SIPP withdrawal with income < personal allowance?

[Rajput1962]

1. Is it possible to take out say £2,880 and not make any of it tax free (ie make the whole £2,880 taxable)?!

I am imagining a situation where say annual income is only c£8k pa and no other taxable income. I read elsewhere in this forum that it is possible to take out say £2880 in a tax year from a SIPP and then reinvest the same amount into the SIPP in the following tax year and hence benefit from the £720 top up from the taxman. Essentially income from the SIPP is not required for the time being. The SIPP would be declared to be funded with income from the annual income.

Total annual income in this scenario would only be c£10,880 and because this is less than the personal allowance for 2021-22 of £12,570 essentially all of it would be tax free anyway.

But can the withdrawal from the SIPP of the whole £2,880 be declared as fully taxable and thereby preserve/retain the 25% tax free element in the SIPP for sometime in the future when there will be withdrawals under UFPLS and there won't be any contributions to the SIPP? My thinking is that if the SIPP continues to grow then future withdrawals would benefit more from the 25%tax free amount then.

To clarify, in the above example, it is not a drawdown because i think this would use up some of the 25% tax free allowance of the SIPP's value.

2. Or must one always have to take an element of any withdrawal tax free?

[swill453]

You can only draw down from crystallised funds. UFPLS combines the partial crystallisation plus a bit of drawdown.

So no, you can't take taxable funds out and not crystallise anything.

But using UFPLS to take out just enough to top up is a reasonable idea.

Note that if the later drawdown from the SIPP is ultimately taxable, you won't benefit from the full £720 tax relief. You'll save 20% tax on 25% of the gross £3600 contribution i.e. a net benefit of £180. Still good for a few minutes admin though.

Scott.

[Rajput1962]

@Scott: So just to clarify i would need to crystallise £2,880 and then withdraw that using UFPLS? Could any element of it be tax free? I'm confused when other folk say that they withdraw the whole 25% tax of their SIPP fund free in one go.

As a trivial example, say the SIPP has value £1,000. My understanding is that £250 of this pot will be tax free and £750 taxable. If i take out £100, then I presume that £25 is tax free and the other £75 taxable.

So is the question then that the tax free amount could be anywhere between £25 - £100? But no less than £25? (And if it's declared as £100 tax free then that leaves only another £150 tax free for future withdrawals).

[swill453]

@Scott: So just to clarify i would need to crystallise £2,880 and then withdraw that using UFPLS?

No. If you wanted £2880 then you would request a UFPLS of £2880. Of that amount, 25% i.e. £720 would be tax free, and the remaining £2160 would be taxable.

I'm confused when other folk say that they withdraw the whole 25% tax of their SIPP fund free in one go.

You can crystallise the whole SIPP and get 25% of it tax free. The remainder stays in the SIPP for future drawdown, which will be taxable. This is not using UFPLS.

As a trivial example, say the SIPP has value £1,000. My understanding is that £250 of this pot will be tax free and £750 taxable. If i take out £100, then I presume that £25 is tax free and the other £75 taxable.

Yes.

So is the question then that the tax free amount could be anywhere between £25 - £100? But no less than £25? (And if it's declared as £100 tax free then that leaves only another £150 tax free for future withdrawals).

No that seems a bit muddled.

EDIT: fixed typos.

Scott.

[nmdhqbc]

@Scott: So just to clarify i would need to crystallise £2,880 and then withdraw that using UFPLS? Could any element of it be tax free? I'm confused when other folk say that they withdraw the whole 25% tax of their SIPP fund free in one go.

As a trivial example, say the SIPP has value £1,000. My understanding is that £250 of this pot will be tax free and £750 taxable. If i take out £100, then I presume that £25 is tax free and the other £75 taxable.

So is the question then that the tax free amount could be anywhere between £25 - £100? But no less than £25? (And if it's declared as £100 tax free then that leaves only another £150 tax free for future withdrawals).

This video might help. i've just been learning about it all and it worked for me. I've gone for this approach because to be honest i do not understand what you've written here so perhaps there's some misunderstanding of how it all works that has lead to this.
https://www.youtube.com/watch?v=Ygs8wkm ... ngfulMoney
and this one was good too...
https://www.youtube.com/watch?v=AJuIjab ... JamesShack

[TUK020]

1. Is it possible to take out say £2,880 and not make any of it tax free (ie make the whole £2,880 taxable)?!

I am imagining a situation where say annual income is only c£8k pa and no other taxable income. I read elsewhere in this forum that it is possible to take out say £2880 in a tax year from a SIPP and then reinvest the same amount into the SIPP in the following tax year and hence benefit from the £720 top up from the taxman. Essentially income from the SIPP is not required for the time being. The SIPP would be declared to be funded with income from the annual income.

Total annual income in this scenario would only be c£10,880 and because this is less than the personal allowance for 2021-22 of £12,570 essentially all of it would be tax free anyway.

But can the withdrawal from the SIPP of the whole £2,880 be declared as fully taxable and thereby preserve/retain the 25% tax free element in the SIPP for sometime in the future when there will be withdrawals under UFPLS and there won't be any contributions to the SIPP? My thinking is that if the SIPP continues to grow then future withdrawals would benefit more from the 25%tax free amount then.

To clarify, in the above example, it is not a drawdown because i think this would use up some of the 25% tax free allowance of the SIPP's value.

2. Or must one always have to take an element of any withdrawal tax free?

I suggest that you look at this from another angle:
Use your tax allowance fully - withdraw the max to make up the difference between the 8k and the allowance of 12750.
This means you would withdraw (12750-8000)/0.75 = 6333.
Use 2880 to fund the next year's SIPP contribution.
Stuff the remainder into an ISA.
Objective is to siphon as much out of the SIPP while avoiding tax

[ursaminortaur]

You can only draw down from crystallised funds. UFPLS combines the partial crystallisation plus a bit of drawdown.

So no, you can't take taxable funds out and not crystallise anything.

But using UFPLS to take out just enough to top up is a reasonable idea.

Note that if the later drawdown from the SIPP is ultimately taxable, you won't benefit from the full £720 tax relief. You'll save 20% tax on 25% of the gross £3600 contribution i.e. a net benefit of £180. Still good for a few minutes admin though.

Scott.

If you use flexible drawdown then when you crystallise the pot you can take upto 25% of the amount as a tax free lump sum. There is no compulsion to take a tax free lump sum. However that won't preserve the 25% tax free lump sum to be taken later - the choice at crystallisation is to take the tax free lump sum or not, if you don't take it you lose it.