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

[mc2fool]

I have a SIPP with IWeb which I've never taken anything out of and have been adding just the de minimis £2,880 to it each year. I have no relevant earnings and I still have a few years to go until I reach 75. I am well below the lifetime limit, as was.

I can live perfectly well from my other pensions and don't need any income from the SIPP, so it was always my intention and hope to leave it untouched, wishing it to charity for when I pop my clogs, but it being there in the meanwhile in case I needed it (for care home costs or similar).

Now I'm considering taking out the 25% tax free lump sum, but still hoping to leave the rest untouched, wishing it to charity, but it being there in case I need it, as before.

However, as my previous intention was to do nothing with it, I haven't previously looked into or tried to understand any of the "do something" options -- or the terminology -- and (I must admit) I've just skipped or glazed over posts related to doing anything other than nothing. So, on now trying to read up about it I just want to make sure I'm understanding properly and aren't going to fall into any gotchas.

So, if I do decide to take the 25% tax free lump sum, do I simply tell my SIPP provider that, and then everything else carries on as before?

Is it correct that to take the 25% tax free lump sum I have to enter "flexi-access drawdown", even if I don't plan to take anything else out?

And I can continue to add £2,880pa to the SIPP until I'm 75?

Is the 25% tax free lump sum a one-off event, based on the value of the SIPP when I ask for it? Or after that can I take a further 25% of any increases in the value of the SIPP from the last time?

And, some IWeb SIPP specific matters...

Am I understanding correctly that once I take the 25% tax free lump sum I'll be paying an extra £180pa, even if I don't take anything else out? * & **

And it looks like there's a bunch of hoops to jump through and it'll take 2-3 weeks, yes? ***

Anybody here with first hand experience of my situation with IWeb? (Or the Halifax stable).

Any other related advise, comments, gotchas, etc welcome! (Not including what I'll do with the 25%, that's for another time & place!)

* https://www.iweb-sharedealing.co.uk/our-accounts/self-invested-personal-pension/sipp-charges.html
** https://www.iweb-sharedealing.co.uk/assets/sipp-benefits-guide.pdf
*** https://www.iweb-sharedealing.co.uk/assets/sipp-information-on-taking-benefits.pdf

[BigB]

I/we did this a couple of years ago for my wife's Iweb SIPP when she turned 55. It took a few weeks, it was relatively simple - unsure about the technical questions on flexi-access drawdown and increased fees (maybe they would be linked) - I'll check my records for more specific detail and respond here tomorrow.

We'll be doing the same again with mine in a year or 2, but making some lump contributions first. Having done it once (and fretted about some of the admin aspects of Iweb service) I am at least a bit more comfortable with it in principle.

[DrFfybes]

AIUI, and I would love someone to correct me if I'm wrong, you "Crystallise" a chunk (or all) of it. Once done you can take 25% as a TFLS and then if you leave the rest it continues to grow, and anything you take from it is counted as taxable income. Alternatively you can take smaller amounts each year, 25% of which are tax free, and the rest taxable. The choice depends on your circumstances, the latter works for those who use it as a main income source and take (say) £16kpa out and get £4k tax free and £12k taxable, which falls within the personal allowance.

You can still continue to contribute your £2880pa which effectively goes into a separate uncrystallised pot.

No idea about the fees from iWeb though, but as it looks like I'm about to do similar with ii and/or HL so I need to get my head around it too.

One last observation, currently your SIPP falls outside your Estate for IHT (this may change), but if your Estate would be liable to IHT you could leave money from there to charity (reducing the IHT) and direct your SIPP to other beneficiaries (subject to their tax position).

Paul

[swill453]

Is the 25% tax free lump sum a one-off event, based on the value of the SIPP when I ask for it? Or after that can I take a further 25% of any increases in the value of the SIPP from the last time?

As far as the question is concerned, any growth in the value doesn't entitle you to any more tax free cash. The SIPP is 100% crystallised, and remains so.

However, if you continue to contribute £3600 gross per year, this is uncrystallised and becomes entitled to 25% tax free i.e. about £900. The exact amount will vary depending on how your investments do between depositing £2880, getting £720 tax relief and then subsequently taxing out the tax free part (should you wish to do so).

Scott.

[kempiejon]

However, if you continue to contribute £3600 gross per year, this is uncrystallised and becomes entitled to 25% tax free i.e. about £900. The exact amount will vary depending on how your investments do between depositing £2880, getting £720 tax relief and then subsequently taxing out the tax free part (should you wish to do so).

Scott or anyone else for that matter do you wait for the rebate before you take 25% of the £3600? When you've only deposited the £2880 and not got the relief yet? To avoid the vagaries of the stock market, pay in £2880, take out £900 and a couple of months later get the £720 credited?

