Crystallising a SIPP

[Lily the Pink]

I'm trying to get my head around the crystallisation concept, and I'm not there yet. Let's say I have £150K cash and £250K land (agri) in a SIPP. I am well past 55yo and have not yet taken anything from the SIPP. If I now want to withdraw £25K, that means I have to crystallise £100K - correct ? If so then I have £300K uncrystallised and £75K crystallized (plus the £25K in my pocket).

Q1 : What now is the distinction between the crystallised and uncrystallised "pots" ?
Q2 : The land earns a rental income - how is that distributed between the two pots ?

I suspect that the answers to those two questions will also answer Q3 : If I only want £25K now, is it possible to crystallise more than the £100K without withdrawing more - and why would I do that ?

[Mazinbrum]

Lily the Pink said:

I'm trying to get my head around the crystallisation concept, and I'm not there yet. Let's say I have £150K cash and £250K land (agri) in a SIPP. I am well past 55yo and have not yet taken anything from the SIPP. If I now want to withdraw £25K, that means I have to crystallise £100K - correct ? If so then I have £300K uncrystallised and £75K crystallized (plus the £25K in my pocket).

Q1 : What now is the distinction between the crystallised and uncrystallised "pots" ?
Q2 : The land earns a rental income - how is that distributed between the two pots ?

I suspect that the answers to those two questions will also answer Q3 : If I only want £25K now, is it possible to crystallise more than the £100K without withdrawing more - and why would I do that ?

That’s correct, the distinction between the pots is that anything now withdrawn from your crystallised pot is taxable (after your 12.5k tax allowance).

No idea about q2.

[Stay in Bed Instead]

You will need to talk to your SIPP provider regarding how they apportion crystallised/uncrystallised assets.

Some will earmark specific assets as crystallised and some will deem a percentage of of overall SIPP as crystallised.

[LeoSayer]

If you want the £25k then you could take it from your SIPP cash as UFPLS.

Of course only £6,250 will be tax free rather than the whole £25k which I assume is what you were trying to achieve.

[Mr Pointy]

There's a difference between Uncrystallised Fund Pension Lump Sum & Flexi-access Drawdown & which you go for depends on several factors. I found this document on line which may be useful:

https://www.pruadviser.co.uk/pdf/PRUAG02731.pdf

[Stay in Bed Instead]

LeoSayer said:

If you want the £25k then you could take it from your SIPP cash as UFPLS.

Of course only £6,250 will be tax free rather than the whole £25k which I assume is what you were trying to achieve.

That will kick in the Money Purchase Annual Allowance' though, and limit pension contributions to £4000 pa.

[LeoSayer]

Stay in Bed Instead said:

LeoSayer said:

If you want the £25k then you could take it from your SIPP cash as UFPLS.

Of course only £6,250 will be tax free rather than the whole £25k which I assume is what you were trying to achieve.

That will kick in the Money Purchase Annual Allowance' though, and limit pension contributions to £4000 pa.

True, but we don't know whether that will be an issue for the OP.

[Lily the Pink]

Thanks for the responses. I do pay income tax on other income; currently at the basic rate. I do not expect to make any further contributions into the SIPP.
I'm still not clear what the difference is between crystallised and uncrystallised portions of the remaining SIPP, in terms of future tax treatment and allocation of income - though I appreciate the provider should be able to clarify the latter.

[Mr Pointy]

Lily the Pink said:

Thanks for the responses. I do pay income tax on other income; currently at the basic rate. I do not expect to make any further contributions into the SIPP.
I'm still not clear what the difference is between crystallised and uncrystallised portions of the remaining SIPP, in terms of future tax treatment and allocation of income - though I appreciate the provider should be able to clarify the latter.

Go to the IM sticky thread at the top of this forum & email Nik to arrange a phone call. He will give you accurate information.

[Catchme]

Depends on the provider.

From personal experience - post 55, you can access your SIPP. If you want to withdraw cash, you can - for example - you have a fund worth 200k invested. You pay in £500 a month. You crystallise £100k, meaning that 25% goes tax-free to you and the balance goes into a ‘drawdown pot’, still invested. The other £100k stays in the SIPP. As long as you don’t touch the ‘drawdown pot’, you can carry on as normal, making monthly contributions, attracting hmrc contributions. If you want some more cash, go back to the sipp, take out the other £100k (for example). You get £25k in your bank a count, the balance goes into the drawdown pot. You keep paying in your monthly £500, or whatever into your main pension pot (which still attracts hmrc contributions at your higher rate tax).

Now, if you need any more cash, and your main pension pot has been emptied with all the residual cash sitting in your drawdown pot, you need to access your drawdown account to withdraw cash and you trigger a ‘freeze’ on your pensions (all of them, if you have more than one). You can access your money, no problem. But you can now only contribute £4k to your pension each year. You also need to tell all your pension providers that you have triggered this, so they are aware of the limits available on contributions and tax relief.

Hope this is clear.

Edited by Catchme on Friday 5th February 22:33

[Lily the Pink]

Thanks. I'm not making any additional contributions, and don't expect to do so.
But I'm being thick and still haven't grasped it. The remainder of the "drawdown pot" is still in the SIPP, is it not ? If I want to withdraw £25K, could I crystallize more than £100K - and why would I, or would I not, do so ?

[LeoSayer]

Lily the Pink said:

Thanks. I'm not making any additional contributions, and don't expect to do so.
But I'm being thick and still haven't grasped it. The remainder of the "drawdown pot" is still in the SIPP, is it not ? If I want to withdraw £25K, could I crystallize more than £100K - and why would I, or would I not, do so ?

You could crystallise the whole pension but if you don't take advantage of the 25% tax free cash within 12 months of that then you lose that benefit and that portion becomes taxable when you draw it down.

I imagine your main concern is that each crystallisation events requires all pension assets to be valued. This is easily done when shares are held but could be costly with property.

I would recommend asking your SIPP provider about their crystallisation conditions.

[Lily the Pink]

LeoSayer said:

Lily the Pink said:

Thanks. I'm not making any additional contributions, and don't expect to do so.
But I'm being thick and still haven't grasped it. The remainder of the "drawdown pot" is still in the SIPP, is it not ? If I want to withdraw £25K, could I crystallize more than £100K - and why would I, or would I not, do so ?

You could crystallise the whole pension but if you don't take advantage of the 25% tax free cash within 12 months of that then you lose that benefit and that portion becomes taxable when you draw it down.

I imagine your main concern is that each crystallisation events requires all pension assets to be valued. This is easily done when shares are held but could be costly with property.

I would recommend asking your SIPP provider about their crystallisation conditions.

Aaahh, thankyou - the light begins to dawn. So from my putative £400K, I could crystallize £100K each year for four years in order to extract £25K cash each year. But that would have used up all the tax allowance and in year 5 onwards I would incur tax at my marginal rate on all withdrawals. Is that right ?

[Stay in Bed Instead]

Lily the Pink said:

Aaahh, thankyou - the light begins to dawn. So from my putative £400K, I could crystallize £100K each year for four years in order to extract £25K cash each year. But that would have used up all the tax allowance and in year 5 onwards I would incur tax at my marginal rate on all withdrawals. Is that right ?

Yes that's correct, but your SIPP provider may insist that the land it valued each time.