Taking the 25% tax free lump sum from an IWeb SIPP

[swill453]

Yeah, I can understand that for "regular" income, but for a one-off it may be different. I guess I'll just have to ask and see what they say.

I've got a saved copy of a form I filled in for AJBell in 2021, which is for (among other things) taking a tax free lump sum only. It contains the note:

"I hereby request and consent to the payment(s) from my SIPP as set out in this form and agree that:
a. It is my responsibility to ensure that there is sufficient cash within my SIPP to cover payments as they fall due."

The form may have changed since then, but I doubt if the responsibilities have.

Scott.

[BigB]

More like the latter. I'm not aware of SIPP providers selling holdings to realise cash for withdrawal.

Scott.

Are you aware of any that will refuse to do so if you specifically asked them to do that for the TFLS?

Thinking back over the series of events, and the careful prelim email exchange (auditable), I would expect that they would follow such a request if clearly made - to sell from x first to generate enough cash. They do already cover themselves to sell when fees are due and there is insufficient cash balance in the relevant account.

[mc2fool]

Are you aware of any that will refuse to do so if you specifically asked them to do that for the TFLS?

Thinking back over the series of events, and the careful prelim email exchange (auditable), I would expect that they would follow such a request if clearly made - to sell from x first to generate enough cash. They do already cover themselves to sell when fees are due and there is insufficient cash balance in the relevant account.

Indeed, although I did ask IWeb when I first opened the SIPP if they wouldn't, instead of flogging holdings off to cover fees (as per their T&C), whether they wouldn't look to take cash out of my trading account first instead, and they said no, they can't do that as all fees for the SIPP must come from the SIPP, but they also said that what usually happens in the first instance is that they just let the account balance go negative and drop the overdrawn customer a "sort it out" letter.

I've never tested it.

[kempiejon]

Indeed, although I did ask IWeb when I first opened the SIPP if they wouldn't, instead of flogging holdings off to cover fees (as per their T&C), whether they wouldn't look to take cash out of my trading account first instead, and they said no, they can't do that as all fees for the SIPP must come from the SIPP, but they also said that what usually happens in the first instance is that they just let the account balance go negative and drop the overdrawn customer a "sort it out" letter.

I've never tested it.

AJ Bell let me do that. In fact I noticed I had gone overdrawn before they sent me a note. I contacted them to say I was expecting a dividend in a few days and rather than have them sell any of my shares would they hold off for a few days and the dividend would put the account back into credit. They got back in touch saying that would be fine.

Re charges must be taken from the SIPP for the SIPP; I'm pretty sure that HL have option that fees can be taken from a dealing account, only I don't have one.

[swill453]

I think I'd be happier with the selling of shares being under my control. If the process takes a number of days, and the price of the shares falls in the meantime, there won't be an opportunity to delay the sale or change ones mind and sell something else instead.

Scott.

[mc2fool]

I think I'd be happier with the selling of shares being under my control. If the process takes a number of days, and the price of the shares falls in the meantime, there won't be an opportunity to delay the sale or change ones mind and sell something else instead.

Scott.

Yes, but that risks on the one hand the value of the SIPP going up between when you sell and they get round to actioning your TFLS withdrawal, with the result that you get, say, 24.3% rather than 25%, or on the other hand the value of the SIPP going down and you having more than 25% in cash and so ending up with left over money that you then need to reinvest (at a cost of dealing fees, stamp duty, etc).

So I was thinking more along the lines of getting close-ish to the 25% under my control and asking them to, if it wasn't quite there, top up to the 25% by flogging off enough of something to get there. Something like that, anyway ...

Or .... wait .... can you ask them to just crystallise the whole pot and let you know the crystallised amount, and then just sell off whatever you want after that to take out the 25% TFLS?

[swill453]

Or .... wait .... can you ask them to just crystallise the whole pot and let you know the crystallised amount, and then just sell off whatever you want after that to take out the 25% TFLS?

No, the act of crystallisation includes giving you the 25% TFLS in cash.

EDIT: In my experience it hasn't been an issue for me, as I always have dividends being added that will eventually have to be reinvested if not withdrawn. So overshooting the amount for the TFLS isn't a problem. I recognise it may be different for other people though.

Scott.

[mc2fool]

Or .... wait .... can you ask them to just crystallise the whole pot and let you know the crystallised amount, and then just sell off whatever you want after that to take out the 25% TFLS?

No, the act of crystallisation includes giving you the 25% TFLS in cash.

EDIT: In my experience it hasn't been an issue for me, as I always have dividends being added that will eventually have to be reinvested if not withdrawn. So overshooting the amount for the TFLS isn't a problem. I recognise it may be different for other people though.

Scott.

Yeah, my SIPP is totally ACC funds and ETFs...

[SebsCat]

Re charges must be taken from the SIPP for the SIPP; I'm pretty sure that HL have option that fees can be taken from a dealing account, only I don't have one.

IIRC, HL will also allow fees to be paid by direct debit (or was that Barclays? I might be getting them mixed up!). But it doesn't cost anything to hold cash in a HL Fund & Shares account so you could open one just for the purpose of paying fees from outside the SIPP. AJ Bell also allow SIPP fees to be paid from a dealing account.

[mc2fool]

Or .... wait .... can you ask them to just crystallise the whole pot and let you know the crystallised amount, and then just sell off whatever you want after that to take out the 25% TFLS?

No, the act of crystallisation includes giving you the 25% TFLS in cash.

So, thinking about another angle, it sounds like crystallisation necessarily results in them giving you the 25% TFLS in cash, yes? But can you do a partial crystallisation if you don't want 25% of the full SIPP's value up front?