[swill453]

However, if you continue to contribute £3600 gross per year, this is uncrystallised and becomes entitled to 25% tax free i.e. about £900. The exact amount will vary depending on how your investments do between depositing £2880, getting £720 tax relief and then subsequently taxing out the tax free part (should you wish to do so).

Scott or anyone else for that matter do you wait for the rebate before you take 25% of the £3600? When you've only deposited the £2880 and not got the relief yet? To avoid the vagaries of the stock market, pay in £2880, take out £900 and a couple of months later get the £720 credited?

If your SIPP is otherwise fully crystallised, you won't be able to take out £900 tax free having only deposited £2880. You could take out £720 then and the other £180 once the tax relief is credited, but I don't bother. The vagaries of the stockmarket on such a sum isn't a great worry to me.

Scott.

[kempiejon]

If your SIPP is otherwise fully crystallised, you won't be able to take out £900 tax free having only deposited £2880. You could take out £720 then and the other £180 once the tax relief is credited, but I don't bother. The vagaries of the stockmarket on such a sum isn't a great worry to me.

Ta, that makes sense, the crystallised bit can't be used for the 25% tax free bit.

[xxd09]

You will pay fees for “ever” if you take the Tax Free Lump Sum as Flexible Drawdown is a “change of state “ of your pension allowing you to withdraw further sums if required at future date or dates of your choosing-you of course don’t have to use this facility
xxd09

[swill453]

You will pay fees for “ever” if you take the Tax Free Lump Sum as Flexible Drawdown is a “change of state “ of your pension allowing you to withdraw further sums if required at future date or dates of your choosing-you of course don’t have to use this facility

With my provider (AJBell) you pay the same (reasonable) fee whether you're in drawdown or not.

Any actual drawdowns are fee-free.

Scott.

[fisher]

I am also with AJ Bell and don't have knowledge of the IWeb SIPP. That said, I don't see why you should have to go into flexi-access drawdown if you just want to take the 25% TFLS. All you should have to do is to crystallise a chunk of your SIPP and specify you want to take the maximum TFLS from that crystallisation.

[genou]

I am also with AJ Bell and don't have knowledge of the IWeb SIPP. That said, I don't see why you should have to go into flexi-access drawdown if you just want to take the 25% TFLS. All you should have to do is to crystallise a chunk of your SIPP and specify you want to take the maximum TFLS from that crystallisation.

Unless you take UFPLS ( clue in the name ) the fund has to be crystallised into some state - annuity or flexi-access.

[mc2fool]

Thanks for the replies so far.

I/we did this a couple of years ago for my wife's Iweb SIPP when she turned 55. It took a few weeks, it was relatively simple - unsure about the technical questions on flexi-access drawdown and increased fees (maybe they would be linked) - I'll check my records for more specific detail and respond here tomorrow.

I'd be grateful for that. That was just for taking the TFLS but not anything else, yes? I take it from "It took a few weeks" that she had to go through this palaver? https://www.iweb-sharedealing.co.uk/assets/sipp-information-on-taking-benefits.pdf

With my provider (AJBell) you pay the same (reasonable) fee whether you're in drawdown or not.

Reasonable only if you don't have any OEICs/UTs though. https://www.ajbell.co.uk/sipp/charges-and-rates

I am also with AJ Bell and don't have knowledge of the IWeb SIPP.

"AJ Bell Management Limited is the Scheme Administrator of the IWeb Share Dealing SIPP"
https://www.iweb-sharedealing.co.uk/our-accounts/self-invested-personal-pension.html

Of course, that doesn't mean that their charging structures are the same....

Unless you take UFPLS ( clue in the name ) the fund has to be crystallised into some state - annuity or flexi-access.

Uncrystallised Funds Pension Lump Sum: IIUC only 25% of those are tax free and the rest is taxed as income at your marginal rate, yes?

[swill453]

Uncrystallised Funds Pension Lump Sum: IIUC only 25% of those are tax free and the rest is taxed as income at your marginal rate, yes?

Yes. Before I crystallised my whole pension, I used to take a UFPLS of (Personal Allowance) x 4/3 each year and pay no income tax.

Scott.

[BigB]

Yes, we took 25% lump sum and yes for Iweb that triggers flexi-access drawdown which carries the annual fee of £180. Even though we are taking no other income and still add some (you can continue to add up to £10k per year). For us, we wanted the lump at that time for a specific purpose but broadly now we'd plan to leave the SIPPS alone, even adding to them, and leave them to be passed on free of IHT - consuming GIA and ISA pots first, option to use pensions later if required.

About 6 weeks in advance of the transaction we sold a certain volume of a fund to ensure we had the approx cash value. Then about 10 days in advance we did the email/forms dance to clarify what we wanted to do, and yes we were sure etc..

