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TonyTax
TonyTax, Tax Consultant
Category: Tax
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I'm 66 and i work 2 days pw earning approx. £10000pa. I also

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i'm 66 and i work 2 days pw earning approx. £10000pa. I also receive state pension and a private pension of £500 net pm. Also I have a SIPP worth about £40K (75% cash and 25% shares). I have sufficient savings to be able to add ta significant sum to my SIPP or I could just invest my earnings into it. What is the tax advantage of putting money into my SIPP and how will it be taxed when I withdraw it? (I am a basic rate taxpayer). Also how will it be taxed on my death?
Submitted: 2 years ago.
Category: Tax
Expert:  TonyTax replied 2 years ago.
Hi.
You get tax relief on a maximum of 100% of your earnings in any one tax year. So, if you contributed £8,000 into your SIPP, £2,000 in tax relief would be added by HMRC.
When you come to access your SIPP, you have a number of options as you can read here:
https://www.pensionwise.gov.uk/pension-pot-options
You will have an option to take 25% tax free. As and when you draw income you will pay income tax on it.
How your pension find is taxed when you die depends on whether you are already drawing it, whether you have nominated one or more people to receive your pension fund if you die before taking it and your age when you die. If you have made such a nomination, the fund will usually escape Inheritance Tax as it will never be paid to your estate. Take a look here for more information on the different scenarios:
http://www.scottishwidows.co.uk/retirement-planning/retirement-explained/pension-tax/inheritance/
http://www.hl.co.uk/news/articles/new-rules-what-happens-to-your-pension-when-you-die
I hope this helps but let me know if you have any further questions.
Customer: replied 2 years ago.
Hello - thanks for the inf. but I was already aware of the sites to which you refer. and others like it (my SIPP is with H-L). The point of my question was whether there was any point in my adding to my SIPP ie any financial advantage. If the govt give 20% tax relief on the investment but then tax withdrawals at 20% what is gained by the pensioner? The 2nd part of my question was in respect of income tax not IHT (my wife would qualify for NRB transfer so there would be no IHT liability anyway). Again if there is a tax gain to be made from investing further in a SIPP(?) is that gain then lost by my wife when tax is deducted from the SIPP payout on my death?
Expert:  TonyTax replied 2 years ago.
I'm not qualified to advise on pensions other than on the tax implications. Only an independent financial adviser can advise on what is right from a financial point of view based on a fact find.
I pay into a pension to save for the future and to get some capital growth in a tax free fund. I don't think about the tax I will pay when I access it, at least not yet. The growth in a pension fund may make it worthwhile to save that way but ultimately nobody knows what future performance will be like. It's a judgement call. I can see that from your point of view at age 66, the fund may not have much time to grow before you wish to access it.
As I said in my answer, you can take 25% of the fund as a tax free lump sum when you decide to access the pension. Other withdrawals will be taxed as income as and when they are taken.
If you die before the SIPP is in drawdown and before age 75, the fund will be paid to your nominated beneficiary, your wife, tax free. If it is in drawdown when you die, then she will pay tax on income withdrawals depending on her personal tax position.
Even if it is taxed, at least there will be an income source. If you choose to save your £10,000 part-time salary another way and not live on it, then maybe there will be a fund that your wife can access tax free.
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