E.g. if your to-date-untouched SIPP is worth, say, £300K can you do a 40% crystallisation, £120K, in order to get £30K (25%) out tax free? And the remaining 60% remains uncrystallised?

Pension commencement lump sum sounds binary, either it's commenced or it hasn't, or is it possible (unlike pregnancy) to be "a little" commenced?

[SebsCat]

No, the act of crystallisation includes giving you the 25% TFLS in cash.

So, thinking about another angle, it sounds like crystallisation necessarily results in them giving you the 25% TFLS in cash, yes? But can you do a partial crystallisation if you don't want 25% of the full SIPP's value up front?

E.g. if your to-date-untouched SIPP is worth, say, £300K can you do a 40% crystallisation, £120K, in order to get £30K (25%) out tax free? And the remaining 60% remains uncrystallised?

Pension commencement lump sum sounds binary, either it's commenced or it hasn't, or is it possible (unlike pregnancy) to be "a little" commenced?

Exactly what you can do depends on what the SIPP provider offers. They have to abide by the law (naturally) but they don't have to offer complete flexibility. If your provider doesn't offer the flexibility you want then you can transfer it to one which does.

As far as the legal options go, you can:
- crystallise some or all of your SIPP
- of the amount crystallised, you can take anything from nothing up to 25% tax free up to £268,275 (cumulative maximum of all tax-free PCLS)

So you could crystallise 10% of your total SIPP and take 25% of that tax free (ie 2.5% of the total). Or Crystallise 10% and take none of it tax free if you really wanted to. Or somewhere between the two although it's hard to think of any scenario where it doesn't make sense to take the full 25% of the crystallised amount as tax free as long as it doesn't exceed the £268,275 total.

What you cannot legally do (and hence no provider will offer it) is to, eg, crystallise 10% now and take 25% of that at some later date - it's either take the tax free element immediately or forego it forever. That said, with SIPPS sufficiently over the old LTA of £1,073,100 it still isn't a binary choice since the excess might still allow you to claim the full £268,275 tax-free PCLS when you crystallise other amounts at a later date.

The only practical experience of this I have is with AJ Bell where you (a) decide how much you want to crystallise and (b) how much of the possible 25% you wish to withdraw as a tax-free lump sum.

[mc2fool]

As far as the legal options go, you can:
- crystallise some or all of your SIPP
- of the amount crystallised, you can take anything from nothing up to 25% tax free up to £268,275 (cumulative maximum of all tax-free PCLS)

So you could crystallise 10% of your total SIPP and take 25% of that tax free (ie 2.5% of the total). Or Crystallise 10% and take none of it tax free if you really wanted to. Or somewhere between the two although it's hard to think of any scenario where it doesn't make sense to take the full 25% of the crystallised amount as tax free as long as it doesn't exceed the £268,275 total.

What you cannot legally do (and hence no provider will offer it) is to, eg, crystallise 10% now and take 25% of that at some later date - it's either take the tax free element immediately or forego it forever.

Ok, thanks, it's good to know that if you want less than 25% of the full SIPP value you can do a partial crystallisation and take 25% tax free of that. Presumably you could then do further partial crystallisations, withdrawing just 25% tax free of each one, until you've crystallised the lot.

The take (all of) the 25% immediately each time or forego it is a little strange, and I take it you mean that it's the tax-freeness of the amount you don't take that's lost, not the amount itself (!) and, like you, I can't quite see why anyone would do that, or indeed why that option even exists. It's a little bit of a shame 'cos, as crystallising seems to be a bit bureaucratic and take a while, it means you can't do the paperwork in advance on a to be ready for when I want it basis, and then draw out the tax free amount at your need and leisure afterwards, but ho-hum, c'est la vie....

[SebsCat]

The take (all of) the 25% immediately each time or forego it is a little strange, and I take it you mean that it's the tax-freeness of the amount you don't take that's lost, not the amount itself (!) and, like you, I can't quite see why anyone would do that, or indeed why that option even exists. It's a little bit of a shame 'cos, as crystallising seems to be a bit bureaucratic and take a while, it means you can't do the paperwork in advance on a to be ready for when I want it basis, and then draw out the tax free amount at your need and leisure afterwards, but ho-hum, c'est la vie....

Yes, sorry for being unclear! You can take 25% tax-free with the rest left as crystallised funds or you could take no PCLS and have 100% of the amount as crystallised funds. It's only the tax-free withdrawal that is lost.

The option makes sense for DB pensions where the PCLS can be exchanged for additional pension at rates significantly better than available in the market. It would be perverse not to allow SIPPs the same option, even if there are few cases where it might make sense.

[SteelCamel]

The take (all of) the 25% immediately each time or forego it is a little strange, and I take it you mean that it's the tax-freeness of the amount you don't take that's lost, not the amount itself (!) and, like you, I can't quite see why anyone would do that, or indeed why that option even exists. It's a little bit of a shame 'cos, as crystallising seems to be a bit bureaucratic and take a while, it means you can't do the paperwork in advance on a to be ready for when I want it basis, and then draw out the tax free amount at your need and leisure afterwards, but ho-hum, c'est la vie....

Yes, if you don't take the full 25% tax free lump sum it becomes part of your crystallised funds, just like the remainder of the amount you crystallised. You can then withdraw it when you like, but it's taxed as income.

It rarely if ever makes sense to not take it all if you're looking at a SIPP, and it's much the same with any DC pension. But if you have a DB pension, or some sort of guaranteed annuity rates, you need to think about it. You're trading a lump sum now for a guaranteed regular payment later. The conversion rates aren't always good, and if you live a long time then you'll actually gain by taking the income rather than the lump sum, even after tax. The law doesn't distinguish between the types of pensions, so the option to not take the maximum still exists with DC pensions even though it's much less useful there.