Calculating max SIPP withdrawal to avoid 20% tax

DRS1

Dazed_and_C0nfused said:

aroominyork said:

So I need earnings/SIPPs of £12570 + £1300 = £13870 to ensure I've paid the tax to cover the gift aid?

If your Gift Aid donations were £1,300 then that would be a gross donation of £1,625.  Meaning the charities have received £325 in basic rate relief.

So you need to pay £325 in tax to avoid getting a bill for the basic rate Gift Aid tax.

You need to look at your overall income tax situation to understand if you will have paid enough tax.  You seem to be overlooking the £13,500 in dividend income.  If your Personal Allowance has been used by earnings and pension income then all £13,500 will be taxed.

The first £500 at 0% and, from what you've posted, the remaining £13,000 at 8.75% or 10.75% depending on which tax year this relates to.  So more than enough to satisfy your Gift Aid donations.

Ha Yes He wasn't the only one.

aroominyork

Thanks All. Good to be alerted to dividend income doing the GA job for me. So I will take £12,570 in crysallised SIPP income (less a couple of £2k from some work) and am happy to pay 8.75% on the dividends. I doubt the 2% increase in the coming FY is the last 2% we will see.

aroominyork

So bottom line... to stay within £12,570 if I have say £2k of taxable earnings and £3k of savings interest (I forgot the interest in last night's post), I should withdraw £7,570 of crystallised SIPP funds. Is that correct?

I deduct accrued interest paid when buying unwrapped nominal gilts during the tax year, yes?

Dazed_and_C0nfused

aroominyork said:

So bottom line... to stay within £12,570 if I have say £2k of taxable earnings and £3k of savings interest (I forgot the interest in last night's post), I should withdraw £7,570 of crystallised SIPP funds. Is that correct?

I deduct accrued interest paid when buying unwrapped nominal gilts during the tax year, yes?

No idea about your last point but is there any reason you wouldn't want to use your Personal Allowance with just earnings/pension income and let the (£3k) interest fall to be taxed 🤔

As you would have the full savings starter rate band available it would all be at a 0% tax rate.

The main reason for not doing that would be if you had reached State Pension age under the basic State Pension rules, deferred your State Pension and wanted to now take a lump sum instead of increased State Pension.  Which I doubt is relevant in your case.

aroominyork

Yes, of course. I forgot overnight about the starter savings rate. Clearly I should have retired a few years earlier...

DRS1

aroominyork said:

So bottom line... to stay within £12,570 if I have say £2k of taxable earnings and £3k of savings interest (I forgot the interest in last night's post), I should withdraw £7,570 of crystallised SIPP funds. Is that correct?

I deduct accrued interest paid when buying unwrapped nominal gilts during the tax year, yes?

Yes _ well you deduct it from the first coupon you receive on THAT gilt.  So if you buy a gilt in March 26 and the gilt only pays its coupon in June 26 then the accrued interest you paid in March is not deducted until June (ie in the next tax year)

aroominyork

DRS1 said:

aroominyork said:

So bottom line... to stay within £12,570 if I have say £2k of taxable earnings and £3k of savings interest (I forgot the interest in last night's post), I should withdraw £7,570 of crystallised SIPP funds. Is that correct?

I deduct accrued interest paid when buying unwrapped nominal gilts during the tax year, yes?

Yes _ well you deduct it from the first coupon you receive on THAT gilt.  So if you buy a gilt in March 26 and the gilt only pays its coupon in June 26 then the accrued interest you paid in March is not deducted until June (ie in the next tax year)

That's useful - thanks. Logical but easy to get wrong.