[UK] contribution to SIPP without income: do it or not?

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Topic Author
jg12345
Posts: 427
Joined: Fri Dec 11, 2020 12:03 pm

[UK] contribution to SIPP without income: do it or not?

Post by jg12345 »

Hi all

Presume you have savings of many multiples your earnings, and your earnings are tax free below 12000k allowance

Presume your Lifetime ISA contributions are maxed out (4k /year), but your ISA are not fully maxed out.

Would you
- max out SIPP contribution first (only about 3k, but with tax reimbursement, see below), then ISA
- max out ISA first, then SIPP
- max out ISA, and avoid SIPP
- avoid ISA, max out SIPP
- avoid both: do nothing at all. Keep saving and invest GIA

For reference:
1- without income, the SIPP max contribution is 2880 GBP / year, so it's not much. You still get 720 GBP tax reimbursement, even if your tax was 0.
2- international lifestyle: likelihood is that I will not be a resident of the UK within the next 1-2 years, which makes the SIPP more attractive than ISA or LISA (as SIPP is more easily understood by other countries like US as "pension")

Happy to hear any other thoughts or things I have not considered,
Thanks!
Valuethinker
Posts: 49035
Joined: Fri May 11, 2007 11:07 am

Re: [UK] contribution to SIPP without income: do it or not?

Post by Valuethinker »

jg12345 wrote: Tue Mar 21, 2023 3:36 am Hi all

Presume you have savings of many multiples your earnings, and your earnings are tax free below 12000k allowance

Presume your Lifetime ISA contributions are maxed out (4k /year), but your ISA are not fully maxed out.

Would you
- max out SIPP contribution first (only about 3k, but with tax reimbursement, see below), then ISA
- max out ISA first, then SIPP
- max out ISA, and avoid SIPP
- avoid ISA, max out SIPP
- avoid both: do nothing at all. Keep saving and invest GIA

For reference:
1- without income, the SIPP max contribution is 2880 GBP / year, so it's not much. You still get 720 GBP tax reimbursement, even if your tax was 0.
2- international lifestyle: likelihood is that I will not be a resident of the UK within the next 1-2 years, which makes the SIPP more attractive than ISA or LISA (as SIPP is more easily understood by other countries like US as "pension")

Happy to hear any other thoughts or things I have not considered,
Thanks!
If you are UK resident it is almost always ISA/ LISA first (after any employer match for pension contributions).

Non residence & possible tax complications complicates things immensely. I would say it totally depends upon country. It's probably generally good to fill up your pension (on the principle that deferred gratification > present day consumption) as much as you can, because it is probably tax exempt. Chuck it in a low cost global equity index fund/ ETF and forget about it for a few decades.

BTW AFAIK if you are non-resident you cannot contribute to an ISA? Not sure about pensions.
Topic Author
jg12345
Posts: 427
Joined: Fri Dec 11, 2020 12:03 pm

Re: [UK] contribution to SIPP without income: do it or not?

Post by jg12345 »

Thanks for the reply

Yes as a non resident I will not be able to contribute to either ISA or SIPP

And yes, my equity part is Vanguard FTSE global all cap acc.

Happy to hear others' thoughts, if any
Valuethinker
Posts: 49035
Joined: Fri May 11, 2007 11:07 am

Re: [UK] contribution to SIPP without income: do it or not?

Post by Valuethinker »

jg12345 wrote: Tue Mar 21, 2023 8:58 am Thanks for the reply

Yes as a non resident I will not be able to contribute to either ISA or SIPP

And yes, my equity part is Vanguard FTSE global all cap acc.

Happy to hear others' thoughts, if any
The tradeoff is difficult:

- "fire and forget" which is a great way to build wealth long term, is to put it in a pension and let it ride. See you in 30-40 years.

BUT if you land in a tax jurisdiction that doesn't accept UK pensions you have a taxable account from which you cannot liberate any capital before age 57.

Otherwise

- put it in an ISA and be prepared to take it out again if it is taxable (it probably will be). LISA I gather there are withdrawal penalties?
Topic Author
jg12345
Posts: 427
Joined: Fri Dec 11, 2020 12:03 pm

Re: [UK] contribution to SIPP without income: do it or not?

Post by jg12345 »

for LISA and SIPP there are penalties for early withdrawal. I am almost 40 so still 15 years for SIPP and 20 for LISA

My plan would be:
1) for SIPP, hope and pray that wherever I will be it is considered a pension given its name has the word pension in it

2) for LISA/ISA. If it is US, sell everything (= invest in cash), and then
- buy a basket of single stocks (goodbye simplicity, welcome mess)
- or if single stocks are another tax authority headache, attempt transfer to Cash LISA/ISA
- or keep it cash (and be sad)

3) if SIPP is not considered a pension wherever I will be, then sell everything, keep it cash (and be sad) until I come back to EU or UK

My guess (hope?) is that the big problems would be with the US. I presume most EU countries will not have anything as punitive as PFIC.
Valuethinker
Posts: 49035
Joined: Fri May 11, 2007 11:07 am

Re: [UK] contribution to SIPP without income: do it or not?

Post by Valuethinker »

jg12345 wrote: Wed Mar 22, 2023 12:49 pm for LISA and SIPP there are penalties for early withdrawal. I am almost 40 so still 15 years for SIPP and 20 for LISA

My plan would be:
1) for SIPP, hope and pray that wherever I will be it is considered a pension given its name has the word pension in it

2) for LISA/ISA. If it is US, sell everything (= invest in cash), and then
- buy a basket of single stocks (goodbye simplicity, welcome mess)
- or if single stocks are another tax authority headache, attempt transfer to Cash LISA/ISA
- or keep it cash (and be sad)

3) if SIPP is not considered a pension wherever I will be, then sell everything, keep it cash (and be sad) until I come back to EU or UK

My guess (hope?) is that the big problems would be with the US. I presume most EU countries will not have anything as punitive as PFIC.
Ireland always sounds unpleasant. I think a 40% tax rate and (every 7 years?) capital gains tax on *unrealised* gains, I think?

Mind, in the day, I paid 40% CGT rate on my UK investments. The lower rate has only been the case in recent years.

There has been a fall in life expectancy due to Covid and a delay to the increase in state pension age. However I believe the plan to move "pension freedom day" to age 57 is still in place.
Topic Author
jg12345
Posts: 427
Joined: Fri Dec 11, 2020 12:03 pm

Re: [UK] contribution to SIPP without income: do it or not?

Post by jg12345 »

Thanks!

Very useful points

Ireland is very unlikely, luckily.

A takeout from these points you just made is to make sure to add "financial headache" among the criteria when considering options as my next job/country, and consider that anything related to age limits might be pushed further as I get older.

Thanks again, much appreciated!
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