Advice re. ISA/SIPP

[Chris Type R]

Hi

I wonder if anyone on here can offer some advice regarding transferring profits from my S&S ISA to my SIPP ?

To my shame I've been hanging out on the gambling thread and despite this, fortunately I have been moderately successful.

I'm contemplating transferring some of my ISA profits into my SIPP in order to benefit from the pension contribution and the higher rate tax relief. Is there any downside to doing so, other than the funds being inaccessible for at least a few years.

I'm 50 now and don't envisage retiring any time soon - my pension pot (SIPP) is not large, so my focus over the next few years is to grow this. I have some unused annual allowance from previous tax years. The amount I'm considering is somewhere between 8 and 16k.

Cheers

[LeoSayer]

Does your employer offer pension contributions via salary sacrifice? If so then this is the most tax efficient way of contributing to a pension.

[Chris Type R]

LeoSayer said:

Does your employer offer pension contributions via salary sacrifice? If so then this is the most tax efficient way of contributing to a pension.

I'm a joint owner of small software development company.

While I'm sure your post is well meaning, the question itself is quite specific to my current situation.

[Mr Pointy]

Chris Type R said:

LeoSayer said:

Does your employer offer pension contributions via salary sacrifice? If so then this is the most tax efficient way of contributing to a pension.

I'm a joint owner of small software development company.

While I'm sure your post is well meaning, the question itself is quite specific to my current situation.

But his reply could be relevant - are you an employee of the company? If you are you can make very advantageous contributions to a pension. You might care to look at the IM sticky & have a chat with Nik or JulianPH.

ISAs are taxed on the way in but not on the way out. Pensions are tax efficient on the way in but taxed on the way out. Many take advantage of both arrangements.

[LeoSayer]

Chris Type R said:

I'm a joint owner of small software development company.

While I'm sure your post is well meaning, the question itself is quite specific to my current situation.

The answer to your specific question is that pensions (as you say) are a captive target so future governments could change the taxation regime.

[Chris Type R]

Good points, I've been doing a bit more reading on the tax efficiencies of paying into the pension via a limited company. Something to ponder beginning of next year and discuss further with the company accountant. He has already suggested doing something like https://boolers.co.uk/9-reasons-buy-business-premi... The opportunities may begin to present themselves next year.

My immediate concern is to make use of the higher rate tax relief while this still exists in its current form. I don't believe there's any punitive taxation which would prevent me moving funds from the one tax wrapper to the other.

[thekingisdead]

You cannot claim tax relief when clawing back previous years pension allowance. (Only current year)

So transferring ISA money into pension to claim back previous unused pension allowance would be the wrong thing to do, imo

By all means you could transfer from ISA into SiPP to claim this years full allowance, but don’t forget withdrawals from ISA are tax free, pensions are taxable. So the money you transfer will likely be subject to future income tax. Not so when kept in isa.

You also at risk of future changes to pension regulation - when you can access etc.

I’m not an IFA / tax accountant, so DYOR

[ATM]

You should get all 40% back on your SIPP contributions. Some is automatic from the SIPP provider and the rest you have to claim from HMRC yourself - don't assume this is simple. Worst case is you then pay the 40% tax back when you withdraw it so I dont see how this is bad. Better case is you pay back some tax at the lower rate when you withdrawer and therefore you win. Tax changes could make this worse but also better. There has been speculation for some time that the government will raise the threshold for higher rate tax. This would make the withdraw side look more attractive. If you want the money locked away - which can also prevent you doing something silly - then I dont see any reason not to do this. Please tell me if I'm wrong because right now I'm paying in all my higher rate taxed income.

[JulianPH]

You actually can claim tax relief when clawing back previous year's contributions under the carry forward rule.

Chris - The advantage of getting the higher rate tax relief outweighs the disadvantage of paying tax on 75% of your withdrawals.

For example, for every £1,000 of profit you take out of your ISA and place into a SIPP/Pension you receive £250 of basic rate tax relief into your SIPP/Pension and another £250 of higher rate tax relief back in your pocket via your tax return.

This means a £1,250 gross contribution only costs you £750 - so you get a 66.66% uplift.

When you come to withdraw, if you are still in the higher rate tax band the income tax is equivalent to 30% on that slice and 15% on anything in the basic rate.

The points made about company contributions (though not related to your question) are very valid and there is no income take or NI to be paid and any contribution is offset against corporation tax.

Give me a shout if you want me to go over this with you and explain further.

[Chris Type R]

JulianPH said:

Give me a shout if you want me to go over this with you and explain further.

Hi Julian

Thanks for taking the time to answer and sanity checking my current plan ... I do want to get in touch with you / Nik next year so that I can move my little pot into something which I'm less tempted to fiddle with.

JulianPH said:

When you come to withdraw, if you are still in the higher rate tax band the income tax is equivalent to 30% on that slice and 15% on anything in the basic rate.

Currently my pension pot is quite small and it's hard to predict what will happen in the future with the business - so I'm working on pessimistic assumption that I'll not be a higher rate tax payer when I retire (fiscal drag considerations aside).

(on the company side, there is a perverse elegance to funding a commercial property via limited company pension contributions and then renting this back again )

Cheers
Chris

Edited by Chris Type R on Tuesday 8th December 08:26

[thekingisdead]

“You actually can claim tax relief when clawing back previous year's contributions under the carry forward rule“

Really!? I was researching this recently when mulling up a voluntary severance payment. Read that you couldn’t somewhere

Guess that’s why I’m not a professional 😂

[Chris Type R]

LeoSayer said:

Does your employer offer pension contributions via salary sacrifice? If so then this is the most tax efficient way of contributing to a pension.

I just wanted to apologise for my abrupt response to your observation - I've taken your comment and the other responses on board and am making use of a company contribution (and carry overs) to move a decent amount into my SIPP. The ISA will be retained as the rainy-day fund.

[ATM]

Chris Type R said:

LeoSayer said:

Does your employer offer pension contributions via salary sacrifice? If so then this is the most tax efficient way of contributing to a pension.

I just wanted to apologise for my abrupt response to your observation - I've taken your comment and the other responses on board and am making use of a company contribution (and carry overs) to move a decent amount into my SIPP. The ISA will be retained as the rainy-day fund.

Well done for being a grown up and admitting that. PH would be a much nicer place if more people did it. I was just calling you a banker on another post but will delete that now.

[LeoSayer]

Chris Type R said:

I just wanted to apologise for my abrupt response to your observation - I've taken your comment and the other responses on board and am making use of a company contribution (and carry overs) to move a decent amount into my SIPP. The ISA will be retained as the rainy-day fund.

[Chris Type R]

ATM said:

I was just calling you a banker on another post but will delete that now.