Retired, SIPP or ISA?

peterhjohnson

I am retired, have a SIPP in drawdown.and taken all the 25% tax free money. I also have a stocks and shares ISA. My State Pension is just over the £12570 allowance so any income I draw from the SIPP will be taxed at 20%

I am wondering if I should take out £20k (net) from my SIPP and put it into the ISA? My reasoning is that every £1 left in my SIPP might grow and eventually get taxed on that growth when I take it out. If I move it to my ISA, I'll have a tax hit now but any growth will not be subject to tax.

Have I missed anything?

Thanks!

Albermarle

peterhjohnson said:

I am retired, have a SIPP in drawdown.and taken all the 25% tax free money. I also have a stocks and shares ISA. My State Pension is just over the £12570 allowance so any income I draw from the SIPP will be taxed at 20%

I am wondering if I should take out £20k (net) from my SIPP and put it into the ISA? My reasoning is that every £1 left in my SIPP might grow and eventually get taxed on that growth when I take it out. If I move it to my ISA, I'll have a tax hit now but any growth will not be subject to tax.

Have I missed anything?

Thanks!

You do not gain anything because on the other side, you will have less in your ISA to grow.
It works out the same in the end.

El_Torro

I think the best reason to do this is so that you can avoid being a 40% tax payer further down the line. If you are not in danger of being a 40% tax payer then it doesn't really matter if you take the 20% hit now or later. 

If you foresee a big spend in the future, like a new car or repairs to your house, then it's worth having a decent amount in your ISA to be able to spend a lot of money without slipping into the 40% tax band. If you're already covered on this front then again I don't really see the benefit.

NoMore

As ablermarle says it doesnt make a difference unless you were expecting to move to a higher tax rate in the future. In which case getting it out now at a lower tax bracket would be a good idea. 

If the rumoured increase in income tax / drop in NI comes in the budget then moving some now would save you a little tax but usual advice is not to base decisions on speculation but as you won’t lose by doing it now, and the tax isn’t raised. I don’t see any harm in doing it. 

af1963

A times B is the same as B times A

£1000 times 80% (taking off tax now) times 150% ( growth ) = £1200
£1000 times 150% (growth) times 80% (taking off tax in future) = £1200

Frozen thresholds could make a little difference, if you ended up having to pay 40% tax on part of the money when withdrawn later. Or if tax rates changed in future.

Currently, money that's still in your pension is exempt from IHT, and can be inherited free of income tax if you die before age 75.  The IHT exemption is due to vanish in a couple of years. The income tax exemption, like many other things, could potentially be changed in the next (or any other) budget.