SIPP & Pension guidance - IM Private Clients

[Intelligent Money]

tighnamara said:

One for Nik, but feel free to comment.

I know you can't purchase residential property through your pension but can you purchase property with development potential for change of use to residential property.

Looking at possible options with a site available that looks to have possible potential, site is part of a farm mainly a large steading that would have planning permission for 4 x 3 or 4 bedroom houses.

Hi Tighnamara

The SIPP can hold the land as commercial property until it is developed to the point that it is viewed as habitable in the eyes of the revenue. The SIPP would then need to sell the property.

Cheers

Nik

[tighnamara]

Intelligent Money said:

tighnamara said:

One for Nik, but feel free to comment.

I know you can't purchase residential property through your pension but can you purchase property with development potential for change of use to residential property.

Looking at possible options with a site available that looks to have possible potential, site is part of a farm mainly a large steading that would have planning permission for 4 x 3 or 4 bedroom houses.

Hi Tighnamara

The SIPP can hold the land as commercial property until it is developed to the point that it is viewed as habitable in the eyes of the revenue. The SIPP would then need to sell the property.

Cheers

Nik

Thanks Nik, that’s interesting, will be in touch to discuss further.

[Lily the Pink]

I have a similar question to the last one. I'm considering buying some agricultural land within my SIPP and wondering what options I have for income from it. Specifically, could I build short term holiday lets (chalets/yurts/pods for example) on it, or are they considered residential ?

[Intelligent Money]

Lily the Pink said:

I have a similar question to the last one. I'm considering buying some agricultural land within my SIPP and wondering what options I have for income from it. Specifically, could I build short term holiday lets (chalets/yurts/pods for example) on it, or are they considered residential ?

Hi Lily the Pink

This is very much a grey area and you would need to get HMRC approval that the lets would not be treated as residential. The grey area is that you could technically switch to long term lets at any stage and then they would be residential. In this case it is likely to be viewed on a case by case basis by the SIPP provider and HMRC.

Regards

Nik

[Ziplobb]

My children 18 and 19 want to start paying into a pension. It wont be a huge amount but I wanto encourage them to get in the habit. They can both afford £80/£100 a month even whilst at uni as they earn decent cash in the holidays. Can you recommend a low cost fund ?

[smiles1]

If you have a DC pension with your current employer and you have a lump sum £30k to add (I have 3 years unspent allowance I can use up), is there any benefit/reason to use it to open a SIPP, instead of paying the money directly into my DC pension?

Thanks

[Mr Pointy]

Ziplobb said:

My children 18 and 19 want to start paying into a pension. It wont be a huge amount but I wanto encourage them to get in the habit. They can both afford £80/£100 a month even whilst at uni as they earn decent cash in the holidays. Can you recommend a low cost fund?

The IM staff cannot recommend a particular fund or institution - it's one of the things they cannot do as it would constitute giving advice. Vanguard are often thought of as a low(ish) cost provider so you could have a look at them:
https://www.vanguardinvestor.co.uk/

[pingu393]

Mr Pointy said:

Ziplobb said:

My children 18 and 19 want to start paying into a pension. It wont be a huge amount but I wanto encourage them to get in the habit. They can both afford £80/£100 a month even whilst at uni as they earn decent cash in the holidays. Can you recommend a low cost fund?

The IM staff cannot recommend a particular fund or institution - it's one of the things they cannot do as it would constitute giving advice. Vanguard are often thought of as a low(ish) cost provider so you could have a look at them:
https://www.vanguardinvestor.co.uk/

IM is free if Mr Ziplobb recommends them (or they are already PH'ers).

Choosing the funds can be done at any time, and changed at any time. Getting the ball rolling and starting the pension by dropping the money into "Cash" in the Pension wallet will generate an additional £25 from HMRC per £100 invested by them. IIRC, they can invest upto £2880 per year if they are not earning. That will turn into £3600 without them even choosing a fund . They just need to be aware that they can't access the money until they are 55. If they will need access to the money before then an ISA may be a better bet.

Mr Ziplobb - contact [e-mail] - he's the best one to speak to about this.

[Simpo Two]

pingu393 said:

They just need to be aware that they can't access the money until they are 55. If they will need access to the money before then an ISA may be a better bet

And pension income, after any lump sum, is subject to income tax. So you save it on the way in but pay it on the way out.

IM do indeed do SIPPs, but if I recommended them you'd have to pay me 1% of your stash every year in perpetuity





(or 0.5% in crinklies in a brown envelope)

[pingu393]

You only pay income tax if your income is greater than £12,500, and first 25% of each crystallisation is tax-free as well.

If you crystallise £16,666 per year, it is all tax-free.

If your income was below £12,500 you won't have paid any income tax on the money going in.

[Mr Pointy]

Simpo Two said:

And pension income, after any lump sum, is subject to income tax. So you save it on the way in but pay it on the way out.

IM do indeed do SIPPs, but if I recommended them you'd have to pay me 1% of your stash every year in perpetuity

(or 0.5% in crinklies in a brown envelope)

Careful, my stalker will be after you claiming you get paid a referral fee.

