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Is ISA->SIPP->ISA OK?

bucklb
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Is ISA->SIPP->ISA OK?

#393207

Postby bucklb » March 6th, 2021, 9:09 pm

Hi. I'd be grateful if people could confim that my plans are sensible (and legal) please

Context is :
I'm hoping to retire (early) in a few years time.
Once SP kicks in we should have enough db pension to be sure we can live reasonably well
I want to be very sure that we have sufficient cash to cover the gap between retirement and SPA, regardless of equity and stock markets
I'm already adding money to SIPP to avoid paying 40% tax but nowhere near hitting SIPP limits

Plan is:
In the run up to retirement look at "bed & SIPP". By which I mean sell equity in ISA and buy back in SIPP (with cash cushioning between the two).
After retirement start pulling money back from the SIPP, possibly to (re)invest in equity ISA, or just to replenish cash reserves

Rationale:
If I move an extra £16k cash in to the SIPP then it gets boosted to £20k automatically. I then co-ordinate selling £16k of equity from the ISA and buying £20k of the stock in the SIPP. In theory I could even transfer cash straight in to the SIPP and keep it as cash. I've not seen anything to say this would be naughty
I will later effectively pay 15% tax on what I take from the SIPP (25% tax free and 20% on the rest). So the £16k cash transferred in will then return £17k cash, less charges & spreads etc, so approx 6% return on shuffling the funds

Issues:
There will be limits on how much money a year I can add to the SIPP, but I only wish that might be a problem I can have
There will be limits on how quickly the cash can be taken from the SIPP before hitting the 40% threshold, so if I need lots of cash fast then I could be in trouble. I will be doing my level best to maintain a cash cushion to avoid that being an issue

Does this seem a plausible / worthwhile thing to be doing?

Ta
Bob

Urbandreamer
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Re: Is ISA->SIPP->ISA OK?

#393243

Postby Urbandreamer » March 7th, 2021, 8:04 am

bucklb wrote:Plan is:
In the run up to retirement look at "bed & SIPP". By which I mean sell equity in ISA and buy back in SIPP (with cash cushioning between the two).
After retirement start pulling money back from the SIPP, possibly to (re)invest in equity ISA, or just to replenish cash reserves

Rationale:
If I move an extra £16k cash in to the SIPP then it gets boosted to £20k automatically. I then co-ordinate selling £16k of equity from the ISA and buying £20k of the stock in the SIPP. In theory I could even transfer cash straight in to the SIPP and keep it as cash. I've not seen anything to say this would be naughty
I will later effectively pay 15% tax on what I take from the SIPP (25% tax free and 20% on the rest). So the £16k cash transferred in will then return £17k cash, less charges & spreads etc, so approx 6% return on shuffling the funds
...
Does this seem a plausible / worthwhile thing to be doing?

Ta
Bob


It looks fairly sensible to me. A lot depends upon the tax rate that you will pay between stopping work and state pension age and how big your ISA is.

Currently I'm taking the dividends out of one of my ISA's and re-investing them in my SIPP. However my income tax rate when I start drawing pension will be 0%.
It is possible that yours might be the same if you manage your money well.

Ok,here is how.
Income tax is only paid upon "taxable income" once the personal allowance is exceeded. So if you have the funds, draw £12kpa from the SIPP and top it up to your lifestyle with money from the ISA. If the SIPP is your only source of taxable income then income tax will not be due.

I have a DB that I believe should pay just less than the personal allowance at 65, so should not be subject to income tax until 67. If it is less than the personal allowance when I start claiming the DB, I'll simply reduce what I draw from my SIPP.

I won't be taking money from my SIPP other than to spend. That way the capital will remain outside of my estate when I die and hence probably not taxed then either.

bucklb
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Re: Is ISA->SIPP->ISA OK?

#393319

Postby bucklb » March 7th, 2021, 12:51 pm

Unless I postpone taking my (db) pensions, I will be a basic rate tax payer as soon as I retire (an absolutely first world problem, I know).

I did consider trying to avoid tax by drawing cash from savings and £16k from the SIPP for a few years, but TBH that feels a bit like the tail wagging the dog. Apart from anything, I can leave the SIPP and cash to kids in a way that I can't with a db pension. My wife will have unused tax-free threshold when she retires so we'll certainly be looking to exploit that though

rgifford
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Re: Is ISA->SIPP->ISA OK?

#397518

Postby rgifford » March 20th, 2021, 9:05 pm

Urbandreamer wrote:
Income tax is only paid upon "taxable income" once the personal allowance is exceeded. So if you have the funds, draw £12kpa from the SIPP and top it up to your lifestyle with money from the ISA. If the SIPP is your only source of taxable income then income tax will not be due.


The state pension reduces your tax code when you start receiving it so the tax free allowance is 12k including state pension rather than 12k tax free from the SIPP

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Re: Is ISA->SIPP->ISA OK?

#397591

Postby Urbandreamer » March 21st, 2021, 9:34 am

rgifford wrote:
Urbandreamer wrote:
Income tax is only paid upon "taxable income" once the personal allowance is exceeded. So if you have the funds, draw £12kpa from the SIPP and top it up to your lifestyle with money from the ISA. If the SIPP is your only source of taxable income then income tax will not be due.


The state pension reduces your tax code when you start receiving it so the tax free allowance is 12k including state pension rather than 12k tax free from the SIPP


I take it that you didn't read this line in my post.
A lot depends upon the tax rate that you will pay between stopping work and state pension age and how big your ISA is.


What you say is correct, but applies when you claim your state pension. If you "retire" today at 60, you will have 7 years before the state pension is available to be counted as taxable income. Not everybody waits until the state pension age to cease work. Indeed we know that Bob doesn't plan on doing so.
I'm hoping to retire (early) in a few years time.


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