The Lemon Fool

For a 53 year old are there any major downsides to moving savings from ISAs into a SIPP? The rationale for doing so is that pensions are untaxed in many countries where as ISAs have no special status and I am concerned about tax liability having moved abroad.

From recollection I won't have access to the funds until I turn 55 but that is not a problem. So are there any other gotchas, like limitations on the types assets that can be held? Are there limits on how much can be contributed in a single year? For the past few years I've been adding £2880 and benefitting from the 25% uplift.

TIA

GS

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.

GoSeigen wrote:For a 53 year old are there any major downsides to moving savings from ISAs into a SIPP? The rationale for doing so is that pensions are untaxed in many countries where as ISAs have no special status and I am concerned about tax liability having moved abroad.

From recollection I won't have access to the funds until I turn 55 but that is not a problem. So are there any other gotchas, like limitations on the types assets that can be held? Are there limits on how much can be contributed in a single year? For the past few years I've been adding £2880 and benefitting from the 25% uplift.

TIA

GS

I made the same decision at about the same age, I'm now 59.
There are no Major "gotcha's".
Pension limits (SIPP + contributions to company scheme) are the lesser of your salary or £40k GROSS. If you earn more than £40k it may be possible to use some of the unused contributions from the previous couple of years. If you earn less than £40k you can't, as you can only use previous allowance once you have used the current years allowance and you don't have enough to do so.

Minor mistakes that I made are.
I contributed more to my SIPP than to my company scheme. This was a mistake because being salary sacrifice I would have benefited more doing the reverse.
I didn't think to actually transfer funds from my ISA to my SIPP, gaining tax advantages, until this month.

Other things to note:

The tax situation of income and pensions is not simple or common. Standard rate tax payers may see small benefit if they remain standard rate tax payers when they claim pension. Will be disadvantaged if they become higher rate tax payers as a pensioner. I intend 5 years as a zero rate tax payer, so easily benefit from contributing the most that I can to my pension at the moment.

BullDog wrote: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.

Gerry557 wrote:

BullDog wrote: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.

If you put £10k into a pension during each of the last three years, you carry over 3 x £30k or £90k to the current year. So this year you would have a total contribution of £130k available. Note that these numbers are gross contributions and for each of the three years carried forward you would have to have earned what you want to contribute*. Again, the devil is in the detail and that's a layperson saying what I understand the case to be.

* Company directors who have their contributions paid by the company don't need to have earned anything as long as it's company pension contributions which attract corporation tax relief rather than income tax relief. That's how I funded my SIPP.

But the OP has moved abroad and if he is now tax resident abroad what matters is the level of allowable pension contributions in that country, not the UK rules? ie the flip side of ISAs having no separate tax status in his present country of residence.

GoSeigen wrote:For a 53 year old are there any major downsides to moving savings from ISAs into a SIPP? The rationale for doing so is that pensions are untaxed in many countries where as ISAs have no special status and I am concerned about tax liability having moved abroad.

From recollection I won't have access to the funds until I turn 55 but that is not a problem. So are there any other gotchas, like limitations on the types assets that can be held? Are there limits on how much can be contributed in a single year? For the past few years I've been adding £2880 and benefitting from the 25% uplift.

TIA

GS

Lifetime allowance.
Also, I think the age of access has moved up to 56 or 57 now

scrumpyjack wrote:But the OP has moved abroad and if he is now tax resident abroad what matters is the level of allowable pension contributions in that country, not the UK rules? ie the flip side of ISAs having no separate tax status in his present country of residence.

I wasn't sure if OP has already moved or is planning to move. If already moved OP can contribute for five years after moving as far as I am aware. Yes, already being abroad adds a whole new level of complications.

TUK020 wrote:

GoSeigen wrote:For a 53 year old are there any major downsides to moving savings from ISAs into a SIPP? The rationale for doing so is that pensions are untaxed in many countries where as ISAs have no special status and I am concerned about tax liability having moved abroad.

From recollection I won't have access to the funds until I turn 55 but that is not a problem. So are there any other gotchas, like limitations on the types assets that can be held? Are there limits on how much can be contributed in a single year? For the past few years I've been adding £2880 and benefitting from the 25% uplift.

TIA

GS

Lifetime allowance.
Also, I think the age of access has moved up to 56 or 57 now

But LTA doesn't stop anyone contributing, it just subjects them to punitive taxation.

BullDog wrote:

TUK020 wrote:

GoSeigen wrote:For a 53 year old are there any major downsides to moving savings from ISAs into a SIPP? The rationale for doing so is that pensions are untaxed in many countries where as ISAs have no special status and I am concerned about tax liability having moved abroad.

From recollection I won't have access to the funds until I turn 55 but that is not a problem. So are there any other gotchas, like limitations on the types assets that can be held? Are there limits on how much can be contributed in a single year? For the past few years I've been adding £2880 and benefitting from the 25% uplift.

TIA

GS

Lifetime allowance.
Also, I think the age of access has moved up to 56 or 57 now

But LTA doesn't stop anyone contributing, it just subjects them to punitive taxation.

