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Accessing SIPP

Posted: July 9th, 2019, 11:56 am
by Darka
In a couple of years’ time my wife retires from work and I'm trying to decide how best to withdraw the income (natural yield) from her SIPP to maximise income and minimise tax.

The problem is that she retires in September, so any payment from that date until the end of the tax year would require tax to be paid, as she would have received a salary for part of that year.

Ideally I'd like to make a single withdrawal each March, so that any tax overpaid would be returned very quickly - but this complicates when to kick start the process, both of starting to accumulate (rather than reinvest) dividends, and then also when to take the first payment.

When she retires in September 2021 - waiting until the following March (2022) wouldn't achieve anything as she would still have to pay tax, so we could just take the tax hit and withdraw the accumulated dividends either in September, or wait until the March.

After that, the plan would be to withdraw a single payment each year in March.

We would need this money, so putting it off for more than a year wouldn't work.

It would be interesting to hear how those of you who have gone through this, or indeed have completed their planning have gone about this.

regards,
Darka

Re: Accessing SIPP

Posted: July 9th, 2019, 12:18 pm
by EssDeeAitch
Have you factored in that the first 25% withdrawn is tax free?

Re: Accessing SIPP

Posted: July 9th, 2019, 12:27 pm
by Darka
EssDeeAitch wrote:Have you factored in that the first 25% withdrawn is tax free?


That's part of the problem, can't decide on whether to take the 25% up front or use UPFLS to take annual payments with 25% of each tax free.

I think I need to update my spreadsheet to model this better, it might make the decision clearer.

Re: Accessing SIPP

Posted: July 9th, 2019, 12:29 pm
by genou
Darka wrote:
Ideally I'd like to make a single withdrawal each March, so that any tax overpaid would be returned very quickly - but this complicates when to kick start the process, both of starting to accumulate (rather than reinvest) dividends, and then also when to take the first payment.

Darka


There's no necessary connection between the tax year end and the repayment - you can take the taxable element in April, and then submit a P55 to get the repayment.

https://www.gov.uk/government/publicati ... -claim-p55

Re: Accessing SIPP

Posted: July 9th, 2019, 12:31 pm
by EssDeeAitch
genou wrote:
Darka wrote:
Ideally I'd like to make a single withdrawal each March, so that any tax overpaid would be returned very quickly - but this complicates when to kick start the process, both of starting to accumulate (rather than reinvest) dividends, and then also when to take the first payment.

Darka


There's no necessary connection between the tax year end and the repayment - you can take the taxable element in April, and then submit a P55 to get the repayment.

https://www.gov.uk/government/publicati ... -claim-p55


And in my personal experience, the tax repayment has been made within four or five weeks.

Re: Accessing SIPP

Posted: July 9th, 2019, 12:35 pm
by Pheidippides
Darka wrote:
EssDeeAitch wrote:Have you factored in that the first 25% withdrawn is tax free?


That's part of the problem, can't decide on whether to take the 25% up front or use UPFLS to take annual payments with 25% of each tax free.

I think I need to update my spreadsheet to model this better, it might make the decision clearer.


I am massively concerned about the risk of the 25% being taken away by some future government. Once re-wrapped in ISA's it is lost revenue AND they can wrap it up as protecting Retirees against themselves.

I will be taking the whole 25% on my 55th birthday

Regards

Pheid

Re: Accessing SIPP

Posted: July 9th, 2019, 12:37 pm
by Darka
genou wrote:There's no necessary connection between the tax year end and the repayment - you can take the taxable element in April, and then submit a P55 to get the repayment.

https://www.gov.uk/government/publicati ... -claim-p55


Good point, need to think about this more.

Re: Accessing SIPP

Posted: July 9th, 2019, 12:44 pm
by Darka
Pheidippides wrote:I am massively concerned about the risk of the 25% being taken away by some future government. Once re-wrapped in ISA's it is lost revenue AND they can wrap it up as protecting Retirees against themselves.

I will be taking the whole 25% on my 55th birthday

Regards
Pheid


Thanks Pheid,

That's something I'm concerned about too.

Re: Accessing SIPP

Posted: July 9th, 2019, 12:51 pm
by vrdiver
I'll second the P55 tax reclaim approach. I got mine within a month.

I initially thought of making an annual withdrawal, but as my SIPP doesn't pay interest on cash, this model created a lot of "dead" cash. Instead, I ended up calculating the in-flows of dividends and draw down 1/12 of that each month. I modeled the cash-in-the-SIPP as well, making sure that my cash float is big enough to cover the dividend troughs. Alternatively I could vary the payment each month, but that requires me to remember to do it and I wanted as automated a system as possible.

I also pay £240 pcm back into my SIPP, which, a couple of months later generates a £60 tax rebate. My withdrawal is increased by £300 a month, so creating £15 net from the 25% tax free element (£225 of the £300 being taxed at 20%, costing £45). After the first month, the £240 I pay in is covered by the extra withdrawal, so the £180 extra income is effectively generated by £240 of assets - not a bad rate of return (and much better if you are a non tax payer!)

Towards the end of the tax year I plan to adjust the last month's drawdown based on actual dividends received or any tax related issues (e.g. not wishing to touch HRT threshold) and review the next year's proposed payments.

VRD

Re: Accessing SIPP

Posted: July 9th, 2019, 8:34 pm
by Gostevie
Pheidippides wrote:
I am massively concerned about the risk of the 25% being taken away by some future government. Once re-wrapped in ISA's it is lost revenue AND they can wrap it up as protecting Retirees against themselves.

I will be taking the whole 25% on my 55th birthday

Regards

Pheid


I did the same as soon as I hit 55 for the exact same reason that you state.

EssDeeAitch wrote:
And in my personal experience, the tax repayment has been made within four or five weeks.


Yes, mine was very efficiently handled by HMRC.

Gostevie

Re: Accessing SIPP

Posted: July 10th, 2019, 9:33 am
by xxd09
What I do-72-16 years retired
I took the 25% Tax free lump sum
I keep up to 2 years living expenses in a cash account-use this for day to day expenses
Take one Withdrawal every year from my SIPP to just under the 40% tax limit
Reclaim tax if needed with R55 form online( repayments with in a month)
Simple Cheap
xxd09

Re: Accessing SIPP

Posted: July 10th, 2019, 11:02 am
by Alaric
xxd09 wrote:Take one Withdrawal every year from my SIPP to just under the 40% tax limit


Would you just withdraw accumulated dividends and interest income, or do you sell something to raise the necessary?

Re: Accessing SIPP

Posted: July 10th, 2019, 7:21 pm
by xxd09
Hi Alaric
I just have 2 funds -a Global Equities Index Tracker Fund and a Global Bond Index Tracker (Vanguard)
Both are Accumulation Funds inside a SIPP so Dividends and Interest just rolls up within the Funds -Automatic-I do not have to do anything.
So just sell the required number of shares -keeping Asset Allocation intact-at time of my choosing
1 transaction-maybe 2 if sale of Bonds and Equities required -usually it is one or the other
Simple Cheap
xxd09