From sending the final executable form in, they transacted smoothly and I think we had the transaction recorded in 5/6 working days, funds showed up 1 day later.

In hindsight, one learning is that I got a bit lucky with timing, and sold just the estimated quantity of x to meet the approx 25% value of the overall. We ended up transacting just a few weeks before Ukraine kick off, and so if that had happened a couple of weeks earlier our whole set of trackers/funds/ITs would likely have been down 10-20% (haven't dared do the actuals), so actually should have consolidated everything into cash depending on how key the lump is, and this would have been protecting the valuation for when they do the 25% assessment calc. - I guess one of the calculated risks of running largely equity based. Of course in the last couple of years it has been much more obviously attractive to maintain a chunk of cash based product.

[mc2fool]

Yes, we took 25% lump sum and yes for Iweb that triggers flexi-access drawdown which carries the annual fee of £180. Even though we are taking no other income and still add some (you can continue to add up to £10k per year). For us, we wanted the lump at that time for a specific purpose but broadly now we'd plan to leave the SIPPS alone, even adding to them, and leave them to be passed on free of IHT - consuming GIA and ISA pots first, option to use pensions later if required.

About 6 weeks in advance of the transaction we sold a certain volume of a fund to ensure we had the approx cash value. Then about 10 days in advance we did the email/forms dance to clarify what we wanted to do, and yes we were sure etc..

From sending the final executable form in, they transacted smoothly and I think we had the transaction recorded in 5/6 working days, funds showed up 1 day later.

In hindsight, one learning is that I got a bit lucky with timing, and sold just the estimated quantity of x to meet the approx 25% value of the overall. We ended up transacting just a few weeks before Ukraine kick off, and so if that had happened a couple of weeks earlier our whole set of trackers/funds/ITs would likely have been down 10-20% (haven't dared do the actuals), so actually should have consolidated everything into cash depending on how key the lump is, and this would have been protecting the valuation for when they do the 25% assessment calc. - I guess one of the calculated risks of running largely equity based. Of course in the last couple of years it has been much more obviously attractive to maintain a chunk of cash based product.

Ok and many thanks for the real experience info.

The last point was something I'd wondered about. Does the process allow you to specify how the 25% is to be realised?

I.e. if you have some (or, indeed, no) cash in the account, can you tell them, please flog off as much of the XXX holding as needed on the day to make up to the 25% amount?

Or do you have to guesstimate in advance and have that amount of cash in the account ready, and then if that isn't 25% on the day then, tough, you only get 24.3% or whatever, and if it's more than 25% then you end up with cash left over in the SIPP that you then have to reinvest? (Assuming you don't want to be in cash).

[swill453]

The last point was something I'd wondered about. Does the process allow you to specify how the 25% is to be realised?

I.e. if you have some (or, indeed, no) cash in the account, can you tell them, please flog off as much of the XXX holding as needed on the day to make up to the 25% amount?

Or do you have to guesstimate in advance and have that amount of cash in the account ready, and then if that isn't 25% on the day then, tough, you only get 24.3% or whatever, and if it's more than 25% then you end up with cash left over in the SIPP that you then have to reinvest? (Assuming you don't want to be in cash).

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

Scott.

[mc2fool]

The last point was something I'd wondered about. Does the process allow you to specify how the 25% is to be realised?

I.e. if you have some (or, indeed, no) cash in the account, can you tell them, please flog off as much of the XXX holding as needed on the day to make up to the 25% amount?

Or do you have to guesstimate in advance and have that amount of cash in the account ready, and then if that isn't 25% on the day then, tough, you only get 24.3% or whatever, and if it's more than 25% then you end up with cash left over in the SIPP that you then have to reinvest? (Assuming you don't want to be in cash).

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?

[swill453]

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

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

No, it never occurred to me to ask.

Scott.

[kempiejon]

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

Inspired by some of your Qs and other points on this thread I have been poking around iWeb, AJB and HL who have my SIPP and they say

What if there’s not enough cash to cover my income payments?
You’ll still receive an income payment but it will be for the amount you hold in available settled cash (as long as this is at least £50).

Still not clear. That doesn't explicit say they will not sell your shares but does suggest to me that if the cash isn't there you can't have it paid to you but that's income not necessarily TFLS.

https://www.hl.co.uk/retirement/drawdow ... per%20deal.

[mc2fool]

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

No, it never occurred to me to ask.

Inspired by some of your Qs and other points on this thread I have been poking around iWeb, AJB and HL who have my SIPP and they say

What if there’s not enough cash to cover my income payments?
You’ll still receive an income payment but it will be for the amount you hold in available settled cash (as long as this is at least £50).

Still not clear. That doesn't explicit say they will not sell your shares but does suggest to me that if the cash isn't there you can't have it paid to you but that's income not necessarily TFLS.

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.