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Is It Worth Me Setting Up and Managing a SIPP?

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Is It Worth Me Setting Up and Managing a SIPP?

#125834

Postby Investor » March 18th, 2018, 7:09 pm

I have got a large sum invested in companies as shares and receive my income exclusively as dividends.

As I am technically classified by HMRC as a 'non-earner' (as I don't pay income tax, but tax on my dividend earnings) I understand unfortunately the maximum I can contribute is £2,880pa into a SIPP.

I'm 48 years old now. Is it worth all the hassle (and costs) of setting everything up and managing it every year for the relatively minor tax benefits I'll get for my annual £2,880 contributions?

Anybody got any insights into the specific amount of time it takes to do all the steps to add money into a SIPP every year and do all the related adminstration such as reporting it to HMRC, paying the SIPP provider etc.? I'm just trying to work out if it's worth me handling all the headache for just a few hundred pounds benefit per annum.

Advice welcome please.

I always max out my ISA allowance so can't shift the £2,880 there.

Thank you.

Alaric
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Re: Is It Worth Me Setting Up and Managing a SIPP?

#125835

Postby Alaric » March 18th, 2018, 7:15 pm

Investor wrote:Anybody got any insights into the specific amount of time it takes to do all the steps to add money into a SIPP every year and do all the related adminstration such as reporting it to HMRC, paying the SIPP provider etc.? I'm just trying to work out if it's worth me handling all the headache for just a few hundred pounds benefit per annum.


If you are familiar with ISAs, SIPPs aren't really any different with the major providers. That's my experience with TD Direct (now interactive investor). The annual fees are higher than with ISAs, but for example paying the annual £ 2880 takes as long as transferring it from a dealing account with a mouse click or two. You get the slight nuisance that it will be a couple of months before the tax relief shows up and you may have to maintain a sufficient cash float to be able to pay the fees when demanded. That isn't necessarily any different from managing an ISA or dealing account.

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Re: Is It Worth Me Setting Up and Managing a SIPP?

#125864

Postby 77ss » March 18th, 2018, 11:19 pm

Investor wrote:I have got a large sum invested in companies as shares and receive my income exclusively as dividends.

As I am technically classified by HMRC as a 'non-earner' (as I don't pay income tax, but tax on my dividend earnings) I understand unfortunately the maximum I can contribute is £2,880pa into a SIPP.

I'm 48 years old now. Is it worth all the hassle (and costs) of setting everything up and managing it every year for the relatively minor tax benefits I'll get for my annual £2,880 contributions?

Anybody got any insights into the specific amount of time it takes to do all the steps to add money into a SIPP every year and do all the related adminstration such as reporting it to HMRC, paying the SIPP provider etc.? I'm just trying to work out if it's worth me handling all the headache for just a few hundred pounds benefit per annum.

Advice welcome please.

I always max out my ISA allowance so can't shift the £2,880 there.

Thank you.


Setting up the SIPP may be a bit of a chore, but once that is done, management and adding the annual £2,880 are totally trivial matters. Transfer funds each tax year from your bank account to your provider, wait a month or two for the £720 tax benefit to arrive in your account, and then invest the £3,600 as you see fit (plus any dividends accrued as the years pass). I don't report anything to HMRC - that is handled by my provider.

At age 48, reasonable life expectancy and sufficient deployable funds, you could do this for the next 26-27 years. Total tax benefit under current rules would add up to about £19,000. In practice, I should think it worth significantly more given average fortune with your investments - doubtless others have done the number crunching.

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Re: Is It Worth Me Setting Up and Managing a SIPP?

#125873

Postby vrdiver » March 19th, 2018, 1:33 am

If you pay in £2880 (as a non tax payer) you could then withdraw £3600 as soon as the tax has been credited to your account (usually about a month, depending on the provider). Check the Ts & Cs of your chosen SIPP provider (e.g. do you need to leave a minimum sum in to keep the SIPP open etc.) but assuming you can run the SIPP with £10 residue for the rest of the year, then you can earn £720 (less fees) for about 5 minutes work a year.

If you route your regular dividends through the SIPP like this, it's a nice bonus.

If you are looking to minimise IHT, it's worth noting that the SIPP is outside of your estate for tax purposes, so you could instead choose to keep putting £2880 into it each year (and get the tax relief) year after year, just make sure your SIPP trustees have your nomination form for who to leave it to). The beneficiary could then take it as cash or keep it inside the SIPP wrapper...

VRD

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Re: Is It Worth Me Setting Up and Managing a SIPP?

#125891

Postby JohnB » March 19th, 2018, 7:59 am

@VRD if OP is 48, he'd not be able to do the pay in/withdraw gig for 9 years.

I'd go for the SIPP, but find a %age fee provider, not a flat fee one.

