SIPPs - am I missing something?
Discussion
Speaking completely hypothetically....
Assuming the rules don't change, when I'm 54, am I right in thinking that
- I can pay up to £40k into a SIPP
- the Govt tops this up by my marginal tax rate (let's say 45% for the sake of argument) making the amount invested £61k
- the following year I can withdraw 25% tax free (£15k)
- if/when I shrug off this mortal coil Mrs C inherits the remaining £45k tax free.
Strongly thinking of starting a SIPP but unfortunately have various weddings/house deposits to fund first....
Assuming the rules don't change, when I'm 54, am I right in thinking that
- I can pay up to £40k into a SIPP
- the Govt tops this up by my marginal tax rate (let's say 45% for the sake of argument) making the amount invested £61k
- the following year I can withdraw 25% tax free (£15k)
- if/when I shrug off this mortal coil Mrs C inherits the remaining £45k tax free.
Strongly thinking of starting a SIPP but unfortunately have various weddings/house deposits to fund first....
Countdown said:
Speaking completely hypothetically....
Assuming the rules don't change, when I'm 54, am I right in thinking that
- I can pay up to £40k into a SIPP
- the Govt tops this up by my marginal tax rate (let's say 45% for the sake of argument) making the amount invested £61k
- the following year I can withdraw 25% tax free (£15k)
- if/when I shrug off this mortal coil Mrs C inherits the remaining £45k tax free.
Strongly thinking of starting a SIPP but unfortunately have various weddings/house deposits to fund first....
Not my area of expertise, but I think it’s £40k total not £40 plus tax relief you can invest. But you can carry forward unused allowances from the previous 3 years, providing you have the earnings to support those contributions.Assuming the rules don't change, when I'm 54, am I right in thinking that
- I can pay up to £40k into a SIPP
- the Govt tops this up by my marginal tax rate (let's say 45% for the sake of argument) making the amount invested £61k
- the following year I can withdraw 25% tax free (£15k)
- if/when I shrug off this mortal coil Mrs C inherits the remaining £45k tax free.
Strongly thinking of starting a SIPP but unfortunately have various weddings/house deposits to fund first....
Also note the lifetime allowance (£1m ?) and the reduced contribution limit if £10k for high earners.
Not quite that simple.
Personal contributions are paid net of basic rate tax relief only, so £40,000 would end grossed up to £50,000. Any higher rate tax relief is reclaimed via your annual tax return.
Death benefits are only tax free if you die before age 75.
If you are paying 45% tax then your income must be in excess of £150,000. In which case your annual contribution allowance starts to reduce by 1:2 for earnings above this until you reach £210,000 income, leaving an annual allowance of only £10,000.
You can still use carry forward allowance though if available to you.
Personal contributions are paid net of basic rate tax relief only, so £40,000 would end grossed up to £50,000. Any higher rate tax relief is reclaimed via your annual tax return.
Death benefits are only tax free if you die before age 75.
If you are paying 45% tax then your income must be in excess of £150,000. In which case your annual contribution allowance starts to reduce by 1:2 for earnings above this until you reach £210,000 income, leaving an annual allowance of only £10,000.
You can still use carry forward allowance though if available to you.
Countdown said:
Cheers - I hadn't realised that and it's useful. My main intention is to leave Mrs C as much as I can when I've departed so I'd like to maximise the amount of tax I can reclaim, and then pass on tax free 
Just be sure to die before age 75 then.
Do you currently have any pension provision?
PurpleMoonlight said:
Just be sure to die before age 75 then.
Do you currently have any pension provision?
I'm a deferred member of 2 DB schemes. I'm currently a contractor so most of my spare money goes into paying off the mortgage. I'm just trying to plan ahead.Do you currently have any pension provision?
I think Mrs C would prefer me to live a long and fruitful life (or so she says!, but being an eternal pessimist, and given she's a fair bit younger than me, I want to make sure she's provided for if the worst happens
. PurpleMoonlight said:
Not quite that simple.
Personal contributions are paid net of basic rate tax relief only, so £40,000 would end grossed up to £50,000. Any higher rate tax relief is reclaimed via your annual tax return.
Death benefits are only tax free if you die before age 75.
If you are paying 45% tax then your income must be in excess of £150,000. In which case your annual contribution allowance starts to reduce by 1:2 for earnings above this until you reach £210,000 income, leaving an annual allowance of only £10,000.
You can still use carry forward allowance though if available to you.
Thanks. It's not £150k yet but it might soon be.Personal contributions are paid net of basic rate tax relief only, so £40,000 would end grossed up to £50,000. Any higher rate tax relief is reclaimed via your annual tax return.
Death benefits are only tax free if you die before age 75.
If you are paying 45% tax then your income must be in excess of £150,000. In which case your annual contribution allowance starts to reduce by 1:2 for earnings above this until you reach £210,000 income, leaving an annual allowance of only £10,000.
You can still use carry forward allowance though if available to you.
For a £40k contribution you would need to pay in £32k net. Your SIPP provider will reclaim £8,000 in basic rate tax leaving £40k in your SIPP.
You would then reclaim a further £8k from HMRC that can either come off your tax bill or be paid into your bank account (I am assuming from what you have said that you are currently paying the 40% rate).
You could then withdraw £10k when you turn 55.
So what would have been £24k of net income becomes £18k with a further £30k in the SIPP (so £48k in total). In that respect your are trading £6k in your pocket today for £30k in your SIPP.
However....
Once you take the tax free cash out you can only put £4k a year into your SIPP. So you need to defer taking the tax free cash until you have got as much money in as you can.
