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reformed nice guy

Drawing from a SIPP while working and self employed

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Posted (edited)

A question on behalf of my old man.

He is 62 and director of a limited company. Has been putting money into a SIPP as company contributions over the past few years. He has never taken anything out of the SIPP.

He gets about 11,000/yr from a pension already which uses his personal allowance. He takes about 24,000 out the company a year via dividends. At 7.5% tax that would leave him with 22,350

My question is this - since he is 62, could he take a 2000 at 0% and put the  other 22,000 he takes as dividends into the SIPP also and then take 25% out each year tax free? With the proviso that he never goes above 25% to trigger the MPAA?

He puts a chunk of it into his ISA anyway so I told him he could still invest it but save a bit of tax. Does anyone see any problems?

Edited by reformed nice guy
forgot the 0% band

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He could, but:

He'd have a lot less income

The residual 75% in his SIPP would eventually be taxed at 20% if/when he draws it (assuming his other pension income always uses his persoanl allowance)

He may or may not have lifetime allowance issues

The preferential treatment of SIPP money versus ISA money for IHT purposes may be to his (and your!) advantage

You're right to be mindful of the MPAA

 

 

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2 hours ago, Castlevania said:

You can only put “earned” income into a SIPP. So the plan of placing the dividends in there is a non starter.

There is that c. £3k you can out in get 20% tax added each year even with no earned income. You can do that each year until you're 75.

I'll probably start doing that so that I'm paying negative tax if only £500 or so.

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2 hours ago, Castlevania said:

You can only put “earned” income into a SIPP. So the plan of placing the dividends in there is a non starter.

It wouldnt be a personal contribution, it would be a contribution by his company into the SIPP

 

10 minutes ago, Frank Hovis said:

There is that c. £3k you can out in get 20% tax added each year even with no earned income. You can do that each year until you're 75.

I'll probably start doing that so that I'm paying negative tax if only £500 or so.

I was hoping you would chip in Frank! Negative tax would probably tempt him, even it is reduced his annual disposable income due to more being locked up

3 hours ago, Butthead said:

He could, but:

He'd have a lot less income

The residual 75% in his SIPP would eventually be taxed at 20% if/when he draws it (assuming his other pension income always uses his persoanl allowance)

He may or may not have lifetime allowance issues

The preferential treatment of SIPP money versus ISA money for IHT purposes may be to his (and your!) advantage

You're right to be mindful of the MPAA

Im not sure about the lifetime allowance. He has been divorced twice so I would guess not!

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