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Funding questions

vfoolish100
Posts: 9
Joined: November 6th, 2016, 10:59 pm

Funding questions

#356177

Postby vfoolish100 » November 13th, 2020, 12:21 pm

Hi,
Hoping for some (kind) feedback on my approach to funding my life pre-pension. Any suggestions/feedback is welcome.

General idea is to live off my SIPP for the next 5 years (from April 2021), extracting the personal allowance plus tax free amount until a DB pension kicks in.

The (approx) 15K first lump sum payment I need will be withdrawn March/April 2022, as I will live on redundancy/savings for the 1st year. Taking the payment at the end of the tax year will mean if i have to do any paid work (unforseen circumstances) then I won't take any (or will take less) money from my SIPP.
At the moment i do not think i will need all of this 15K and intend to put back into my SIPP, £2880 every year thereby gaining the 20% uplift from HRMC.

Q1. Is this a sensible strategy or have I missed/forgotten something?

Q2. Does it make sense to put an amount of money equal to my wages in my SIPP for this year (my wages are below my personal tax allowance of £12500) to gain the tax relief?
Q2a. Will i even get the tax relief in this case?

Thanks for reading!

swill453
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Re: Funding questions

#356183

Postby swill453 » November 13th, 2020, 12:30 pm

vfoolish100 wrote:Hi,
Hoping for some (kind) feedback on my approach to funding my life pre-pension. Any suggestions/feedback is welcome.

General idea is to live off my SIPP for the next 5 years (from April 2021), extracting the personal allowance plus tax free amount until a DB pension kicks in.

The (approx) 15K first lump sum payment I need will be withdrawn March/April 2022, as I will live on redundancy/savings for the 1st year. Taking the payment at the end of the tax year will mean if i have to do any paid work (unforseen circumstances) then I won't take any (or will take less) money from my SIPP.
At the moment i do not think i will need all of this 15K and intend to put back into my SIPP, £2880 every year thereby gaining the 20% uplift from HRMC.

Q1. Is this a sensible strategy or have I missed/forgotten something?

Yes it's pretty much what I do. Take a £16,666 UFPLS payment and return £2880 to the SIPP. My wife does something broadly similar. Between us it's enough to live on.

Q2. Does it make sense to put an amount of money equal to my wages in my SIPP for this year (my wages are below my personal tax allowance of £12500) to gain the tax relief?
Q2a. Will i even get the tax relief in this case?

If by wages you mean taxable income from employment then yes, I'd say it makes sense.

Scott.

vfoolish100
Posts: 9
Joined: November 6th, 2016, 10:59 pm

Re: Funding questions

#356325

Postby vfoolish100 » November 13th, 2020, 7:12 pm

Thanks for the speedy reply.

Yes, taxable income from employment.
I have been reading posts on here and have come across one that suggests, if you earn say £12000 (gross) then you can't put in this amount, it has to be the lower amount which when topped up by HRMC, equals the gross earnings. Does that sound right? Or is the net amount you should use (what about pension contributions) - confused now.

swill453
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Re: Funding questions

#356338

Postby swill453 » November 13th, 2020, 8:04 pm

vfoolish100 wrote:I have been reading posts on here and have come across one that suggests, if you earn say £12000 (gross) then you can't put in this amount, it has to be the lower amount which when topped up by HRMC, equals the gross earnings. Does that sound right? Or is the net amount you should use (what about pension contributions) - confused now.

Someone else might need to confirm, but as I understand it the gross amount added to a pension in any tax year is the lower of:
- £40,000 (unless other factors reduce the allowance)
- taxable earnings

So yes if your earnings were £12,000 then you would put £9,600 in the pension and it would be automatically topped up by HMRC to £12,000

Scott.

hiriskpaul
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Re: Funding questions

#356422

Postby hiriskpaul » November 14th, 2020, 10:23 am

Yes, gross amounts apply. If you earn 10,000 before tax and NI deductions and there are no personal contributions to other pensions, you can put 8,000 net into a SIPP. However, that only applies if you have not drawn any income from a DC pension. Pension commencement lump sums are fine, it is income after this you need to worry about. If you have taken income other than tax free lump sums, the amount you can contribute to a SIPP is limited to £4,000 gross. Taking a UFPLS payment would count as taking income.

vfoolish100
Posts: 9
Joined: November 6th, 2016, 10:59 pm

Re: Funding questions

#356553

Postby vfoolish100 » November 14th, 2020, 4:17 pm

Thanks for the answers clarifying the position, much appreciated.

It does seems a bit strange that an uplift is given even though no tax has been paid (where the amount is below the personal allowance) - guess that's what's called a perk!

hiriskpaul
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Re: Funding questions

#356603

Postby hiriskpaul » November 14th, 2020, 7:18 pm

vfoolish100 wrote:Thanks for the answers clarifying the position, much appreciated.

It does seems a bit strange that an uplift is given even though no tax has been paid (where the amount is below the personal allowance) - guess that's what's called a perk!

For those able to withdraw the uplift without paying tax it is a very good perk. But the amount of tax paid on drawing the pension is not set in stone. It might seem unlikely, but a future government might decide to make more people "Contributing Stakeholders" by slashing the personal allowance to £1k whilst "simplifying" the tax system by merging NI and income tax for a basic rate of 32%. That might be a bit of an extreme example, but the point is the tax regime that will be applied on draw down takes no notice of what up front tax relief was, so the tax relief can be considered a payment for taking the risk of future tax policy changes.


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