SIPP & Pension guidance - IM Private Clients
Discussion
williaa68 said:
Hello,
My wife and I own a holiday let property which generates gross income of around £40k. Net profit after interest and other expenses (agents fees etc) is much lower - around £5k. Assuming we split the income from the holiday let 50/50 is the “income” figure that would allow my wife to make pension contributions (her other income is all investment income) £20k or is it the net profit. I am aware we could split differently which we may do depending on the answer!
Thank you
Andrew
Hi williaa68My wife and I own a holiday let property which generates gross income of around £40k. Net profit after interest and other expenses (agents fees etc) is much lower - around £5k. Assuming we split the income from the holiday let 50/50 is the “income” figure that would allow my wife to make pension contributions (her other income is all investment income) £20k or is it the net profit. I am aware we could split differently which we may do depending on the answer!
Thank you
Andrew
Unless the property is held in a Ltd company the income from a buy to let is treated as "unearned" income and doesn't count for pension contribution purposes.
Regards
Nik
Carbon Sasquatch said:
What's the most efficient way to withdraw from a SIPP ?
My wife has one, transferred in already crystallised (inherited) and from April, would like to start drawing from it. So is it better to go for an annual lump sum, or is there a monthly 'payroll' type option ?
We'd like to minimise the tax hassle & just get a nice easy net amount - don't really care if its monthly, annually or some other frequency.
Thanks
Hi Carbon SasquatchMy wife has one, transferred in already crystallised (inherited) and from April, would like to start drawing from it. So is it better to go for an annual lump sum, or is there a monthly 'payroll' type option ?
We'd like to minimise the tax hassle & just get a nice easy net amount - don't really care if its monthly, annually or some other frequency.
Thanks
You can draw benefits as lump sums as and when needed or as a regular income. The provider will run regular payments on a "payroll" basis.
When you draw a large lump sum from a crystallised pot, HMRC will typically assume that this is going to be a monthly amount and tax it accordingly, This can take a 2-3 months to get back on track so if you are looking for the least hassle a regular monthly amount is a good starting point. You can always top this up with additional payments if needed at a later date.
Cheers
Nik
pingu393 said:
LeoSayer said:
pingu393 said:
So If I withdraw £25k, I automatically crystallise £75k - and it will be taxed when withdrawn.
To get £25k lump sum from a £100k (uncrystallised) pension pot, you will need to crystallise the whole £100k pot.£25k will be paid to you as a tax free lump sum
£75k will go into a drawdown pot within the same pension. You can leave it there or take some / all as taxable income whenever you want
It won't be happening for a couple of years yet. Not long to wait, though.
The answers have been covered in the posts but as a summary :
If you have a £100k uncrystallised pot (no previous benefits drawn from the pot) and you want to take £25k you could take £25k tax free as a PCLS (pension commencement lump sum). This would crystallise the whole pot and the remaining £75k, and any subsequent growth on it,
will be taxed as income when you draw it.
You could combine the withdrawal as part tax free and part income. As an example if you had no other income and wanted to use your personal allowance you could draw £12,570 as income and £12,430 as a tax free cash. This crystallised £49,720 of the pot.
As you say in your last post we at IM towers are happy to chat through the withdrawal options and help you decide what is the most tax effcient option for you at the time that you need access your funds
Cheers
Nik
DibblyDobbler said:
Hi IM
Can I just ask a quick one (sorry if it has been covered already)
I am Scottish and currently the threshhold for 40% income tax in Scotland is £43,662 - I had assumed that when I start drawdown from my SIPP I would go up to £43,662 to avoid higher rate tax (ignore the tax free cash - am taking that separately)
But I read today somewhere that effectively the UK rates apply to SIPP drawdown and I could take up to £50,271 before hitting 40% - is that right please?
