Is This A tax Loophole??

NorthernGeezer_2

My wife has a cash sum in her SIPP, she has an ISA elsewhere which she cashes in annually, banks the tax free interest and reinvests the capital in a 12 month fixed rate new one.

So………….question…….. if she opens a new ISA via her SIPP, can she pocket that sum from her old ISA and reinvest the balance up to her £20k limit.

Sounds to good to be true……………….is it??

Albermarle

if she opens a new ISA via her SIPP

Not possible to do this .

NorthernGeezer_2

There's nothing to stop her opening a separate ISA outside her SIPP though??

I suppose what I'm asking, is there a tax implication for an ISA invested in a SIPP, given the fact the money going in to the SIPP was tax free, will she have to pay tax when taking it out??

masonic

https://forums.moneysavingexpert.com/discussion/comment/81968104#Comment_81968104

No. It is not possible for a SIPP trustee to invest your contributions within an ISA wrapper. However, if it was it would work like this:

• You make a contribution to your SIPP
• The SIPP provider applies for tax relief from HMRC and this is later credited
• You instruct your SIPP provider to invest the money into an ISA
• The money grows tax free within the ISA

Then when you want to take it out:

• You instruct your SIPP provider to withdraw from the ISA
• The money lands in your SIPP cash account
• You draw down the money from your SIPP as taxable income

The ISA has given you no benefit as growth and income within the SIPP was already tax free.

vacheron

Are you are talking about putting ISA interest inside a SIPP, not opening an ISA inside a SIPP, (which isn't possible)?

The interest from the ISA is interest on money that has already been taxed. In order to get tax relief on the ISA interest when added to your SIPP, you would have to have paid an equivalent amount of income tax (or be under the £2880>£3600 tax relief threshold), so no different to funding the SIPP from gross salary, or from any other savings.

The ISA interest has gained the benefit of being tax free interest, but so does anyone's.

flaneurs_lobster

You can't hold an ISA in a SIPP, they are different 'wrappers' for funds.

Think this thread from a year ago might cover the same ground

https://forums.moneysavingexpert.com/discussion/6585828/putting-an-isa-into-a-sipp

NorthernGeezer_2

I thought it was too good to be true 🙃

friolento

https://forums.moneysavingexpert.com/discussion/comment/81968104#Comment_81968104

You can't have "in ISA invested in a SIPP"

leosayer

ISA and SIPP or both types of accounts (or buckets) which can hold cash, shares, funds etc.

You can't hold an ISA in a SIPP in the same way that you can't hold a savings account inside a current account.

NorthernGeezer_2

Ok, I get it, but…………….she's got £8k sat in a SIPP account, cash, the idea was she would withdraw on an annual basis an amount which took her up to the tax threshold and she's now reached that, so, what's the next step………..invest it I suppose, but where, cos it aint a great amount??

eskbanker

https://forums.moneysavingexpert.com/discussion/comment/81968363#Comment_81968363

It depends on what, if anything, the money is earmarked for and how long it can be locked away for. Some use the word 'invest' as if it's synonymous with 'save' but they're really two different things, so does she want to keep it in cash deposit form or actually invest it (for the long term)?

Edit: think I may have misunderstood the question! I thought you were asking about what to do as the next step with the withdrawn money but re-reading, are you looking for ideas about what to do with the remaining money within the SIPP?