at any time, taking 25% tax free and paying tax on the other 75%, rather than taking excessive tax free amounts while storing up crystallised funds for future use. Let's assume this would not push you into a higher tax bracket.

DRS1

aroominyork said:

EdSwippet said:

aroominyork said:

I guess there's some logic to that, since which assets would you identify as crytallised. Does ii's SIPP account that I view show the crystallised amount?

It shows as a percentage; that is, what percentage of your SIPP is crystallised (and by extension, what percentage remains as yet uncrystallised), so it handles market gains/losses more or less as you'd expect given the framework. Interactive Investor has published a good description, with examples, of exactly how they operate this.

Thanks, Ed. That is a very good description and set of examples from Interactive Investor.

I'm still keen to get a view on whether, given markets trend upwards, it is best to crystallise the total amount you want to withdraw at any time, taking 25% tax free and paying tax on the other 75%, rather than taking excessive tax free amounts while storing up crystallised funds for future use. Let's assume this would not push you into a higher tax bracket.

Doesn't that depend on what you do with the TFLS?  If you just stick it in an ISA invested in the same investments as the SIPP then it makes no difference.

Really what you are asking is whether UFPLS is better then FAD and there are various videos on youtube which say UFPLS is better for the reason you are alluding to.  It allows you to get the expected market gains on the tax free element as well as the taxable element.  That does assume you spend what you draw from the pension - plenty of people just stick it in an ISA instead.