SIPP & Pension guidance - IM Private Clients

[Intelligent Money]

skilly1 said:

I don’t really understand from a personal tax point of view how SIPPS work. Can I transfer money into a SIPP out of the company with no personal tax payable? Also I think there is a limit of £20k ?

Hi Skilly1

You can make a payment into a SIPP as a "company contribution" The company can pay a maximum of £40k p.a. into a pension for you, irrespective of your earnings, but your contributions and the companies combined cannot be greater than £40k.

As mentioned you can go back to use up previous years unused allowances if you need to, for both company and individual contributions.

There is an option to hold funds in cash within the IM SIPP and then invest them when you are ready.

Please just drop me a message at [e-mail] if you would like me to take a look at your situation and we can set up a call to chat it through if that would help.

Cheers

Nik

[Intelligent Money]

The Hypno-Toad said:

Quick question from someone who is a little confused.

At the moment I earn roughly £30k and £40k a year which means I am at standard rate of tax. I know that if I draw down a lump sum over 20k from my pension I will pay tax on it. But what I don't understand is if the tax on this is paid by pension provider at the time when I draw the funds down, does the balance of that amount get added onto my wages and I then have to pay tax on that final figure as extra income which could possibly put me into a higher tax band?

Because that sounds like I would be paying tax twice on the figure that I drew down plus I would be paying more on my normal wages for at least a year? Or as I mentioned, once the provider has paid the tax is that it?

Err..... help!

Hi Hypno-Toad

The main points have been covered for you i think.
If you draw the funds as part of you tax free cash element then no tax will be payable and you are still able to contribute to a pension within the normal limits.
If you draw the funds as income then tax will be deducted at source by the pension provider and you will get the "net" payment.
At the end of the tax year an assessment of your total income will check that the right amount of tax has been paid and you will either get a refund or an additional bill!
Drawing an income will limit how much you can contribute into a pension

Cheers

Nik

[skilly1]

Intelligent Money said:

Hi Skilly1

You can make a payment into a SIPP as a "company contribution" The company can pay a maximum of £40k p.a. into a pension for you, irrespective of your earnings, but your contributions and the companies combined cannot be greater than £40k.

As mentioned you can go back to use up previous years unused allowances if you need to, for both company and individual contributions.

There is an option to hold funds in cash within the IM SIPP and then invest them when you are ready.

Please just drop me a message at [e-mail] if you would like me to take a look at your situation and we can set up a call to chat it through if that would help.

Cheers

Nik

Many thanks Nik, I have emailed you so we can have a chat.

[Countdown]

Apologies if this has been asked already.....

I'm a higher rate taxpayer in a company DB scheme (I pay in about 8% the Company is currently paying in 20% but that changes at every triennial valuation).

How much can I put into a Sipp? is it £40k less the amount that I'm contributing to my works cheme OR £40k less the total amount being paid into my DB scheme.

[Intelligent Money]

Countdown said:

Apologies if this has been asked already.....

I'm a higher rate taxpayer in a company DB scheme (I pay in about 8% the Company is currently paying in 20% but that changes at every triennial valuation).

How much can I put into a Sipp? is it £40k less the amount that I'm contributing to my works cheme OR £40k less the total amount being paid into my DB scheme.

Hi Countdown

It is a little bit different for a DB scheme and is worked out based on "pension input". This is calculated by looking at how much your pension benefit increases by, rather than how much you and your employer pay in. The most accurate way to find your pension input is to ask the scheme administrators.

You can get a rough guide using your salary and the accrual rate of your scheme, The accrual rate its the amount of pension that you gain for each year you are employed and is usually and fraction of your salary and will be mentioned in your scheme rules i.e. 1/60th, 1/80th.

This is then multiplied by 16 to give you your annual input amount.

As an example if you earn £75,000 p.a. and your accrual rate is 1/60th then your input is (£75,000 x 1/60) x 16 = £20,000

In this example you could then contribute £20,000 into a SIPP/Personal pension.

