Expat SIPP withdrawals
hparker
Posts: 17 Forumite
My situation may be unusual but I hope I can let some ideas here. I will try to get full advice from a UK IFA before I do anything but I would need to return to the UK for that (as rules limit advice that can be given). So in the meantime I would like to ask for some help here.
I have Vanguard funds in an ISA (£150,000) and a SIPP (£200,000) both started when I was in the UK and £500,000 in a normal dealing account.
In my tax residency investments held for 36 months can be sold tax free. All dividend income is taxable. So if/when I decide to sell any units in either my ISA, SIPP, or dealing account, all would be taxed the same way (i.e. no tax due). As I am not tax resident in the UK I don’t believe I would pay any tax on gains or dividend income from ISA, SIPP, or dealing accounts.
If all my investments will be taxed the same (nil), I planned to take income by selling/withdrawing funds in the following order: dealing account, then if/when this was exhausted, from the SIPP, then if/when the SIPP is exhausted finally the ISA. If I return or become subject to UK tax in future, then having the ISA and SIPP would offer more tax efficient sources of income. But I also want to consider which pots can be most tax efficiently passed on to spouse and/or children (from a UK tax position) when deciding which order to deplete them.
Two questions about this:
Is the order I suggest withdrawing/depleting my various investment “pots” OK, should the SIPP be last, or some other order?
If I start withdrawing from the SIPP (while not UK tax resident) any option would be tax free now, so which of the array of options (“drawdown” “UFPLS”, etc.) would it be best to have done if I later returned or became UK tax resident in future?
Thank you for reading.
I have Vanguard funds in an ISA (£150,000) and a SIPP (£200,000) both started when I was in the UK and £500,000 in a normal dealing account.
In my tax residency investments held for 36 months can be sold tax free. All dividend income is taxable. So if/when I decide to sell any units in either my ISA, SIPP, or dealing account, all would be taxed the same way (i.e. no tax due). As I am not tax resident in the UK I don’t believe I would pay any tax on gains or dividend income from ISA, SIPP, or dealing accounts.
If all my investments will be taxed the same (nil), I planned to take income by selling/withdrawing funds in the following order: dealing account, then if/when this was exhausted, from the SIPP, then if/when the SIPP is exhausted finally the ISA. If I return or become subject to UK tax in future, then having the ISA and SIPP would offer more tax efficient sources of income. But I also want to consider which pots can be most tax efficiently passed on to spouse and/or children (from a UK tax position) when deciding which order to deplete them.
Two questions about this:
Is the order I suggest withdrawing/depleting my various investment “pots” OK, should the SIPP be last, or some other order?
If I start withdrawing from the SIPP (while not UK tax resident) any option would be tax free now, so which of the array of options (“drawdown” “UFPLS”, etc.) would it be best to have done if I later returned or became UK tax resident in future?
Thank you for reading.
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Comments
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My situation may be unusual but I hope I can let some ideas here. I will try to get full advice from a UK IFA before I do anything but I would need to return to the UK for that (as rules limit advice that can be given). So in the meantime I would like to ask for some help here.
I have Vanguard funds in an ISA (£150,000) and a SIPP (£200,000) both started when I was in the UK and £500,000 in a normal dealing account.
In my tax residency investments held for 36 months can be sold tax free. All dividend income is taxable. So if/when I decide to sell any units in either my ISA, SIPP, or dealing account, all would be taxed the same way (i.e. no tax due). As I am not tax resident in the UK I don’t believe I would pay any tax on gains or dividend income from ISA, SIPP, or dealing accounts.
If all my investments will be taxed the same (nil), I planned to take income by selling/withdrawing funds in the following order: dealing account, then if/when this was exhausted, from the SIPP, then if/when the SIPP is exhausted finally the ISA. If I return or become subject to UK tax in future, then having the ISA and SIPP would offer more tax efficient sources of income. But I also want to consider which pots can be most tax efficiently passed on to spouse and/or children (from a UK tax position) when deciding which order to deplete them.
Two questions about this:
Is the order I suggest withdrawing/depleting my various investment “pots” OK, should the SIPP be last, or some other order?
If I start withdrawing from the SIPP (while not UK tax resident) any option would be tax free now, so which of the array of options (“drawdown” “UFPLS”, etc.) would it be best to have done if I later returned or became UK tax resident in future?
Thank you for reading.
No, you exhaust the SIPP first, because pension downdraws are taxable income in thr UK.
Ensure you get all the capital out of the pension before becoming resident in the UK again.
Your general investment account (GIA) and ISA's capital are regarded as already having been taxed, so all withdrawals are tax free, just like taking cash out of an ATM is tax free.
Exhaust the GIA before the ISA, since the ISA's income would be tax free if you return to the UK.
Remember to realise all capital gains in the GIA before becoming UK tax resident again.Thus the old Gentleman ended his Harangue. The People heard it, and approved the Doctrine, and immediately practised the Contrary, just as if it had been a common Sermon; for the Vendue opened ...THE WAY TO WEALTH, Benjamin Franklin, 1758 AD0 -
FatherAbraham wrote: »No, you exhaust the SIPP first, because pension downdraws are taxable income in thr UK.
