RE: Sipp vs isa6 Dec 2020 08:02
All this focus on avoiding tax on a SIPP is a little disingenuous and alarmist in my opinion.
As you pay into your pension (SIPP) the government allows you to do this tax free and also adds 20%. Where else can you get an immediate 20% return as soon as you invest?
An ISA has to be funded from your post tax income (that's post tax and NI contributions too) so effectively you can only invest at around 73% of your your earnings here (even less for a higher rate tax payer).
Right, back to the SIPP. You get to invest your 120% of contributions in all sorts of interesting ways and get to keep all the income and capital gains within your SIPP. (At this point you are streets ahead of an ISA, which will never catch up using the same investments). All this is done to encourage you to make sensible provision for your retirement, which if you are lucky to have stellar returns can start at 55.
The Quid Pro Quo is that if you make even better returns then they would like some of the tax payer funding returned, they still leave you with the ability to earn around £50,000 a year (if you simply go into drawdown and don't take all your 25% tax free element straight away). Not only that you don't pay any tax from the Lifetime Allowance until you have drawn in total over this allowance. So at £50,000 and with the current allowance at £1,000,000 plus, you 20 years or so without having to pay. Not only that (if you haven't taken your full 25% tax free element) only 75% of your £50,000 is part of your taxable income. Not only that your undrawn funds within your SIPP remain fully invested - free of tax a capital gains.
When you reach 75, the Gov basically say, OK mate. Stop taking the whatsit, now. We will have back 25% of anything over you still have over your accumulated Lifetime allowance. Jut this once mind, and we will leave your SIPP alone for the rest of your days. Whatever is left is still yours.
That's just 25%. At age 75. After you have invested for how many years at 12% of your contributions! If you can find a share that gives that type of return, do let me know - I'll have loads in my SIPP.
Really, if you think about it, the Lifetime Allowance is not that onerous. Unpalatable, granted, but not unaffordable. In many cases, without the tax breaks on contributions, you wouldn't have done well enough to reach the LTA!
Jumping ship to go to another country is a little drastic, not everyone can do it and it may not work! If you keep your SIPP active, then the SIPP rules will still apply. You have to move it out to a QROP offshore, which when you do the transfer costs include a full 25% to the Gov, so they still get the cash! Good luck if you pick the wrong QROP provider, lose control of your investments and have it all frittered away in excessive costs (There are some horror stories out there.
For me, If I have to pay some tax due to LTA, I will a) regard it as a partial return of a loan from the GOV. and b) be rather proud that I have m
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