Agreed, but the purpose of a SIPP is either:
- arbitrage on your tax rate now vs your tax rate later
- or a wager that the government won't change the IHT exemptions of pensions while your money is locked up.

LTA punitive tax rates on withdrawal kind of defeat the whole point.

Does the LTA still apply if you are not tax resident in the UK. I would have thought not?

scrumpyjack wrote:Does the LTA still apply if you are not tax resident in the UK. I would have thought not?

Good question and probably depends on the dual tax treaty between UK and the other country.

Gerry557 wrote:

BullDog wrote: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.

As you phrase it no you couldn't.

You could put £3.6k GROSS in. Assuming that you are UK resident.

The rule is the sum of the previous years unused allowances, AFTER you have maxed this years allowance.

If you were still working and earned £30kpa, then you could put £30k in, because you couldn't reach the £40k maximum.

If working and earning £41k, but not having maxed previous years contributions, than as I read the rules, you could use them. But it would only be 3x last years unused allowance if the unused allowance was the same for each of the other years. For example if you are a freelancer and two years ago you earned £30k, but earned £39k last year, then clearly the unused allowance for last year doesn't relate to the unused allowance for two years ago.

It's complicated and significantly benefits those with incomes over £40k, but the rules are what they are.

BullDog wrote:

Gerry557 wrote:

BullDog wrote: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.

If you put £10k into a pension during each of the last three years, you carry over 3 x £30k or £90k to the current year. So this year you would have a total contribution of £130k available. Note that these numbers are gross contributions and for each of the three years carried forward you would have to have earned what you want to contribute*. Again, the devil is in the detail and that's a layperson saying what I understand the case to be.

The devil's details, including a calculator: https://www.gov.uk/guidance/check-if-you-have-unused-annual-allowances-on-your-pension-savings

The even less readable devil's details (HMRC internal manual): https://www.gov.uk/hmrc-internal-manuals/pensions-tax-manual/ptm055100

The most readable, if less detailed: https://www.moneyhelper.org.uk/en/pensions-and-retirement/tax-and-pensions/carry-forward

Urbandreamer wrote:

Gerry557 wrote:

BullDog wrote: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.

As you phrase it no you couldn't.

You could put £3.6k GROSS in. Assuming that you are UK resident.

The rule is the sum of the previous years unused allowances, AFTER you have maxed this years allowance.

If you were still working and earned £30kpa, then you could put £30k in, because you couldn't reach the £40k maximum.

If working and earning £41k, but not having maxed previous years contributions, than as I read the rules, you could use them. But it would only be 3x last years unused allowance if the unused allowance was the same for each of the other years. For example if you are a freelancer and two years ago you earned £30k, but earned £39k last year, then clearly the unused allowance for last year doesn't relate to the unused allowance for two years ago.

It's complicated and significantly benefits those with incomes over £40k, but the rules are what they are.

If you earned £41k this year then you would only be able to use up £1k of your carried forward allowance - the maximum you can contribute each year and get tax relief on contributions is your gross relevant earnings this year - in this case £41k. If you had unused allowances of £30k each year for the last 3 years you would have to earn £130k ( 3 * 30 + 40) this year to fully use up those unused allowances. If you earn more than £40k but not enough to fully use up the unused allowances then your contributions over £40k will use up the unused allowance starting with those for the oldest year and then moving onto newer years in order - leaving any still unused allowances available to be used up in later years though any still left for the oldest year will no longer be available then since it will then be more than three years ago.

Also if you do need to spread using up the unused allowances over a number of years and are so close to being able to take the pension ( still age 55 until 2028 ) then watch out for the MPAA. This will both reduce the amount you can contribute to a DC pension to £4k per year and stop the use of carry-forward to use up those unused allowances if you take out anything more than the tax free lump sum from any money purchase (DC) scheme.

https://www.moneyhelper.org.uk/en/pensions-and-retirement/tax-and-pensions/money-purchase-annual-allowance-mpaa

There is a system for uplifting, significantly, the LTA for non UK residents

https://aeswealthadviser.com/post/the-n ... r-pension/

so I guess this means the LTA system does apply to UK pension assets where the individual is no longer resident, and as the assets will be under a UK trustee the charge will be enforceable

Gerry557 wrote:

BullDog wrote: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

TUK020 wrote:

GoSeigen wrote:For a 53 year old are there any major downsides to moving savings from ISAs into a SIPP? The rationale for doing so is that pensions are untaxed in many countries where as ISAs have no special status and I am concerned about tax liability having moved abroad.

From recollection I won't have access to the funds until I turn 55 but that is not a problem. So are there any other gotchas, like limitations on the types assets that can be held? Are there limits on how much can be contributed in a single year? For the past few years I've been adding £2880 and benefitting from the 25% uplift.

TIA

GS

Lifetime allowance.
Also, I think the age of access has moved up to 56 or 57 now

Thanks TUK020. If the LTA is just over £1m per person then that won't be a problem. I can live with waiting a couple of years for access.

GS

GoSeigen wrote:

Gerry557 wrote:

BullDog wrote: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.

BullDog wrote:

GoSeigen wrote:

Gerry557 wrote:

BullDog wrote: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).