SIPP - This this possible?

[ArchStanton]

I'm now 55 and retired after doing well with Matched Betting years ago, then tech investments.

I have access to my H+L SIPP which I've been paying £240 a month in (topped up to £300 with tax relief) for about 20 years.
I've just been putting the money into a combo of a total market index fund, and a little bit of QQQ.

The pot is not as big as my other tax efficient savings that I have in Cash and S&S ISAs.
At the moment the SIPP is at around the £70k mark.

I don't have any income except for about £3k a year via non-tax efficient investments and small side hustles .
I can dip into my ISAs if needed, but my outgoings are tiny.

Am I right in thinking that I won't have to pay tax on the SIPP if I start taking lump sums out of it because I will be well within my personal allowance?

Say If I took £7k a year out (either one amount per year, or monthly amounts doesn't matter to me).

So basically the plan is:

To wind down my SIPP before I get my state pension at 67 because that is classed as taxable income.

Then at 67 live off my state pension and my ISA savings.

Also, and this maybe a bit cheeky, but if I can prove that the money taken out isn't going into another pension (which it isn't) and it's just going into an savings account to pay bills can I still pay in the £2,880 a year and still get the £360 tax relief until I'm 75, as I the £7k amount I'm taking out is well within my personal allowance and within the £7.5k tax recycling amount (I may be getting confused if the latter matters) and the amount I'm paying back in is under the £4k MPAA?

Obviously I want to stay within the law and not have HMRC after me!

Cheers.

[Urbandreamer]

Am I right in thinking that I won't have to pay tax on the SIPP if I start taking lump sums out of it because I will be well within my personal allowance?

Say If I took £7k a year out (either one amount per year, or monthly amounts doesn't matter to me).

So basically the plan is:

To wind down my SIPP before I get my state pension at 67 because that is classed as taxable income.

Then at 67 live off my state pension and my ISA savings.

Also, and this maybe a bit cheeky, but if I can prove that the money taken out isn't going into another pension (which it isn't) and it's just going into an savings account to pay bills can I still pay in the £2,880 a year and still get the £360 tax relief until I'm 75, as I the £7k amount I'm taking out is well within my personal allowance and within the £7.5k tax recycling amount (I may be getting confused if the latter matters) and the amount I'm paying back in is under the £4k MPAA?

Obviously I want to stay within the law and not have HMRC after me!

Cheers.

As I understand it you have things right.

FWIW, you may or may not also want to consider CGT and IHT in addition to income tax.

Your method consumes personal tax allowance with SIPP income.

I'm spending my ISA in preference to reduce IHT liability.
This also has the effect of increasing the amount of capital gains that I can make before tax upon them becomes due as the personal allowance needs consuming before CGT becomes chargeable.

[EthicsGradient]

Am I right in thinking that I won't have to pay tax on the SIPP if I start taking lump sums out of it because I will be well within my personal allowance?

Say If I took £7k a year out (either one amount per year, or monthly amounts doesn't matter to me).

So basically the plan is:

To wind down my SIPP before I get my state pension at 67 because that is classed as taxable income.

Then at 67 live off my state pension and my ISA savings.

Also, and this maybe a bit cheeky, but if I can prove that the money taken out isn't going into another pension (which it isn't) and it's just going into an savings account to pay bills can I still pay in the £2,880 a year and still get the £360 tax relief until I'm 75, as I the £7k amount I'm taking out is well within my personal allowance and within the £7.5k tax recycling amount (I may be getting confused if the latter matters) and the amount I'm paying back in is under the £4k MPAA?

Obviously I want to stay within the law and not have HMRC after me!

Cheers.

As I understand it you have things right.

FWIW, you may or may not also want to consider CGT and IHT in addition to income tax.

Your method consumes personal tax allowance with SIPP income.

I'm spending my ISA in preference to reduce IHT liability.
This also has the effect of increasing the amount of capital gains that I can make before tax upon them becomes due as the personal allowance needs consuming before CGT becomes chargeable.

Are you sure about the personal allowance? (It may just be I've misunderstood what you wrote). HMRC says you can't use the personal allowance for capital gains:

My annual income (salary + interest + dividend) is less than the personal allowance. Will the capital gain tax also can use this remaining of personal allowance of income tax? (i.e. will there be a portion of net capital gain be charged 0% tax which fall into the remaining of this personal allowance not used up for income tax ) ?

No. Income tax and Capital Gains Tax are separate taxes.

If you do not utilise all of your personal allowance against income, the the balance is lost.

You will still have the full basic rate band available, which means that the lower rate of capital gains (10% or 18%) will apply against the gain up to the amount of basic rate band available, with the balance taxed at 20% or 28%.

The capital gains rates of 18% and 28% related to property gains and 10% and 20% for all other types of capital gains.

https://community.hmrc.gov.uk/customerf ... 0d3a0d1051

[Urbandreamer]

Are you sure about the personal allowance? (It may just be I've misunderstood what you wrote). HMRC says you can't use the personal allowance for capital gains:

My annual income (salary + interest + dividend) is less than the personal allowance. Will the capital gain tax also can use this remaining of personal allowance of income tax? (i.e. will there be a portion of net capital gain be charged 0% tax which fall into the remaining of this personal allowance not used up for income tax ) ?

No. Income tax and Capital Gains Tax are separate taxes.

If you do not utilise all of your personal allowance against income, the the balance is lost.

You will still have the full basic rate band available, which means that the lower rate of capital gains (10% or 18%) will apply against the gain up to the amount of basic rate band available, with the balance taxed at 20% or 28%.

The capital gains rates of 18% and 28% related to property gains and 10% and 20% for all other types of capital gains.

https://community.hmrc.gov.uk/customerf ... 0d3a0d1051

You didn't misunderstand, but it seems that I was wrong. Which considering that I had thought the situation was as described in the HMRC answer is somewhat surprising. I don't know where I recently read the claim.

How irritating, as CGT allowance has been reduced to next to nothing. Oh well, more work required.

[kempiejon]

How irritating, as CGT allowance has been reduced to next to nothing. Oh well, more work required.

It is irritating. My tax planning has become a big part of my investing practice. I've been running from and ducking tax for years. When dividends had a liability I started selling down my higher yielding shares to add to SIPP or ISA and investing any new money in the comparatively lower yielding global tracker. I managed to move most of my income bearing assets into sheltered accounts. Just 2 years with trivial dividend tax liability. There were some gains banked at the time too but that was never my main thrust just a happy coincidence it turns out now. Pesky global tracker is now pregnant with gains but I can avoid a tax bill splitting my sales this year and next and then I should have nearly all my assets into ISAs and SIPP come May.

So how will the tax man come for them?

[ayshfm1]

So how will the tax man come for them?

Wealth tax he said gloomily.