Taking 25% tax free from a SIPP

tribetown

I have read through on my SIPP website the steps to take and think I understand most of it.

I want to take out 25% cash of the value of my SIPP.
I have invested in 3 shares and was thinking of selling one of those to get the amount I wanted.

But from reading the steps it looks like I have to sell/crystallise all of my 3 holdings, request the 25% tax free lump sum and then I would need to rebuy the 2 shares that I wanted to keep. That will incur trading costs, FX costs and the share price could move higher so could cost more to buy back.

Have I understood the process correctly?

NoMore

No you just have to create enough cash to furnish the 25 % tax free. The rest of the pension will then just become crystallised. 

Notepad_Phil

tribetown said:

I have read through on my SIPP website the steps to take and think I understand most of it.

I want to take out 25% cash of the value of my SIPP.
I have invested in 3 shares and was thinking of selling one of those to get the amount I wanted.

But from reading the steps it looks like I have to sell/crystallise all of my 3 holdings, request the 25% tax free lump sum and then I would need to rebuy the 2 shares that I wanted to keep. That will incur trading costs, FX costs and the share price could move higher so could cost more to buy back.

Have I understood the process correctly?

That depends on who the SIPP is with - it wouldn't be for the modern ones that I'm aware of, but that's not to say that your SIPP provider doesn't do it as per the process that you outline. The issue they may be guarding against is say your SIPP is worth £100k, you free up £25k and ask for your 25% tax free, but between that time and when they process your request your shares go up in value so you actually need more than £25k now.

scoobyjones1

tribetown said:

I have read through on my SIPP website the steps to take and think I understand most of it.

I want to take out 25% cash of the value of my SIPP.
I have invested in 3 shares and was thinking of selling one of those to get the amount I wanted.

But from reading the steps it looks like I have to sell/crystallise all of my 3 holdings, request the 25% tax free lump sum and then I would need to rebuy the 2 shares that I wanted to keep. That will incur trading costs, FX costs and the share price could move higher so could cost more to buy back.

Have I understood the process correctly?

You just have to raise enough cash inside your SIPP to cover the amount you want to draw out.
By the way, taking the full, 25% tax free cash, all in one go is not always the best thing to.
https://www.youtube.com/watch?v=1gTlVRVr8xQ&t=335s

SVaz

Whatever percentage of tax free cash you want,  you simply sell enough to cover that amount.
If you take all 25% then the other 75% becomes crystallised and moves into drawdown,  which you don’t have to take until you are ready.
If you are no longer contributing then however much that 75% grows, there is no more tax free cash. 

Say you only want 10% of your tax free cash then it becomes part crystallised, if the uncrystallised part then grows then you get more tax free cash than you would have by taking all 25% at once. 

LHW99

Not sure if you're with II, but the guidance pages are written as if it is necessary to turn the whole pension to cash (for an annuity), or use an investment pathway, in order to take out the 25% TFLS.

However, once you actually complete the online form, there is an option to just take the TFLS and leave the remainder in existing investments.

Possibly your platform is being equally vague.

scoobyjones1

This guide from II is quite helpful now...perhaps they updated it?
https://www.ii.co.uk/ii-accounts/sipp/income-drawdown/moving-funds-drawdown

MallyGirl

tribetown said:

I have read through on my SIPP website the steps to take and think I understand most of it.

I want to take out 25% cash of the value of my SIPP.
I have invested in 3 shares and was thinking of selling one of those to get the amount I wanted.

But from reading the steps it looks like I have to sell/crystallise all of my 3 holdings, request the 25% tax free lump sum and then I would need to rebuy the 2 shares that I wanted to keep. That will incur trading costs, FX costs and the share price could move higher so could cost more to buy back.

Have I understood the process correctly?

Putting asides the discussion of whether you should take all 25% out just because you can ...

I would just sell enough to cover the 25% plus a little bit to allow for price fluctuations. If you have a cash balance after the total crystallisation it can just be used to buy something non-cash again

tribetown

Thank-you all for the replies.

My SIPP is worth about 75k.
I am concerned about the November budget where there is speculation about abolishing the 25% lump sum.

The plan was to put the funds into a S&S ISA in case the 20k limit gets reduced in the budget.

Yes, my SIPP is with ii, I had read https://www.ii.co.uk/ii-accounts/sipp/income-drawdown/moving-funds-drawdown yesterday.
 
In step 5 it says "Move funds into Drawdown – Crystallise funds, take a tax-free lump sum and the option to set-up taxable income payments'."

Step 6 "Here you can choose the amount you want to crystallise (move into drawdown), or select ‘full fund amount’.
I just wanted to take 25% lump sum and leave the rest invested. Do I need to crystallise 25% or 100%.

By reading the post above by SVas, it looks like I need to crystallise 100%, take a 25% lump sum and the rest moves into drawdown.

Step 9 "Here you will be asked how you want to invest your SIPP fund in future." This made the think that I had to sell all my shares and decide how to invest the remaining 75%.

phlebas192

tribetown said:

Thank-you all for the replies.

My SIPP is worth about 75k.
I am concerned about the November budget where there is speculation about abolishing the 25% lump sum.

There is no remotely serious speculation that the TFLS will be abolished. There is some generally unfounded speculation that it might be reduced but even in the most feverest Daily Telegraph dreams it wouldn't be at a level that could possibly impact your size of SIPP.
Please don't make decisions based on politically motivated rumours.

LHW99

tribetown said:

Thank-you all for the replies.

My SIPP is worth about 75k.
I am concerned about the November budget where there is speculation about abolishing the 25% lump sum.

The plan was to put the funds into a S&S ISA in case the 20k limit gets reduced in the budget.

Yes, my SIPP is with ii, I had read https://www.ii.co.uk/ii-accounts/sipp/income-drawdown/moving-funds-drawdown yesterday.
 
In step 5 it says "Move funds into Drawdown – Crystallise funds, take a tax-free lump sum and the option to set-up taxable income payments"

Step 6 "Here you can choose the amount you want to crystallise (move into drawdown), or select ‘full fund amount’.
I just wanted to take 25% lump sum and leave the rest invested. Do I need to crystallise 25% or 100%.

By reading the post above by SVas, it looks like I need to crystallise 100%, take a 25% lump sum and the rest moves into drawdown.

Step 9 "Here you will be asked how you want to invest your SIPP fund in future." This made the think that I had to sell all my shares and decide how to invest the remaining 75%.

Yes, Step 9 of the guide looks as if you might need to sell everything, but when you actually get to that bit of the application, you can choose to keep your existing investments. You only need to sell enough to cover the 25% TFLS plus a bit in case the markets are up a bit on the day the request is actioned.

As said, don't crystallise just for the sake of it, if it wasn't in the plan already. £75k will only give a TFLS of £18,750 so if anything is done to limit tax-free cash, it won't affect that level of withdrawal IMO.

I can't see it being abolished altogether in one fell swoop.