Discussion
Hi
Not sure if this is a daft idea..
Parent is about 2 years from retirement and has a pot of 10k sitting in a stocks isa not doing particularly well
Is a basic rate tax payer at present.
Is it worth transferring the money from isa into SIPP for the 20% tax back.. and then pulling the lot out as a lump sum come retirement ? Or is that mad/impossible.
Additional info is that spouse is deceased so parent is getting their pensions for now and being taxed on them but doesn't really need that income right now.
I figure a sipp might be a way to defer that tax, plus get a lump on the 10k.
Another pension kicks in on retirement proper but I doubt it'll push said parent over 10k per annum even with state pension.
Thanks
Mike
Not sure if this is a daft idea..
Parent is about 2 years from retirement and has a pot of 10k sitting in a stocks isa not doing particularly well
Is a basic rate tax payer at present.
Is it worth transferring the money from isa into SIPP for the 20% tax back.. and then pulling the lot out as a lump sum come retirement ? Or is that mad/impossible.
Additional info is that spouse is deceased so parent is getting their pensions for now and being taxed on them but doesn't really need that income right now.
I figure a sipp might be a way to defer that tax, plus get a lump on the 10k.
Another pension kicks in on retirement proper but I doubt it'll push said parent over 10k per annum even with state pension.
Thanks
Mike
If, as you suggest, your parent's income in retirement is less than the income tax nil rate band, you could consider placing funds into the SIPP to get the uplift. They could then pull out the funds over, say two or three years, so as not to pay huge amounts of tax. Pull it out in one go and they will pay some tax, mitigating the ruse to a good degree.
However, you have to have paid enough tax in the first place to get the tax relief on the initial contribution, with the exception of the the old stakeholder limit, still £3,600 gross if I recall correctly. So it still may not work.
You'll need to do the maths or pay someone to do it for you.
However, you have to have paid enough tax in the first place to get the tax relief on the initial contribution, with the exception of the the old stakeholder limit, still £3,600 gross if I recall correctly. So it still may not work.
You'll need to do the maths or pay someone to do it for you.
ellroy said:
If, as you suggest, your parent's income in retirement is less than the income tax nil rate band, you could consider placing funds into the SIPP to get the uplift. They could then pull out the funds over, say two or three years, so as not to pay huge amounts of tax. Pull it out in one go and they will pay some tax, mitigating the ruse to a good degree.
Possible, but the costs doing so might outweigh the gain.ellroy said:
There's no longer any limit to what you can pull out.
You just pay tax at your nominal income tax rate, after the tax free element of 25%, in most, but not all cases.
Agree. If your life expectancy is less than a year, you may be able to take your whole pension pot as a tax-free lump sum if all of the following apply to you:You just pay tax at your nominal income tax rate, after the tax free element of 25%, in most, but not all cases.
You're expected to live less than a year because of serious illness,
You’re under 75 (if you’re over 75 you pay 45% tax on the lump sum),
You don’t have more than the lifetime allowance in pension savings.
dingg said:
Isn't there a provision in place if the fund is under a certain amount , you can actually have it ALL back with no tax liability (or have I been dreaming)
You may be referring to trivial lump sums or trivial commutation. http://www.pensionsadvisoryservice.org.uk/about-pe...
In relation to defined contribution pension arrangements, most people can have 25% of the fund as a tax free payment, with the balance being assessed for income tax in the tax year of payment.
This means that if you have a small fund, say £12,000, and no other income in the tax year the while lot will eventually be tax free. The pension provider must deduct tax from £9,000 (75% of £12,000) but that can be reclaimed by the member from HMRC.
Obviously, if you have other taxable income in the tax year the tax the pension provider deducts may not be enough and you will have more tax to pay.
Therefore, planning and care should be taken when accessing any pension fund.
The £10,000 small pot commutation only applies to defined contribution arrangements, anything above that is flexi-access drawdown which has the effect of restricting your future annual contribution allowance to £10,000.
The £30,000 trivial commutation only applies to defined benefit arrangements.
This means that if you have a small fund, say £12,000, and no other income in the tax year the while lot will eventually be tax free. The pension provider must deduct tax from £9,000 (75% of £12,000) but that can be reclaimed by the member from HMRC.
Obviously, if you have other taxable income in the tax year the tax the pension provider deducts may not be enough and you will have more tax to pay.
Therefore, planning and care should be taken when accessing any pension fund.
The £10,000 small pot commutation only applies to defined contribution arrangements, anything above that is flexi-access drawdown which has the effect of restricting your future annual contribution allowance to £10,000.
The £30,000 trivial commutation only applies to defined benefit arrangements.
dingg said:
Isn't there a provision in place if the fund is under a certain amount , you can actually have it ALL back with no tax liability (or have I been dreaming)
Not exactly. An amount may be free of tax if under the marginal rate by using trivial regulations for a defined contribution pension for instance, but it won't *always* be tax free. If you crystallise a trivial pot of, say, £5000 and you have £15,000 of other income, the £5,000 is liable to be taxed at your marginal rate. If you had a pension pot of £20,000 and took the full 25%, you'd still have £5,000 but whatever your other income, in this case £15,000, the £5,000 would always be exempt from tax if provided under pension commencement lump sum regulations. It requires planning and thought, and consideration as to what your future intentions are also likely to be.Gassing Station | Finance | Top of Page | What's New | My Stuff