Taking money out of ISA to put in Pension?

Daveinlincoln · 14 September 2018 at 1:14PM

Looks like i'm not going to be able to contribute the maximum into my SIPP this year due to having to pay a few bills (wifes car packed up, holidays etc).

But I really don't want to miss out on the tax relief so I was thinking about perhaps taking money out of my Stocks and Shares Isa and using that to get up to the maximum £32000 so as to get the £8000 tax relief...is this a decent idea?

I'm searching for the negatives in doing this but I can't see any?

Any advice/comments gratefully received.

Linton · 14 September 2018 at 2:03PM

Are you sure you are allowed to pay in £32K? The £40K gross limit includes any employer contribution. There is also the earned income limit. On the other hand you may be able to contribute more than £40K if you didnt use all that allowance last year.

Provided all the requirements are met the downside of putting ISA money into a SIPP is that access becomes more difficult or impossible if you are under 55. If you are a basic rate tax payer now and a basic rate tax payer in retirement the benefit is only the tax you dont pay on the tax free lump sum ie 20% of 25% = 5%. Whether this gain is worth the loss in flexibility is up to you.

lisyloo · 14 September 2018 at 2:16PM

If you are a basic rate tax payer now and a basic rate tax payer in retirement the benefit is only the tax you dont pay on the tax free lump sum ie 20% of 25% = 5%.

Please the first £11,850 (or personal allowance at the time) is tax free each year (minus state pension once you get it).

El_Torro · 14 September 2018 at 2:50PM

I would only transfer money from my ISA to my pension if it meant I was getting 40% tax relief, not 20%. As mentioned though it depends on your age, I'm pretty far from being able to access my pension so value the flexibility of my ISA.

Linton · 14 September 2018 at 2:55PM

lisyloo wrote: »

Please the first £11,850 (or personal allowance at the time) is tax free each year (minus state pension once you get it).

Which is why I referred to a basic rate tax payer. In the OPs case given he has no problem putting £32K into a personal pension it is reasonableto assume that his marginal tax rate at retirement will be based on income of at least the personal allowance.

Dox · 14 September 2018 at 3:23PM

If you are earning a salary of at least £40,000 a year, fine - dividends don't count as 'earnings' for pension purposes. If your SIPP contributions are normally paid by your company, your personal contributions are limited to an amount equal to whatever salary you draw from your company.

Daveinlincoln · 14 September 2018 at 4:07PM

Thanks for the replies everyone... I should add that I am 52 (53 in march) so i'm not a million miles away from being able to access my pension if I need to.

I'm self employed (I pay corporation tax,ltd company) so i'm able to pay in the £32k to get the extra £8k tax relief...

My thinking is very basic....I just want to see that pension pot grow and an extra £8k for nothing is just too good to resist.

Dazed_and_confused · 14 September 2018 at 4:15PM

So you're not self employed.

Is there a reason the limited company isn't making the contribution?

FatherAbraham · 14 September 2018 at 6:36PM

Daveinlincoln wrote: »

Thanks for the replies everyone... I should add that I am 52 (53 in march) so i'm not a million miles away from being able to access my pension if I need to.

I'm self employed (I pay corporation tax,ltd company) so i'm able to pay in the £32k to get the extra £8k tax relief...

My thinking is very basic....I just want to see that pension pot grow and an extra £8k for nothing is just too good to resist.

It's not eight thousand for nothing. It's only tax deferred, not tax free.

Marcon · 14 September 2018 at 7:13PM

Daveinlincoln wrote: »

Thanks for the replies everyone... I should add that I am 52 (53 in march) so i'm not a million miles away from being able to access my pension if I need to.

I'm self employed (I pay corporation tax,ltd company) so i'm able to pay in the £32k to get the extra £8k tax relief...

My thinking is very basic....I just want to see that pension pot grow and an extra £8k for nothing is just too good to resist.

You're not self employed if you are a PAYE employee of your limited company. Make sure it is the company which makes the SIPP contribution from company funds, albeit you need to withdraw cash from your ISA to live on.

Dazed_and_confused · 14 September 2018 at 7:34PM

And if the company pays you cannot get basic rate relief added by the pension company.

Taking money out of ISA to put in Pension?

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