Cheers

Nik

[Countdown]

Hi Nik

That's really helpful - thank you.

Assuming I pay the £20k into a SIPP how does the tax relief work (both the 20% and the 40% bits)?

Also can I make backdated payments of £20k for each year over the last 3 years to utilise the unused pension allowance (assuming my salary in those years was similar)?

Thanks again

[Intelligent Money]

Countdown said:

Hi Nik

That's really helpful - thank you.

Assuming I pay the £20k into a SIPP how does the tax relief work (both the 20% and the 40% bits)?

Also can I make backdated payments of £20k for each year over the last 3 years to utilise the unused pension allowance (assuming my salary in those years was similar)?

Thanks again

Hi Countdown,

In the example I gave the £20k contribution is the gross contribution, so you would pay £16,000 and get a top up of £4,000 into the pension as 20% tax relief.
You then get an additional 20% as a higher rate tax payer that you claim as part of your tax return. This will then be paid as a refund or via your coding for the following year.

You can "carry forward" unused allowance from the previous three years but will only get tax relief on contributions up to 100% of your earnings in the year of contribution.

Cheers

Nik

[Countdown]

Intelligent Money said:

Hi Countdown,

In the example I gave the £20k contribution is the gross contribution, so you would pay £16,000 and get a top up of £4,000 into the pension as 20% tax relief.
You then get an additional 20% as a higher rate tax payer that you claim as part of your tax return. This will then be paid as a refund or via your coding for the following year.

You can "carry forward" unused allowance from the previous three years but will only get tax relief on contributions up to 100% of your earnings in the year of contribution.

Cheers

Nik

Perfect - thanks Nik.

Apologies as this might be a cheeky question - do SIPP providers charge extra for doing the 20% reclaim or is it included in their fee?

[Intelligent Money]

Countdown said:

Intelligent Money said:

Hi Countdown,

In the example I gave the £20k contribution is the gross contribution, so you would pay £16,000 and get a top up of £4,000 into the pension as 20% tax relief.
You then get an additional 20% as a higher rate tax payer that you claim as part of your tax return. This will then be paid as a refund or via your coding for the following year.

You can "carry forward" unused allowance from the previous three years but will only get tax relief on contributions up to 100% of your earnings in the year of contribution.

Cheers

Nik

Perfect - thanks Nik.

Apologies as this might be a cheeky question - do SIPP providers charge extra for doing the 20% reclaim or is it included in their fee?

Hi Countdown,

I am not aware of any that charge, it should just be part of the service they offer. IM certainly don't.

Cheers

Nik

[Countdown]

Intelligent Money said:

Hi Countdown,

I am not aware of any that charge, it should just be part of the service they offer. IM certainly don't.

Cheers

Nik

Thanks again Nik

[The Hypno-Toad]

Intelligent Money said:

The Hypno-Toad said:

Quick question from someone who is a little confused.

At the moment I earn roughly £30k and £40k a year which means I am at standard rate of tax. I know that if I draw down a lump sum over 20k from my pension I will pay tax on it. But what I don't understand is if the tax on this is paid by pension provider at the time when I draw the funds down, does the balance of that amount get added onto my wages and I then have to pay tax on that final figure as extra income which could possibly put me into a higher tax band?

Because that sounds like I would be paying tax twice on the figure that I drew down plus I would be paying more on my normal wages for at least a year? Or as I mentioned, once the provider has paid the tax is that it?

Err..... help!

Hi Hypno-Toad

The main points have been covered for you i think.
If you draw the funds as part of you tax free cash element then no tax will be payable and you are still able to contribute to a pension within the normal limits.
If you draw the funds as income then tax will be deducted at source by the pension provider and you will get the "net" payment.
At the end of the tax year an assessment of your total income will check that the right amount of tax has been paid and you will either get a refund or an additional bill!
Drawing an income will limit how much you can contribute into a pension

Cheers

Nik

Hi Nik,

Thank you very much for your thoughts and sorry it took so long to reply. In a bit of disarray at the moment as the flat is being redecorated and everything is everywhere.

