Adding to Sipp then putting into drawdown.

hoofy

Can you top up Sipp and then put it straight into drawdown without incurring any penalty from HMRC? It just seems a bit cynical to me.

I made an employer contribution of 25k from my Ltd Co on 8th of April.

I made a personal contribution of £2880 a month ago.

I made another employer contribution of 5k today.

Can I put the Sipp into drawdown and take a lump sum of 50K which would be £37500 taxable as income and £12500 tax free?

And yes, there's plenty of funds in the Sipp to cover the withdrawal. And I'm also aware my max contributions will be 10k from now on.

Marcon

Can you top up Sipp and then put it straight into drawdown without incurring any penalty from HMRC?

Yes, assuming you are aged at least 55.

Albermarle

https://forums.moneysavingexpert.com/discussion/6682586/adding-to-sipp-then-putting-into-drawdown

From HMRC point of view it does not matter if you take the drawdown now, or in years to come.

retiringin26

Just be aware that the SIPP provider may allocate an emergency tax code, so if you want to avoid reclaiming the tax and the possible delay there, then it may be advisable to take say £200, wait for HMRC to advise the correct tax code to the SIPP provider and then take £48.8k

Also, if it matters, the tax relief on the £2880 may not land for a few days or weeks yet.

guymo

Isn't there some risk that this falls foul of the recycling rules?

SVaz

Why anyone would want to do that and pay a shed load of tax is beyond me.

hoofy

https://forums.moneysavingexpert.com/discussion/comment/82131191#Comment_82131191

How do you get your money out of a Sipp without paying tax?

SVaz

By drawing up to the personal allowance.

My Wife will have emptied her Sipp of approx. £100k, totally tax free by the time she’s 67, straight into ISAs.

I’ll be able to get around £65k out tax free, over 4 years, on top of my remaining tax free lump sum

hoofy

https://forums.moneysavingexpert.com/discussion/comment/82143927#Comment_82143927

That would work for you, but not for me. I have 500k to get out of there and my personal allowance has already been used.

FatherAbraham

https://forums.moneysavingexpert.com/discussion/comment/82131191#Comment_82131191

People whose pension funds are large enough that there's a danger of paying an even higher-rate of taxation on withdrawals later in life.

The UK's current fiscal policy means that the in real terms, the tax bands decrease by inflation each year. Taking excess taxable income now, to fill one's marginal band, can be a useful strategy to smooth and moderate income taxation in the medium term.