Contributions and drawdown from different SIPPs

[jtr63]

I am looking to simplify some of my investments and will likely sell most of my VCT holdings. I have 2 SIPPs; a work one, receiving employer contributions, and a personal one that just has reinvested dividends. As I understand it, if I were to put some of the ex-VCT funds into a SIPP I can claim tax relief on the contributions. (Any quick guide to this ?) Would it matter if it were the work SIPP, or my personal SIPP ? We may at some point in the future use a drawdown to fund children's property purchases. If I were to drawdown from one SIPP can I still make tax relieved contributions to the other SIPP ? If the drawdown prevents further contributions to either or both SIPPs is there a requirement for time separation between the last contribution and the first drawdown ? I expect I cannot recycle the drawdown from one SIPP to become tax beneficial contributions to the other SIPP, but are there other consideration that I need to make ?

TIA
John

[SebsCat]

Since no one else has jumped in, I'll try and give some answers. I'm no means an expert and a little hazy on some of the rules so hopefully if I'm wrong someone will correct me!

I am looking to simplify some of my investments and will likely sell most of my VCT holdings.

First off, to get tax relief the contributions must either be no more than your relevant earnings (basically what you earn from employment) or £60k, whichever is the lower. I'll assume you have sufficient available earnings to use up the proceeds from selling the VCTs.

I have 2 SIPPs; a work one, receiving employer contributions, and a personal one that just has reinvested dividends. As I understand it, if I were to put some of the ex-VCT funds into a SIPP I can claim tax relief on the contributions. (Any quick guide to this ?)

My understanding is that the SIPP administrator will automatically claim basic rate tax relief which will be added to the SIPP within a couple of months. I'm not sure of the mechanism if you're a higher rate tax payer to get the extra relief.

Would it matter if it were the work SIPP, or my personal SIPP ?

I'm not sure what you mean by a "work SIPP". Is this actually a defined contribution scheme administered on behalf of your employer? If so it will have rules which may preclude adding any extra contributions other than through your employer's payroll. You can certainly add to your own SIPP up to the overall limits.

We may at some point in the future use a drawdown to fund children's property purchases. If I were to drawdown from one SIPP can I still make tax relieved contributions to the other SIPP ?

If you take any taxable income from any SIPP then you cannot contribute more than £10k per year to any SIPP or defined contribution scheme. Google "Money Purchase Annual Allowance" for details. Taking a 25% tax free lump sum is OK and does not trigger the MPAA provisions.

If the drawdown prevents further contributions to either or both SIPPs is there a requirement for time separation between the last contribution and the first drawdown ?

No time limit - once you've taken taxable income the MPAA applies until you are 75 (and no longer eligible for tax relief anyway).

I expect I cannot recycle the drawdown from one SIPP to become tax beneficial contributions to the other SIPP, but are there other consideration that I need to make ?

There are rules around recycling pensions but I'm afraid I know next to nothing about them! There have been threads on the subject here which you can probably find.

Of other matters, you're presumably already aware but you can't take money out of a SIPP until you are 55 (rising to 57 in 2028). Also since you mention funding house purchases, you probably want to consider just how much you might need to withdraw and, if it can't be covered by the 25% tax-free lump sum then additional amounts withdrawn will be taxed as income and could push you into a higher band. This could negate much of the benefits of putting cash into a SIPP.

Finally, Labour are still saying that they will reintroduce the Lifetime Allowance. One of their worse ideas, IMHO, but it might become an issue for you if you are thinking about adding quite a lot to your pension pot.

[mc2fool]

I have 2 SIPPs; a work one, receiving employer contributions, and a personal one that just has reinvested dividends. As I understand it, if I were to put some of the ex-VCT funds into a SIPP I can claim tax relief on the contributions. (Any quick guide to this ?)

My understanding is that the SIPP administrator will automatically claim basic rate tax relief which will be added to the SIPP within a couple of months. I'm not sure of the mechanism if you're a higher rate tax payer to get the extra relief.

The first sentence is correct. Re the extra relief for a HRT, what you do is declare the (gross) amount you've paid into the SIPP in your self assessment, and your HRT band threshold is then raised by that amount.

That will take that amount out of HRT and back into BRT, meaning that you will only be taxed at 20% on it instead of 40%, meaning that in effect you get an extra 20% tax relief on the contribution. Note however that, unlike the BRT relief that is (auto-) added into the SIPP, the HRT extra relief just reduces your out-of-pocket tax bill.