So if I’ve got this right, my tax will assessed at the end of the year and my code will change if the pension provider as not paid enough tax. Then my tax code will be assessed again at the end of the next tax year?

Sorry but I’m a real dunce when it comes to this stuff.

[Tony Angelino]

Intelligent Money said:

Countdown said:

Hi Nik

That's really helpful - thank you.

Assuming I pay the £20k into a SIPP how does the tax relief work (both the 20% and the 40% bits)?

Also can I make backdated payments of £20k for each year over the last 3 years to utilise the unused pension allowance (assuming my salary in those years was similar)?

Thanks again

Hi Countdown,

In the example I gave the £20k contribution is the gross contribution, so you would pay £16,000 and get a top up of £4,000 into the pension as 20% tax relief.
You then get an additional 20% as a higher rate tax payer that you claim as part of your tax return. This will then be paid as a refund or via your coding for the following year.

You can "carry forward" unused allowance from the previous three years but will only get tax relief on contributions up to 100% of your earnings in the year of contribution.

Cheers

Nik

Just to jump on the back of this please, if you ask your employer to pay more into the pension 'at source' (PAYE) instead of receiving it as salary/bonus does this get done automatically like the normal mothly payment?

thanks

[Intelligent Money]

The Hypno-Toad said:

Hi Nik,

Thank you very much for your thoughts and sorry it took so long to reply. In a bit of disarray at the moment as the flat is being redecorated and everything is everywhere.

So if I’ve got this right, my tax will assessed at the end of the year and my code will change if the pension provider as not paid enough tax. Then my tax code will be assessed again at the end of the next tax year?

Sorry but I’m a real dunce when it comes to this stuff.

HI Hypno Toad

If you think your tax position is out of kilter because of the combination of income from employment and pension income then you should submit a tax return and HMRC will make any adjustments that are needed.

Cheers

Nik

[Intelligent Money]

Tony Angelino said:

Just to jump on the back of this please, if you ask your employer to pay more into the pension 'at source' (PAYE) instead of receiving it as salary/bonus does this get done automatically like the normal mothly payment?

thanks

Hi Tony,

If you agree a pension exchange/salary sacrifice for an increased pension contribution then the payment is usually made as an employer contribution. This is a gross contribution as you have not received it as income and so never paid tax on it.

Cheers

Nik

[Tony Angelino]

Intelligent Money said:

Tony Angelino said:

Just to jump on the back of this please, if you ask your employer to pay more into the pension 'at source' (PAYE) instead of receiving it as salary/bonus does this get done automatically like the normal mothly payment?

thanks

Hi Tony,

If you agree a pension exchange/salary sacrifice for an increased pension contribution then the payment is usually made as an employer contribution. This is a gross contribution as you have not received it as income and so never paid tax on it.

Cheers

Nik

Lovely, thanks for the reply. Appreciated.

[mjb1]

Got a couple of questions regarding holding property in a SIPP if anyone wants to answer them please.

I understand it's not possible to have standard residential property in a SIPP. Wondering if there is any possibility of a holiday 'lodge' though? I suspect it's likely to be no? Technically it's residential, but with a holiday use only restriction. The lodge is on holiday resort/estate with lots of other similar properties. All are holiday use only, and that's never likely to change - the restriction won't get lifted, and the site wouldn't allow it even if the LA would. It would be a genuine investment - it's leasehold, but has 970 odd years remaining on 999 year lease, so as a capital investment it's fairly safe. Letting income should more than cover the expenses, and give an annual return of between 10 and 20%. I live nearby (actually in a nicer location that the lodge) so it's not like there would be any beneficial interest to me personally, just that it's conveniently close for me to maintain and manage it.