Cheers
Hi DibblyDobblerCan I just ask a quick one (sorry if it has been covered already)
I am Scottish and currently the threshhold for 40% income tax in Scotland is £43,662 - I had assumed that when I start drawdown from my SIPP I would go up to £43,662 to avoid higher rate tax (ignore the tax free cash - am taking that separately)
But I read today somewhere that effectively the UK rates apply to SIPP drawdown and I could take up to £50,271 before hitting 40% - is that right please?
Cheers
I believe that if you are living in Scotland when you draw your pension benefits then the Scottish income tax bands apply, so 41% tax kicks in at £43,663
Cheers
Nik
charge said:
I need some advice please.
Despite having a pension since I was 18, it has only been the last few years (after houses, holidays and cars as a priority) that i have knuckled down and put some money in.
I have always been dubious of putting a lot of funds into things I dont understand as have always got burnt when I did, and now with the pension I am wondering if the only one who is benifitting is the broker.
My wife and i saw around 4% on the last 12 months, of which 2% was fees, and they have not exaclty been playing the market.
We are with Elevate.
Is this the sort of poor returns to expect in what has been an expanding market the last 12 months?
Not sure what to do as I know the smooth bugger in the suit we will me to not worry, and am on track.
Any pointers appreciated!
Hi Charge (or is it?)Despite having a pension since I was 18, it has only been the last few years (after houses, holidays and cars as a priority) that i have knuckled down and put some money in.
I have always been dubious of putting a lot of funds into things I dont understand as have always got burnt when I did, and now with the pension I am wondering if the only one who is benifitting is the broker.
My wife and i saw around 4% on the last 12 months, of which 2% was fees, and they have not exaclty been playing the market.
We are with Elevate.
Is this the sort of poor returns to expect in what has been an expanding market the last 12 months?
Not sure what to do as I know the smooth bugger in the suit we will me to not worry, and am on track.
Any pointers appreciated!
It has been a strange 12 months in the investment world and while it has been possible to gain greater returns than 4% it has also been possible to return less and even lose over the same period.
It is the risk/reward and understanding where your money is that is probably the most important part of your plan.
For a 2% fee I would hope that your adviser is on hand to talk you through where your money is , why it is there and why it is appropriate for you. While, compared to the average,2% looks like a high charge ultimately only you can decide if you feel you are getting value for this.
I'm happy to take a look at what you have and pull a summary together for you so you can understand where you are and if that looks right for you.
Just drop me a message at nik.burrows@intelligentmoney.com if you need any help.
Regards
Nik
Keep it stiff said:
Nik, I would appreciate clarity on the issue of lifetime allowance
My DB scheme matured 18 months ago and I calculate the lifetime value as £615k made up as gross annual pension x 20 plus lump sum. I also have a SIPP, present value approx. £400k, I was not planning to draw from this for several years however I'm concerned that the combined value is approaching the lifetime allowance figure of £1,073,100.
Am I correct in thinking that that to keep within the lifetime allowance figure I will need to crystallize the SIPP and commence drawdown before the value gets to £460k? If so, if I commence drawdown for a nominal sum and the SIPP later grows beyond £460k will that leave me clear of falling into the higher tax status?
Hi Keep it StiffMy DB scheme matured 18 months ago and I calculate the lifetime value as £615k made up as gross annual pension x 20 plus lump sum. I also have a SIPP, present value approx. £400k, I was not planning to draw from this for several years however I'm concerned that the combined value is approaching the lifetime allowance figure of £1,073,100.
Am I correct in thinking that that to keep within the lifetime allowance figure I will need to crystallize the SIPP and commence drawdown before the value gets to £460k? If so, if I commence drawdown for a nominal sum and the SIPP later grows beyond £460k will that leave me clear of falling into the higher tax status?
Carbon Sasquatch is on the money with this one. The assessment is done when you crystallise the pot. As an example you may take the tax free cash element and place the rest into drawdown but not yet take any income. When any income is drawn it will be assessed and taxed as income as it is drawn.
