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Crystalized SIPP

terminal7
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Crystalized SIPP

#404690

Postby terminal7 » April 16th, 2021, 10:51 am

My wife (under 75) has a fully crystalized SIPP (25% TFLS taken but no drawdown taken).

Can she contribute to this SIPP and would any contributions be eligible for tax relief? Would these additional contributions be treated as being uncrystalized?

T7

ursaminortaur
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Re: Crystalized SIPP

#404728

Postby ursaminortaur » April 16th, 2021, 1:51 pm

terminal7 wrote:My wife (under 75) has a fully crystalized SIPP (25% TFLS taken but no drawdown taken).

Can she contribute to this SIPP and would any contributions be eligible for tax relief? Would these additional contributions be treated as being uncrystalized?

T7


Upto age 75 she should be able to contribute in exactly the same way as anyone else, ie £3600 gross a year if she has no relevant earnings or upto the minimum of her earnings and the annual allowance, and receive tax relief on those contributions. Indeed since she has only taken the 25% TFLS and not taken any other drawdown then the MPAA doesn't apply meaning that not only is her annual allowance still £40,000 but if she were, unlikely as it probably is, to have relevant earnings which are larger than that she would still be able to make use of any unused allowances from the previous three years via carry-forward.

The new contributions would indeed be treated as uncrystallised. How the provider deals with this will vary between providers. Some will present the pot as though it were one pot not distinguishing between the uncrystallised and crystallised parts but dealing with the fact that flexi-drawdowns can only come from the crystallised part and UFPLS drawdowns from the uncrystallised parts in the background hidden from your wife if she were to start making drawdown withdrawals. Others may explicitly treat it as your wife having two separate pots which could even lead with some providers to extra charges being applied - hence it is probably best to talk to the provider as to how they will handle things and explicitly whether there would be extra charges.

Depending upon how close your wife is to the LTA limit she should also be aware that there will be LTA tests when she reaches 75. Any uncrystallised funds at that point will be tested against her remaining percentage of the LTA limit but in addition to this there will be another test on her crystallised funds. This latter test just looks at the growth in the crystallised pot since it was first crystallised which still remains in that pot.

(Value of crystallised pot at age 75) - ( value of pot when crystallised - (TFLS taken))

Since there are no LTA tests when you drawdown from an already crystallised fund this test can be rendered toothless by drawing down the growth which has occurred since crystallisation before reaching 75. In contrast drawing down using UFLPS from an uncrystallised pot incurs LTA tests at each drawdown. Of course once you start drawing down more than the TFLS the MPAA kicks in which means that contributions after that are restricted by the MPAA limit - currently to a maximum of £4000 gross per year.


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