Your general investment account (GIA) and ISA's capital are regarded as already having been taxed, so all withdrawals are tax free, just like taking cash out of an ATM is tax free.
Exhaust the GIA before the ISA, since the ISA's income would be tax free if you return to the UK.
Remember to realise all capital gains in the GIA before becoming UK tax resident again.
So withdraw from the SIPP first! Not what I expected!
Is the point here that all gains in the GIA and ISA have already been "taxed" (at 0%) by my current tax regime, so whatever the GIA and ISA portfolio balances upon becoming UK tax resident all can be withdrawn at any time tax free? Only any additional new gains within each would be subject to UK capital gains tax? Is this it?
Any capital gains in the SIPP will also have been "taxed" (at 0%) by my current tax regime. So why would any drawdowns (is that the same as withdrawals - selling fund units for cash to withdraw?) be taxable back in the UK? Why would it not be just any new gains made on the value of the SIPP after being UK tax resident that are subject to capital gains?
If the SIPP is to be depleted first, then GIA, and lastly ISA, is that also the best order for inheritance tax purposes for inheritenace to spouse or children? I want to consider this as well.0 -
You need to look at the relevant tax treaty. Even if you are a UK non-resident for tax purposes, HMRC will still tax UK source income, from things like pensions. You can often avoid UK tax if there is a tax treaty in place. So the critical question is where are you tax resident?“So we beat on, boats against the current, borne back ceaselessly into the past.”0
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You can only pay into a SIPP if UK resident, and you get basic rate tax relief automatically (and also higher rate tax relief if applicable, by application to HMRC). It follow therefore that you didn't pay UK tax on your UK earnings whilst building up your SIPP and it is reasonable therefore to pay income tax when you withdraw it in retirement (25% of which is income tax free, as an incentive to save for retirement).
The only exception to this is that you can pay £3,600 gross into a SIPP as an expat in the tax-year that you leave the UK and for the following 5 tax-years. If someone paid more than £3,600 into a SIPP whilst an expat, then they would have a problem with HMRC...0 -
Quick replies:
bostonerimus, Yes there is a double taxation treaty, and as I said at the top I am not UK resident for tax.Johnnyboy11 wrote: »You can only pay into a SIPP if UK resident, and you get basic rate tax relief automatically (and also higher rate tax relief if applicable, by application to HMRC). It follow therefore that you didn't pay UK tax on your UK earnings whilst building up your SIPP and it is reasonable therefore to pay income tax when you withdraw it in retirement (25% of which is income tax free, as an incentive to save for retirement).
The only exception to this is that you can pay £3,600 gross into a SIPP as an expat in the tax-year that you leave the UK and for the following 5 tax-years. If someone paid more than £3,600 into a SIPP whilst an expat, then they would have a problem with HMRC...
I don't get the point about me "not paying tax on your UK earnings whilst building up my SIPP". I was paying tax on my UK earnngs when I was UK tax resident and paid into my SIPP years ago. Obviously no more contributions into the SIPP since I left the UK.
Can you clarify whether there is still a point here which is relevant to me?FatherAbraham wrote: »No, you exhaust the SIPP first, because pension downdraws are taxable income in thr UK.
Ensure you get all the capital out of the pension before becoming resident in the UK again.
Your general investment account (GIA) and ISA's capital are regarded as already having been taxed, so all withdrawals are tax free, just like taking cash out of an ATM is tax free.
Exhaust the GIA before the ISA, since the ISA's income would be tax free if you return to the UK.
Remember to realise all capital gains in the GIA before becoming UK tax resident again.
I'd like to ask this again as it got missed with the previous replies:
So withdraw from the SIPP first! Not what I expected!
Is the point here that all gains in the GIA and ISA have already been "taxed" (at 0%) by my current tax regime, so whatever the GIA and ISA portfolio balances upon becoming UK tax resident all can be withdrawn at any time tax free? Only any additional new gains within each would be subject to UK capital gains tax? Is this it?
Any capital gains in the SIPP will also have been "taxed" (at 0%) by my current tax regime. So why would any drawdowns (is that the same as withdrawals - selling fund units for cash to withdraw?) be taxable back in the UK? Why would it not be just any new gains made on the value of the SIPP after being UK tax resident that are subject to capital gains?
If the SIPP is to be depleted first, then GIA, and lastly ISA, is that also the best order for inheritance tax purposes for inheritenace to spouse or children? I want to consider this as well.0 -
So withdraw from the SIPP first! Not what I expected!
Is the point here that all gains in the GIA and ISA have already been "taxed" (at 0%) by my current tax regime, so whatever the GIA and ISA portfolio balances upon becoming UK tax resident all can be withdrawn at any time tax free? Only any additional new gains within each would be subject to UK capital gains tax? Is this it?
Any capital gains in the SIPP will also have been "taxed" (at 0%) by my current tax regime. So why would any drawdowns (is that the same as withdrawals - selling fund units for cash to withdraw?) be taxable back in the UK? Why would it not be just any new gains made on the value of the SIPP after being UK tax resident that are subject to capital gains?
