ISA to SIPP

[GoSeigen]

Anything, apart from the tax free lump sum, you subsequently take out of the Sipp (or your beneficiaries take out if you live to be more than 75) will taxed at your marginal rate so you will lose out if it hadn't got tax relief when going in.

Okay, sorry, I was being thick. So the whole point of the tax rebate is that you don't pay the tax on the contribution now, you pay it later. And you only get the rebate if you contribute income that would have been taxed. Okay, got it.

So apart from the £2880 I've been putting in I'd lose out compared to an ISA if I contributed any more (given that I pay no income tax)?


GS

[ursaminortaur]

Anything, apart from the tax free lump sum, you subsequently take out of the Sipp (or your beneficiaries take out if you live to be more than 75) will taxed at your marginal rate so you will lose out if it hadn't got tax relief when going in.

Okay, sorry, I was being thick. So the whole point of the tax rebate is that you don't pay the tax on the contribution now, you pay it later. And you only get the rebate if you contribute income that would have been taxed. Okay, got it.

So apart from the £2880 I've been putting in I'd lose out compared to an ISA if I contributed any more (given that I pay no income tax)?


GS

Although other countries might treat what happens within the Sipp as a blackbox and have no interest in taxing what happens inside it that changes once you start taking money out and it then becomes fair game for taxation just being seen as income. So yes if you contribute more than the £2880 which gets 20% tax relief by contributing money without getting tax relief then you will likely lose out when it is taxed when you withdraw it. How much you lose out will likely depend upon tax rates and thresholds in your country of residence (I'm not sure whether UK Sipp providers pay pensions gross to foreign residents or whether they take off basic rate UK income tax and then you have to either pay more or reclaim some if the tax rates are higher or lower in your country of residence). And as I said before if you try to minimise that tax by not taking much out but leave it to your beneficiaries then they will have to pay tax if they are UK residents if you die after age 75 ( and may have to pay tax even if you die earlier if they are resident in another country and subject to that country's tax laws).

[BullDog]

You can pay the lower £40,000 or your earnings into a pension each year and gain tax relief on the contribution. You can carry forward 3 years of allowance if you had a pension plan running in those years. The devil is in the detail (minimum wage etc) but that's essentially the contribution rules.

Is that x3 previous years of unused allowance. So could put a lump sum in a sipp if you have stopped work.

Ok sorry, should have made this clear. Not working now, so I haven't an income as such. Everything we need is funded from investments.

So am I going to have limited options to put in a lump sum? I don't need the tax relief, the aim would be to shield it from taxation but if non-residents have to pay tax on transactions within their pensions that is not looking so clever either...

Oh dear, might need to do a bit of study here.

GS

How your tax works might be complicated by being tax resident in more than one jurisdiction concurrently. I have been tax resident in as many as three jurisdictions at the same time, UK and two others. It gets fiendishly complex very quickly.

Anything, apart from the tax free lump sum, you subsequently take out of the Sipp (or your beneficiaries take out if you live to be more than 75) will taxed at your marginal rate so you will lose out if it hadn't got tax relief when going in. As far as tax on transactions within the Sipp I don't think that will a problem as most countries accept foreign pensions as being pensions and respect that they are tax wrappers and that dividends, income and capital gains within those pensions are not their concern (unlike the position with ISAs where most other countries do not accept that they are tax wrappers with respect to their tax system).

To be sure what the position is versus the destination country and the UK, it's essential to refer to the UK and that country's dual tax treaty. For example, I recently read a case in the press where a UK born individual who was tax resident in Spain and was being taxed in Spain on the 25% tax free lump sum. Because in Spain the authorities tax you on worldwide income and does not recognise the UK's tax concession for pension commencement lump sums. Nothing could be done about it, the tax was due in Spain and had to be paid. I think that's a pretty widespread policy actually. As ever, the devil is truly in the detail.

[Gerry557]

Thanks for all the info, it's more complicated than I thought. I might have to invest a bit more time