Sipp Guidance Please.

[longtomsilver]

I've just got in by a whisker and have managed to change my mortgage from repayment to interest only but still intend to make use of the 10% overpayment rule twice in the next five years.

Question is, I have £7k in equities (up from £5k since November, done particularly well on REC.L (+38%), IQE.L (+20%) and SLP.L (-10%) they are the main ones. Not in an ISA anyway...

Am I correct, If I sell up and transfer the cash to my wife and she puts it in her SIPP as she pays tax then she'll get £8,500 to play with? Plus transfer ofa smaller poorly performing Scottish widows pension worth £1,500 then that's £10k to play with.

Mix will be...

30% IQE

25% SLP

15% REC

15% Nokia

15% Halliburton

Start of a diverse global portfolio which we will add to by approximately 4 other companies a year.

[Butthead]

£7k invested in a SIPP would become £8750 after the addition of basic rate tax relief.

Your wife needs to have income of at least £8750 this tax year to justify the contribution (otherwise she's limited to a gross contribution of 100% of earnings or £3600, whichever is greater).

You can't transfer a pension in your name to a SIPP in hers (if that's what you were suggesting).

£10k is a very small amount to invest in single company shares and SIPP charges might also prove a significant drag on performance.

Not sure what relevence your Mortgage situation has to your question or what you mean by "get in by a whisker"?

[longtomsilver]

The old pensions hers not mine and the letter that came with it states that it'll pay £148 per annun from aged 60 assuming 7% per annun growth for the term. In every year since 2008 it has dropped in value by ~£30-40 a time

Wife is a higher rate tax payer and this is what we are trying to push down so I keep the child benefit and continuity of contributions for my NI records. Yes, it's a small amount but even a journey of a thousand miles begins with a first step. Going interest only will allow her to put aside upto £1k a month which will mean 4-6 sizable investments in individual companies... assuming a trading fee of £11.95 on a £2k deal, stamp duty at 0.5% and the first year fund charge of 0.5% that's only 1.6% going down to 0.5% per annun in perpetuity thereafter. Is that excessive compared to the managed global portfolio annual charge of 1.5-1.75%

This isn't her main pension. Her company pension is 6% contribution and employer puts in an additional 9% still putting her well over the higher rate tax threshold

Edited May 5, 2012 by longtomsilver

[rit]

You will be able to transfer the value of your ISA to your wife, but not the pension in your own name as this can not be transferred.

Once your wife has the funds she will be able to set up a pension (in her name) and so receive 40% tax rebate.

For such a small fund you will need a low cost provider who allows share dealing so look at a company such as H&L, they have low yearly costs compared to many SIPP providers for small accounts. Your wife will not end up with £8,500 directly in the account unless she add more funds to begin with. Any funds added are increased by the provider to cover basic 20% tax, the additional 20% of higher rate tax is something that you reclaim via the yearly tax return.

[porca misèria]

The tax-efficient thing is for your missus to put her 40% money into a SIPP.

Your money isn't relevant to that. At least, not directly. It becomes relevant if you (as a couple) spend more money than your 0% and "20%" allowances. In that case, cashing in your investments and using them as spending money frees up more overtaxed income to go into the SIPP.

[longtomsilver]

The tax-efficient thing is for your missus to put her 40% money into a SIPP.

Your money isn't relevant to that. At least, not directly. It becomes relevant if you (as a couple) spend more money than your 0% and "20%" allowances. In that case, cashing in your investments and using them as spending money frees up more overtaxed income to go into the SIPP.

Rit - we are going with HL

Thanks. I'm expecting a cash bung soon and we will spend that so the wife can sacrifice more taxed income into her SIPP.

With regards to the tax return, if she put in 800 a month and the inland revenue top it up to 1000, how do we get the other 20% is it just paid out as a tax refund or does it have to be paid back into the SIPP not a problem either way.

Cheers.

[porca misèria]

With regards to the tax return, if she put in 800 a month and the inland revenue top it up to 1000, how do we get the other 20% is it just paid out as a tax refund or does it have to be paid back into the SIPP not a problem either way.

She puts in £800.

The pension provider claims £200 from HMRC, so there's £1000 in the SIPP. But that's a double-edged sword: pension income is taxable (albeit at a lower rate than hard-earned), so much of that £200 is just deferred.

She fills in her tax return, whereupon the tax on that £1000 is reduced to just the component known as "NI" (the one that clings). If tax was originally paid at a nominal 40% then HMRC refund her the remainder of that 40%, which is £200. The second £200 is for real, and absolutely worth claiming.

[longtomsilver]

She puts in £800.

The pension provider claims £200 from HMRC, so there's £1000 in the SIPP. But that's a double-edged sword: pension income is taxable (albeit at a lower rate than hard-earned), so much of that £200 is just deferred.

She fills in her tax return, whereupon the tax on that £1000 is reduced to just the component known as "NI" (the one that clings). If tax was originally paid at a nominal 40% then HMRC refund her the remainder of that 40%, which is £200. The second £200 is for real, and absolutely worth claiming.

+1

Thank you.

+2

Plain English