As the Purple one has said, death benefits are only tax free if you fall under a bus before you are 75, however, if your wife is a basic rate taxpayer then you will still have benefited from the extra 20% received during your contribution lifetime and the rest will be cost neutral as she would only be paying the 20% tax rate the SIPP received in the first place.
You will obviously need to take the tax free cash before you turn 75 to get the additional benefit of her getting this IHT free should you not shuffle off this mortal coil until you are at least 75.
You would then reclaim a further £8k from HMRC that can either come off your tax bill or be paid into your bank account (I am assuming from what you have said that you are currently paying the 40% rate).
You could then withdraw £10k when you turn 55.
So what would have been £24k of net income becomes £18k with a further £30k in the SIPP (so £48k in total). In that respect your are trading £6k in your pocket today for £30k in your SIPP.
However....
Once you take the tax free cash out you can only put £4k a year into your SIPP. So you need to defer taking the tax free cash until you have got as much money in as you can.
As the Purple one has said, death benefits are only tax free if you fall under a bus before you are 75, however, if your wife is a basic rate taxpayer then you will still have benefited from the extra 20% received during your contribution lifetime and the rest will be cost neutral as she would only be paying the 20% tax rate the SIPP received in the first place.
You will obviously need to take the tax free cash before you turn 75 to get the additional benefit of her getting this IHT free should you not shuffle off this mortal coil until you are at least 75.
JulianPH said:
However....
Once you take the tax free cash out you can only put £4k a year into your SIPP. So you need to defer taking the tax free cash until you have got as much money in as you can.
That's not correct.Once you take the tax free cash out you can only put £4k a year into your SIPP. So you need to defer taking the tax free cash until you have got as much money in as you can.
It's drawing flexi-access pension that triggers the £4,000 limit, not the tax free cash.
PurpleMoonlight said:
JulianPH said:
However....
Once you take the tax free cash out you can only put £4k a year into your SIPP. So you need to defer taking the tax free cash until you have got as much money in as you can.
That's not correct.Once you take the tax free cash out you can only put £4k a year into your SIPP. So you need to defer taking the tax free cash until you have got as much money in as you can.
It's drawing flexi-access pension that triggers the £4,000 limit, not the tax free cash.
Thanks for calling me on it!
desolate said:
What are the tax implications of putting in over 40k?
You simply don't get any tax relief on sums over the annual allowance (unless you can carry back). So it becomes a pointless exercise for most people.Edited to add (before the Purple one corrects me!) - It would shield this money from IHT though, so does have a certain use.
JulianPH said:
You simply don't get any tax relief on sums over the annual allowance (unless you can carry back). So it becomes a pointless exercise for most people.
Edited to add (before the Purple one corrects me!) - It would shield this money from IHT though, so does have a certain use.
Does the company still get Corp tax relief?Edited to add (before the Purple one corrects me!) - It would shield this money from IHT though, so does have a certain use.
We discussed on another thread and I am not sure we came up with a definitive answer.
desolate said:
Does the company still get Corp tax relief?
We discussed on another thread and I am not sure we came up with a definitive answer.
Ah, if it is a company (not individual) contribution then it is offset against corporation tax in the same way as any other outgoing would be. There would also be the NI saving.We discussed on another thread and I am not sure we came up with a definitive answer.
IIRC someone said it would have to be a 'reasonable' contribution. How that is measured I have no idea, a contract is a contract and if your company has, for example, contracted with you to pay bonus as a pension contribution then I don't see how this could be questioned.
Eric will no doubt have the definitive on this.
JulianPH said:
Ah, if it is a company (not individual) contribution then it is offset against corporation tax in the same way as any other outgoing would be. There would also be the NI saving.
IIRC someone said it would have to be a 'reasonable' contribution. How that is measured I have no idea, a contract is a contract and if your company has, for example, contracted with you to pay bonus as a pension contribution then I don't see how this could be questioned.
Eric will no doubt have the definitive on this.
That was my understanding IIRC someone said it would have to be a 'reasonable' contribution. How that is measured I have no idea, a contract is a contract and if your company has, for example, contracted with you to pay bonus as a pension contribution then I don't see how this could be questioned.
Eric will no doubt have the definitive on this.
The contributions made by a company are quite simple. The money paid by the company is made as an allowable expense.
So If your company was going to make say £100k profit and the company decided to pay £40k into a director's pension, the company's profit would reduce to £60k and it would pay corporation tax on this lower figure. And in director's pension would be the £40k.
So personal income tax relief doesn't apply in the way a personal pension contribution might. Nor is there any National Insurance consideration to be the best of my knowledge.
EddieSteadyGo said:
The contributions made by a company are quite simple. The money paid by the company is made as an allowable expense.
So If your company was going to make say £100k profit and the company decided to pay £40k into a director's pension, the company's profit would reduce to £60k and it would pay corporation tax on this lower figure. And in director's pension would be the £40k.
So personal income tax relief doesn't apply in the way a personal pension contribution might. Nor is there any National Insurance consideration to be the best of my knowledge.
Thanks - we had an interesting discussion on another thread about this. If you were in a SSAS you could make multiple employer contributions for employees (eg family) and pay no corporation tax if you could prove they worked within the business. We seemed to settle on the fact there was a limit to how much you could claim corp tax relief.So If your company was going to make say £100k profit and the company decided to pay £40k into a director's pension, the company's profit would reduce to £60k and it would pay corporation tax on this lower figure. And in director's pension would be the £40k.
So personal income tax relief doesn't apply in the way a personal pension contribution might. Nor is there any National Insurance consideration to be the best of my knowledge.
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