The other thing I'm wondering if might be possible to do is separate my domestic garage onto a separate legal title from my house and then sell it into my SIPP? Currently it's used by my limited company for parking company van, storage of stock and equipment and as workshop (IT related activities, so not heavy industrial, not even light industrial). Garage is at the opposite end of the plot, and has direct access onto the public highway. Separating it from my house wouldn't massively affect it's value (still retain a separate driveway/off road parking), and I have a lot of equity, so reduction in house value would give a LTV of about 35%. My limited company would then rent the garage from the SIPP, to generate a return directly into my pension. I guess the RV of the garage as a commercial property would be below the business rates threshold. I'm not sure about any planning/change of use implications that might arise.

Do either of these ideas sound at all feasible?

[samdy]

Holiday homes in a SIPP is a massively grey area. Whilst someone might be willing to interpret HMRC rules to say they think it is allowable, you'd be hard pressed to find a SIPP company willing to do it.

Again with the garage, probably more technically allowable than the holiday let in the eyes of the rules, but given its close proximity to your main residence I think you'd still struggle to find a SIPP company willing to take it on. Plus apart from the benefit of getting more money from your business into your pension, I'd question whether it's really a good idea as surely it would impact on the future sale of your house.

[mjb1]

samdy said:

Holiday homes in a SIPP is a massively grey area. Whilst someone might be willing to interpret HMRC rules to say they think it is allowable, you'd be hard pressed to find a SIPP company willing to do it.

Again with the garage, probably more technically allowable than the holiday let in the eyes of the rules, but given its close proximity to your main residence I think you'd still struggle to find a SIPP company willing to take it on. Plus apart from the benefit of getting more money from your business into your pension, I'd question whether it's really a good idea as surely it would impact on the future sale of your house.

Yes appreciate that holiday homes are a grey area, did wonder if that was more for a regular residential property bought to be used as a holiday home. Hoped there maybe more tolerance with property that's built as dedicated holiday accommodation and has planning use restriction for holiday use only?

I don't think losing the garage from the property would significantly affect future sale of my house. Obviously the garage adds some value, but many similar houses nearby don't have any garage (or off street parking). Mine has both, and the garage is bottom of my garden with it's own access to the highway, separate to my second parking space which the house would retain. I wouldn't have thought there would be a major issue with recombining the titles or selling together when the time comes to sell the house. Also, the garage is ripe for conversion into a separate dwelling in the future, which would massively uplift it's value.

[tighnamara]

mjb1 said:

Yes appreciate that holiday homes are a grey area, did wonder if that was more for a regular residential property bought to be used as a holiday home. Hoped there maybe more tolerance with property that's built as dedicated holiday accommodation and has planning use restriction for holiday use only?

I don't think losing the garage from the property would significantly affect future sale of my house. Obviously the garage adds some value, but many similar houses nearby don't have any garage (or off street parking). Mine has both, and the garage is bottom of my garden with it's own access to the highway, separate to my second parking space which the house would retain. I wouldn't have thought there would be a major issue with recombining the titles or selling together when the time comes to sell the house. Also, the garage is ripe for conversion into a separate dwelling in the future, which would massively uplift it's value.

I looked at an actual 5 lodge business and was advised the same as above, grey area and frowned upon by HMRC so very difficult to do.

On your garage, won’t it be very difficult to split with a mortgage (you mentioned 35% LTV) currently in place, that would most likely be your biggest stumbling block.

[mjb1]

tighnamara said:

I looked at an actual 5 lodge business and was advised the same as above, grey area and frowned upon by HMRC so very difficult to do.

On your garage, won’t it be very difficult to split with a mortgage (you mentioned 35% LTV) currently in place, that would most likely be your biggest stumbling block.

I don't know the actual mechanics of splitting it off the mortgage (hopefully that's not a stumbling block), just that the house might be worth 50k less without the garage, and that would increase the LTV on the house from about 30% to 36%. I think both are low enough that it wouldn't affect mortgageability or interest rate? Obviously I don't want to split the mortgage, that needs to stay on the house by itself.