If the SIPP is to be depleted first, then GIA, and lastly ISA, is that also the best order for inheritance tax purposes for inheritenace to spouse or children? I want to consider this as well.
Pension funds contain untaxed income, in the UK regime. Tax relief is granted on the way in, everything is income-taxed on the way out (except for a 25% lump sum on benefit crystallization). But you might be able to take 100% tax free (bear in mind what has been said about dual-taxation treaty), by drawing down outside the UK tax regime.
For the purposes of this discussion, to draw down means to take assets out of the pension tax-wrapper, to withdraw assets from it. Note that Usonians, in their quaint, colonial way, use "drawdown" to mean a fall in the market value of assets.
GIA assets would be liable to capital gains tax if disposed of while UK tax resident. That means they look at the difference between acquisition cost and disposal proceeds. Therefire it is essential that you dispose of those assets before re-entering UK tax residence, in order to realise gains tax-free. After selling, you can repurchase the assets, which now have a higher base cost for CGT purposes.
ISA is free from UK CGT and income tax. To every other tax regime, it looks like a GIA, since ISAs are a particular UK wierdness, not covered by any taxation treaty.
I haven't even bothered to think about your inheritance tax issues - you need to get the taxation position of your personal assets straight before you worry about your heirs.Thus the old Gentleman ended his Harangue. The People heard it, and approved the Doctrine, and immediately practised the Contrary, just as if it had been a common Sermon; for the Vendue opened ...THE WAY TO WEALTH, Benjamin Franklin, 1758 AD0 -
FatherAbraham wrote: »Pension funds contain untaxed income, in the UK regime. Tax relief is granted on the way in, everything is income-taxed on the way out (except for a 25% lump sum on benefit crystallization). But you might be able to take 100% tax free (bear in mind what has been said about dual-taxation treaty), by drawing down outside the UK tax regime.
For the purposes of this discussion, to draw down means to take assets out of the pension tax-wrapper, to withdraw assets from it. Note that Usonians, in their quaint, colonial way, use "drawdown" to mean a fall in the market value of assets.
GIA assets would be liable to capital gains tax if disposed of while UK tax resident. That means they look at the difference between acquisition cost and disposal proceeds. Therefire it is essential that you dispose of those assets before re-entering UK tax residence, in order to realise gains tax-free. After selling, you can repurchase the assets, which now have a higher base cost for CGT purposes.
ISA is free from UK CGT and income tax. To every other tax regime, it looks like a GIA, since ISAs are a particular UK wierdness, not covered by any taxation treaty.
I haven't even bothered to think about your inheritance tax issues - you need to get the taxation position of your personal assets straight before you worry about your heirs.
Thank you for following up on this. So let me see if I have this right. Upon becoming UK tax resident:
1. Any income withdrawn from a GIA is subject to Capital Gain Tax only. It is not also subject to Income Tax. So before becoming UK resident it makes sense to sell all GIA funds and repurchase, to lock in any gains. Only new gains made after UK residency will be taxable and the tax applied is CGT.
2. In the UK the SIPP will not be subject to Capital Gains Tax, but will be subject to income tax on any thing withdrawn (after the 25% tax free sum is taken). So if it is necessary to withdraw income from any of the pots while non-UK resident, it is best to deplete the SIPP first.
3. The ISA will not be subject to CGT or income tax in the UK, so it is best left to accummulate as long as possible, and withdraw from SIPP and GIA first.
So, would it also make sense (as gains are nil in my current tax regime) to sell all funds in my SIPP to lock in gains and repurchase them in a GIA before being UK resident?
If "yes" to the above, I will no longer have a SIPP investments. So before doing that, can anyone say what I would be missing out on? Is there no advantage to having investments in a SIPP after drawdown? Any possible benefits to spouse or heirs with SIPPs compared to GIA or ISA?
Thank you again for all the replies.0 -
Quick replies:
bostonerimus, Yes there is a double taxation treaty, and as I said at the top I am not UK resident for tax.
OK what county are we talking about. I ask as it's vital to you taxation. As an example if you were living in Thailand that treaty has no provision for pensions so your UK SIPP withdrawals would be fully taxed in the UK. The treatment of UK sourced GIA dividends and gains and the ISA will also be dictated by the treaty and UK and country of residence local taxation.“So we beat on, boats against the current, borne back ceaselessly into the past.”0 -
bostonerimus wrote: »OK what county are we talking about. I ask as it's vital to you taxation. As an example if you were living in Thailand that treaty has no provision for pensions so your UK SIPP withdrawals would be fully taxed in the UK. The treatment of UK sourced GIA dividends and gains and the ISA will also be dictated by the treaty and UK and country of residence local taxation.
He still gets his personal tax allowance if he still holds a UK passport I think.0 -
Yes, local tax laws will apply. He/she will have to apply for the UK tax allowance on HMRC form R43, and if the level of UK income and gains can be kept below the thresholds there'll be no UK tax just using domestic law, but if there is a treaty in place that might not be necessary.He still gets his personal tax allowance if he still holds a UK passport I think.“So we beat on, boats against the current, borne back ceaselessly into the past.”0
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