There is a second test at age 75. The value of the funds at age 75 is compared with the amount that was originally crystallised (after the payment of any tax free cash). If the value at age 75 is higher, the difference between the two figures is treated as a further crystallisation and is tested against the available LTA.
Hope that helps
Cheers
Nik
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 Skilly1You 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 nik.burrows@intelligentmoney.com 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
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-ToadAt 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!
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
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 CountdownI'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.
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 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, 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
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 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.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
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?
I am not aware of any that charge, it should just be part of the service they offer. IM certainly don't.
Cheers
Nik
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 ToadThank 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.
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
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, thanks
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
mjb1 said:
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.
Hi, Apologies for the delay in a reply, a few days holiday got in the way!
You are very unlikely to find a SIPP that will take the holiday home. HMRC tend to take the view that if the properties could be used for residential purposes then they won't qualify.
The garage option could work but would need to be assessed and approved by the SIPP provider first. As you say you would need to hold it on separate title and designate its use as commercial. Your mortgage provider would need to approve the separation of title, although this shouldn't be a problem based on the outline you have provided.
Cheers
Nik
B9 said:
Thanks for the quick reply - for the uneducated (me), say I earned 55k over those years but I contributed (via salary sacrifice) £20k pa - And now I’ve started a new job on £100k, can I sacrifice £60k this year and put the extra £20k against the 19/20 carry forward?
And then again for next two years, and then back to standard £40k per year?
All these numbers include employer contributions, which all contributions will be as I’ll be contributing via sacrificing salary
Hi B9And then again for next two years, and then back to standard £40k per year?
All these numbers include employer contributions, which all contributions will be as I’ll be contributing via sacrificing salary
Yes you can do exactly that.
Cheers
Nik
i4got said:
foiled said:
For defined benefit scheme your “pot” is x20 your annual pension, not x25, so you might have more lta to play with
Thanks that is useful to know.The LTA calculation for your pot is likely to be 20x pension + any lump sum but will be confirmed by the trustees/administers
The LTA is usually paid by the scheme that takes you over the LTA when you crystallise it. No LTA is due until you have crystallised your pots over the LTA limit.
Cheers
Nik
OldSkoolRS said:
I have a DC pension with the company I retired from in May this year. I'm currently living off savings and a modest, but tax free, ex-Navy pension. The rule with our company pension is that you have to give them a year's notice to start taking it, which is currently set to my 60th birthday in just over 3 years time. If I want to start taking it next December I'd have to let them know before my birthday later this month.
However, if I was to move it to another provider could I start taking it sooner, such as next summer? Does it have to be geared around your birthday?
If it helps the current provider is Scottish Widows, who don't charge for transferring out from them.
Also: Assuming I take the 25% TFLS from this pension when it starts, can I split the remaining 75% into drawdown and an annuity (either 10 year or lifetime), or does the 75% have to be one or the other?
I only need this DC pension to see me through to state pension age (10 years time), so any remaining beyond that is a bonus as I'll have my tax free Navy pension, plus a very small DB pension that I'm starting this December, plus savings to earn interest off/dip into as required.
Hi OldSkoolRSHowever, if I was to move it to another provider could I start taking it sooner, such as next summer? Does it have to be geared around your birthday?
If it helps the current provider is Scottish Widows, who don't charge for transferring out from them.
Also: Assuming I take the 25% TFLS from this pension when it starts, can I split the remaining 75% into drawdown and an annuity (either 10 year or lifetime), or does the 75% have to be one or the other?
I only need this DC pension to see me through to state pension age (10 years time), so any remaining beyond that is a bonus as I'll have my tax free Navy pension, plus a very small DB pension that I'm starting this December, plus savings to earn interest off/dip into as required.
My apologies for the delay in replying.
Assuming that there are no transfer our restriction on you pot, you can switch to another provider and start drawing benefits at any point after your 55th birthday, so as soon as you like in your case.