BTW, have you considered p2p lending? If your only income is dividends, even if they are a lot, they don't stop you getting the Starting Rate for Savings £5k allowance, so you can get £5k+£1k of interest without paying tax on it (the wording on HMRC website is confusing on this, but that's what happens when you do a SA return)

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Re: Is It Worth Me Setting Up and Managing a SIPP?

#125937

Postby Urbandreamer » March 19th, 2018, 10:52 am

Investor wrote:I'm 48 years old now. Is it worth all the hassle (and costs) of setting everything up and managing it every year for the relatively minor tax benefits I'll get for my annual £2,880 contributions?


Well it depends how "minor" you regard the total tax benefits.

Not only do you get a free uplift on the investment but you can also pass the money on tax free when you eventually die.

Of course if you intend leaving everything to the local cats home then IHT will not be a consideration. However if you do wish to leave your wealth to family then I suspect they might face a IHT bill.

If you continue contributing until you are 75 you can move over £100k out of your estate for IHT purposes.

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Re: Is It Worth Me Setting Up and Managing a SIPP?

#125948

Postby Investor » March 19th, 2018, 11:58 am

Thanks for the VERY handy advice and suggestions. You guys are geniuses.

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Re: Is It Worth Me Setting Up and Managing a SIPP?

#125951

Postby Investor » March 19th, 2018, 12:02 pm

JohnB wrote:BTW, have you considered p2p lending? If your only income is dividends, even if they are a lot, they don't stop you getting the Starting Rate for Savings £5k allowance, so you can get £5k+£1k of interest without paying tax on it (the wording on HMRC website is confusing on this, but that's what happens when you do a SA return)


Thank you. This is interesting.

I'm aware of the £1k of interest you can earn without paying tax on it.

I'm curious to know about the £5k you refer to please? I've tried Googling it, but no joy. Is this £5k of interest you can make without tax and different from the income or dividend tax bands? Any info on it online?

Thanks a lot.

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Re: Is It Worth Me Setting Up and Managing a SIPP?

#125953

Postby swill453 » March 19th, 2018, 12:04 pm

If by the time you take benefits from the SIPP you are a basic rate taxpayer, then the benefit you get from the £2880 net / £3600 gross contribution is only £180. This being the tax saved on the 25% tax free element.

Still worth doing in my opinion for the minimal effort required.

Scott.

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Re: Is It Worth Me Setting Up and Managing a SIPP?

#125957

Postby DrBunsenHoneydew » March 19th, 2018, 12:10 pm

Investor wrote:
JohnB wrote:BTW, have you considered p2p lending? If your only income is dividends, even if they are a lot, they don't stop you getting the Starting Rate for Savings £5k allowance, so you can get £5k+£1k of interest without paying tax on it (the wording on HMRC website is confusing on this, but that's what happens when you do a SA return)


Thank you. This is interesting.

I'm aware of the £1k of interest you can earn without paying tax on it.

I'm curious to know about the £5k you refer to please? I've tried Googling it, but no joy. Is this £5k of interest you can make without tax and different from the income or dividend tax bands? Any info on it online?

Thanks a lot.

Think of the 20% band as being in 2 parts:
A) The first £5000: which is taxed at 20% normally, but the rate on non-dividend savings income up to £5,000 is 0% where taxable non-savings income does not exceed £5,000.
B) The remainder of the 20% band: from £5001 to £33500 (£34500 in 2018/19).

[Scottish income tax and rate bands apply to earned, pensions and property income of Scottish taxpayers. UK income tax rates and bands apply for other income, including savings and dividend income, of Scottish taxpayers.]

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Re: Is It Worth Me Setting Up and Managing a SIPP?

#125974

Postby JohnB » March 19th, 2018, 12:39 pm

See viewtopic.php?f=49&t=7455 for a lot of gory detail on my SRS experience Note that the "taxable non savings income" doesn't include dividends. I never got to test the HRT threshold end though

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Re: Is It Worth Me Setting Up and Managing a SIPP?

#125980

Postby Investor » March 19th, 2018, 12:45 pm

Thank you very much.

That thread is quite something! After reading a few of the posts my brain began to frazzle.

Also, thank you for explaining the 20% tax band intricacies. I'm a tad confused in terms of how it works in a real world situation and who decides whether the interest is taxable or not, as the 20% tax band - or in my case the equivalent dividend tax band (as I only have dividend incomes) - have already been "used up" with the income from my dividend earnings.

I don't know why The Powers That Be couldn't make things simpler!

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Re: Is It Worth Me Setting Up and Managing a SIPP?

#126149

Postby mearnsfool » March 19th, 2018, 8:42 pm

Because there are a lot of people trying to take advantage of any tax break they can get and there are large accounting companies assisting with this on an industrial scale to get their clients tax breaks that were not designed for them.