[Intelligent Money]

Ziplobb said:

My children 18 and 19 want to start paying into a pension. It wont be a huge amount but I wanto encourage them to get in the habit. They can both afford £80/£100 a month even whilst at uni as they earn decent cash in the holidays. Can you recommend a low cost fund ?

Hi Ziplobb

As has been said we don't offer advice but are happy to provide guidance.

If they are happy with a low cost tracker and some equity exposure you can take a look at the likes of Vanguard or our own Index funds. As PH family there are no initial charges or minimum premiums with us.

If they prefer the idea of picking their own funds then the likes of Hargreaves Lansdown, Fidelity or AJ Bell are worth a look, if they want to pick individual shares then Hargreaves Lansdown or Interactive investor are a good starting point.


Regards

Nik

[Jack ketch]

Can you help me understand the LIFETIME ALLOWANCE on pensions.
I have retired with 2 pensions and make no further pension contributions. One pension is with the PPF and I now receive monthly payments having taken a tax free lump sum. The other is a SIPP. Part of the SIPP is in Drawdown having taken a tax free lump sum. What are the implications if the value of these 2 pensions exceeds the current Lifetime Allowance?
Cheers. Rick

[CoopsIM]

Jack ketch said:

Can you help me understand the LIFETIME ALLOWANCE on pensions.
I have retired with 2 pensions and make no further pension contributions. One pension is with the PPF and I now receive monthly payments having taken a tax free lump sum. The other is a SIPP. Part of the SIPP is in Drawdown having taken a tax free lump sum. What are the implications if the value of these 2 pensions exceeds the current Lifetime Allowance?
Cheers. Rick

Good morning Rick.

I'm looking into this for you this morning and I'll get a response back to you today.

Kindest regards

Coops

[Intelligent Money]

Jack ketch said:

Can you help me understand the LIFETIME ALLOWANCE on pensions.
I have retired with 2 pensions and make no further pension contributions. One pension is with the PPF and I now receive monthly payments having taken a tax free lump sum. The other is a SIPP. Part of the SIPP is in Drawdown having taken a tax free lump sum. What are the implications if the value of these 2 pensions exceeds the current Lifetime Allowance?
Cheers. Rick

Hi Rick,

The LTA charge is linked to amount of pension that you have crystallised.

In the case of the PPF pension you can ask the PPF to confirm how much of the LTA is used by that scheme. They will provide this as a %.
You then need to work out, or ask your SIPP provider what % of LTA you have used placing that part of your SIPP into drawdown. This will be the % of the LTA in the tax year that you placed that part of the SIPP into drawdown.
You now know what % of LTA you have left.
When you crystallise more of your SIPP you will be subject to an LTA tax charge if you exceed the LTA with that crystallisation. The rates are 55% on lump sums and 25% on income.

eg, PPF used 45% of the LTA
You took £100k tax free cash in 2019. This would crystallise £400k of pension. The LTA in 2019/20 was £1,030,000 so 38.83% of LTA was used.

You have now used 45% + 38.83% of LTA so have 16.17% of LTA left.

The 21/22 LTA is £1,073,100 so you can crystallise an additional £173,467 in tax year 21/22 before the LTA tax rates are levied.

Cheers

Nik

[Jack ketch]

Nik ~ thank you. You’re a hero in explaining it to me. I think I understand (if I don’t the fault is with me being dim) and I’ll have a go working things out with pen and paper.
Cheers. Rick

[Intelligent Money]

Jack ketch said:

Nik ~ thank you. You’re a hero in explaining it to me. I think I understand (if I don’t the fault is with me being dim) and I’ll have a go working things out with pen and paper.
Cheers. Rick

Hi Rick,

If you need any help or want me to take a look at it for you very happy to help. Just drop me a message at [e-mail]

Cheers

Nik

[brightmotiv]

Hello.

I have a SIPP and a company pension and am trying to ensure I maximise tax relief.

My question is around the £40k annual contribution limit: is this prior to tax relief?

In my head it works as follows but I wanted to check this was correct: Assuming you paid in £40k in one year, then you would receive 20% tax relief as a standard rate tax payer (£8k) then claim back a further 20% as a higher rate tax payer (£8k) through self assessment - giving a total contribution of £56k.

Thanks & apologies if this is going over old ground.

[steve_n]

It's £40,000 gross.

If you're making a personal contribution you pay in £32,000 and the pension scheme claims the 20% relief to make up the £40,000 gross amount. Then you reclaim £8,000 for the rest of the higher rate tax relief through self assessment. That comes back to you as cash and is not inside the pension. Simples.

[brightmotiv]

steve_n said:

It's £40,000 gross.

If you're making a personal contribution you pay in £32,000 and the pension scheme claims the 20% relief to make up the £40,000 gross amount. Then you reclaim £8,000 for the rest of the higher rate tax relief through self assessment. That comes back to you as cash and is not inside the pension. Simples.

Thanks for clarifying Steve.