Don’t be shy, ask ii...when can I withdraw from my SIPP tax-free?

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Mr Houk asks: If I transfer pre-tax savings from my bank account to SIPP/SSAS will HMRC pay me 20% tax back on my account? I'm a 20% tier taxpayer in the UK only.

Becky O’Connor (pictured above), head of pensions & savings, interactive investor, says: (*answers apply in the UK) If you have pre-tax savings, I am guessing you are self-employed or a company director and therefore not paying into a savings account after your tax has been taken by PAYE. As long as you leave yourself enough in savings to pay your tax bill when it is due, you can move savings into a SIPP or SSAS. Any amount paid in up to your annual allowance will receive tax relief of 20% if you are a basic rate taxpayer. With ii SIPPs, the tax relief is added for you a few weeks after it has been received from HMRC.

Mr Houk: When can I start withdrawing the 25% from my SIPP/SSAS tax free?

Becky: When you are 55, you are entitled to access your entire pension. The tax-free lump sum amount you can take is 25% of the value of the pension. Most people opt to take this and leave the rest invested until they need it, when they stop work. But you can leave the whole lot invested if you wish, there’s no obligation to take 25% tax-free when you are 55 if you don’t need it. 

The minimum age at which people can access their pensions is rising to 57 in 2028 – something to bear in mind if you are turning 55 in the next few years.

• Discover how to: Open a SIPP | Best SIPP Investments | SIPP Withdrawal Rules

Once you start withdrawing from your pension, and after you have taken your tax-free lump sum, you can withdraw more either as you need access to cash or in further lump sums, but these will be taxed. Once you start withdrawing, the amount you can contribute yearly comes down to £4,000 a year from £40,000, pre-drawdown.

With interactive investor, you can withdraw money at no cost on an ad hoc or regular basis, which can be monthly, quarterly, hourly or yearly.

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Lots of people use the regular income facility, and many just take money as and when they need it. There are lots of people who are only partially retired, have other sources of pension income and use that first or in tandem with their SIPP. Because no one’s circumstances when they enter retirement are the same, we offer full flexibility for all retirement and disinvestment strategies.

It’s important to make your retirement income sustainable, and for this you need to plan. For example, it is wise to assume you might live longer than you think.

Don’t ignore inflation risk when choosing where to invest.

If you are planning on leaving money to children or grandchildren, consider how your SIPP could be passed on when you die, being aware of any inheritance tax that could be liable on your estate.

Make sure you are using your income tax allowances, other tax wrappers and the 25% tax-free lump sum on offer from your pension to pay as little tax as possible in retirement. 

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Mr Houk: If I decide not to withdraw the other 75% until my retiring age, will it remain tax free? 

Becky: The remaining 75%, when you start to withdraw it, will be taxed at your usual tax rate. You’ll have the same personal tax allowance, so you can withdraw up to this amount from your pension tax-free, but if you have income from other sources, you might end up going over your allowance and being liable for basic rate tax.

Mr Houk: Is it possible that married couples can have one SIPP?

Becky: No, they are individual. But you can have one SIPP each and so then benefit jointly from the individual tax benefits on each SIPP. How you manage the SIPPs between you is up to you.

Mr Houk: Can I invest money from my SIPP/SSAS to any kind of ISA?

Becky: You can’t transfer money directly from a SIPP to an ISA. You can transfer money from a trading account to an ISA through a ‘bed and ISA’ process. You can put money you have withdrawn from your SIPP into an ISA, but it may still be liable to tax before it is invested in the ISA.

Important information – SIPPs are aimed at people happy to make their own investment decisions. Investment value can go up or down and you could get back less than you invest. You can normally only access the money from age 55 (57 from 2028). We recommend seeking advice from a suitably qualified financial adviser before making any decisions. Pension and tax rules depend on your circumstances and may change in future. Please note the tax treatment of these products depends on the individual circumstances of each customer and may be subject to change in future. If you are uncertain about the tax treatment of the products you should contact HMRC or seek independent tax advice.