Therefore HMRC has to be just a sly as those who try to use a tax break not designed for them to make it harder for those that try to take advantage of these non intended breaks.

Like a year or so ago agencies and labour only construction contractors were forcing their PAYE employees to form a limited company and enroll in the flat rate VAT scheme when these people were running a company on paper only, they were trained by the contractor, using the contracts equipment and working just as they had before while on PAYE. This was to save large business money they should be paying.

HMRC was getting thousands of limited companies formed by the same financial concerns and a similar amount of these limited companies registering for the flat rate VAT scheme on a weekly basis.

Therefore HMRC virtually stopped the flat rate VAT scheme, brought in and then reduced the dividend allowance £5k to £2k to stop limited company directors like myself playing the dividend game against paying NI.

In a similar manner they reduced the money purchase pension contributions to £4,000 a year for those in receipt of taxable payments form money purchase pensions. After again pensions were set up for short term gain rather than to an extent taking people off future longer term benefit payments in retirement.

It seems to me that HMRC may well have to look at these tax free interest advantages because it may well be that people other than the proverbial poor maiden aunt who is supposed to be helped by these breaks and is helped while others in possibly a better situation also get the benefit.

As always an easy tax break here is someone else tax payment. Yes I'm more than interested in using legal tax breaks but not unhappy when a silly door left open is closed in my face.

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Re: Is It Worth Me Setting Up and Managing a SIPP?

#126153

Postby JohnB » March 19th, 2018, 8:49 pm

I always thought pension recycling was a bit of a cheek. Once you start drawing a pension, you shouldn't be able to pay into it again and get more tax relief. I know there is an argument about intermittent retirement, but I felt it was being abused.

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Re: Is It Worth Me Setting Up and Managing a SIPP?

#127242

Postby BusyBumbleBee » March 22nd, 2018, 5:59 pm

The answer to your question is : yes it is most certainly worth while setting up a SIPP

If you set it up now - before the end of this tax year you can make several contributions within the next fortnight - giving a decent sum to start off with - because a) you can contribute for this year, b) you can contribute in the next tax year on 6th April and c) you can contribute for one or more preceding years (check with your provider). So you can contribute a minimum of £8,640 which will be topped up by government to £10,800 in June.

Setting up a SIPP is easy with one of the main providers particularly if you are already a customer for something else like an ISA. I usually use YouInvest aka SippDeal for my grandchildren and they are quite cheap and very efficient.

Good Luck.

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Re: Is It Worth Me Setting Up and Managing a SIPP?

#127268

Postby PinkDalek » March 22nd, 2018, 7:09 pm

BusyBumbleBee wrote:c) you can contribute for one or more preceding years


Is this possible if the SIPP (or another pension scheme) wasn't in existence in those preceding years?

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Re: Is It Worth Me Setting Up and Managing a SIPP?

#127449

Postby BusyBumbleBee » March 23rd, 2018, 10:26 am

Well, PinkDalek , I cannot really answer your specific question but I can't see why not. All I can say is that I have been flush with cash some years and not so in others and have done this several times over the years with both mine and my wife's SIPPs since I retired. It sounds as though you should ask the question of a SIPP provider -

If you go to https://www.youinvest.co.uk/ and scroll to the bottom of the home page you will find a web-chat link on the right hand size of the page. You can ask the question there and inform us all.

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Re: Is It Worth Me Setting Up and Managing a SIPP?

#127558

Postby ursaminortaur » March 23rd, 2018, 3:02 pm

PinkDalek wrote:
BusyBumbleBee wrote:c) you can contribute for one or more preceding years


Is this possible if the SIPP (or another pension scheme) wasn't in existence in those preceding years?


To make use of the carry forward rules you must have been a member of a pension scheme during the year whose unused allowance you wish to carry forward.
With carry forward you have to first use up the current year's annual allowance before carrying forward any previous unused allowances and your earnings in the current year have to be equal or greater than the current year's annual allowance and any amounts you carry forward.
This means that to make use of carry forward you have to have earned at least £40,000 in the current year hence carry forward cannot be used if you have no relevant earnings.

https://www.dentonspensions.co.uk/Technical-info/Contributions/Carry-forward/

This means that any unused Annual Allowance from the previous three tax years to the current year can be carried forward. However, the full allowance for the current year must be used first. Unused allowance will be taken from the earliest year in which there is unused annual allowance.
HMRC has clarified that clients must be either an active member, a pension member, a deferred member or a pension credit member of a pension scheme for the year they wish to 'carry forward' their unused allowance.

Tax relief on contributions is only granted in the year in which carry forward contributions are paid and must be supported by earnings.
In addition, clients must have earned taxable income to justify the full personal contribution in the year in which it is made.


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