You can split the "income" portion of the pot into drawdown and annuity if you wish and don't have to crystallise the whole pot in one go, so can draw a tax free cash element each year rather than all at outset to allow you to take an income more tax efficiently if you don't need a tax free lump sum at outset.
I'm happy to go through the options linked to your situation if that would help, just drop me a message at nik.burrows@intelligentmoney.com
Cheers
Nik
Countdown said:
Another two noob question.....
Question 1- Lifetime Allowance
Let's say I have 2 DB pensions, which will pay a pension of £40k at the age of 65. How do i estimate how close I am to the LTA threshold (in order to avoid exceeding it by investing in a SIPP?
Question 2 - Annual Allowance
Person A has pensionable earnings of £90k. he pays 10% into a DB scheme, His employer pays in 20% (so that makes £27k in total). I assume person A can pay £13k into a SIPP because of the £40k annual limit
Hi Countdown, Question 1- Lifetime Allowance
Let's say I have 2 DB pensions, which will pay a pension of £40k at the age of 65. How do i estimate how close I am to the LTA threshold (in order to avoid exceeding it by investing in a SIPP?
Question 2 - Annual Allowance
Person A has pensionable earnings of £90k. he pays 10% into a DB scheme, His employer pays in 20% (so that makes £27k in total). I assume person A can pay £13k into a SIPP because of the £40k annual limit
Qu1
The lifetime allowance calculation for your DB scheme is likely to be 20X the pension + any lump sum payable, the most accurate way to confirm this is to get an LTA calculation from the trustee.
Qu2
The annual contribution calculation for a DB scheme is based on the "accrual" in that year, i.e. how much the pension increased by, not how much was paid in.
It its a bit of a convoluted calculation based on a 16:1 ratio, again the best way to be clear is to ask the trustees for the "pension input" for a given tax year.
Cheers
Nik
jimmybell said:
quick question WRT carry-forward allowance...
As an example, if i've paid 20k every year for the past 3 years, and lets assume i had 40k allowance for each of those years..
does that mean i can make +20k contributions for the next 3 years to use up the allowance from the previous 3?
or do i have to use it all in one year, and thus contribute 60k plus whatever allowance there is for this year?
equally, with the pension taper in 2019/20 - i assume with any carry forward contributions for that year it's still based on your 2019/20 taper allowance?
Hi JimmybellAs an example, if i've paid 20k every year for the past 3 years, and lets assume i had 40k allowance for each of those years..
does that mean i can make +20k contributions for the next 3 years to use up the allowance from the previous 3?
or do i have to use it all in one year, and thus contribute 60k plus whatever allowance there is for this year?
equally, with the pension taper in 2019/20 - i assume with any carry forward contributions for that year it's still based on your 2019/20 taper allowance?
You carry forward on the following basis : Maximum contribution for the current tax year first, then 3 years back, then 2 years back, then 1 year back.
You can use all or some of the remaining allowance for the year/years you go back to.
If you don’t use all of year 3 this will be lost next year as next year, year 2 becomes year 3,
If you use all of year 3 and some of year 2 you can access the remaining part of year 2 next year.
You carry forward unused allowance from the tax year you go back to so any taper that was applied in that year still applies.
Cheers
Nik
Sheepshanks said:
From a bit of reading it looks like a scheme (of any sort, apparently) has to have been in place for prior years.
I was wondering if I could set up a SIPP for my wife and dump a load of (company) money into it. She currently already receiving a (very) small Civil Service pension and has no other arrangements. She is employed by our company.
Hi SheepshanksI was wondering if I could set up a SIPP for my wife and dump a load of (company) money into it. She currently already receiving a (very) small Civil Service pension and has no other arrangements. She is employed by our company.
The requirement is that a scheme must of been place that she could of contributed to, or was a deferred member of. If the only scheme she has is a Civil Service plan and that is in payment then Carry Forward could not be used for the years that it has been in payment.
Cheers
Nik
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