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  1. #1

    SIPP natural yield drawdown

    I have asked a number of SIPP providers if their SIPP platform can take the tax off my SIPP dividends and then transfer the taxed dividend to my bank account; to date none of the replies is a simple 'yes' or 'no' and my current SIPP provider, Hargreaves-Lansdown, appears not able to do it.

    The purpose of taking the natural yield is so that I can then gift it to my 2 children under the 'normal expenditure out of income' IHT exemption so that no tax will be paid under the 7 year rule should I die. They need the money more than we do. It also establishes an income stream should either my wife or myself have to be looked after in our old age; we are 70 and the natural yield is some 60,000 before tax. We have other sources of income but even with the SIPP dividends we each will only just come into the 40% tax rate, we can live that!

    The danger of simply taking money out as drawdown or 25% as tax free cash, is that HMRC will see it as taking capital, not income, so the exemption does not apply and my estate could be landed with a tax bill that I wish to minimise.

    So my simple question is 'Does anyone know of a SIPP provider who can take the tax off my SIPP dividends and then transfer the taxed dividend to my bank account'?

  2. #2
    I don't, David, but I use Hargreaves Lansdown and am also taking the 'natural yield' from my SIPP in drawdown. Given that you know your income stream from dividends, you can simply tell them the gross amount you wish to draw down over whatever period (monthly, quarterly, annually etc) and they will transfer it to your account tax deducted. If you've got your calculations wrong or the income changes, you can simply revise the drawdown instruction.

  3. #3
    Maybe I don't understand, but I thought money taken from a SIPP was income by definition. Which is why income tax has to be paid on it.

  4. #4
    My understanding is that David is looking for someone to pay out dividends as they arise in his SIPP, tax deducted. I don't know anyone who does this but there is nothing to stop him specifying the amount to be withdrawn and when such periodic payments should be made. He says his SIPP generates dividend income of 60,000/year gross so he could choose to take it as, say, 5k/month or, if he is worried that lumpy dividend payments will result in a shortfall some months, he could simply take it as a single payment at the end of each year. As others have said, the SIPP manager will be provided with your tax code by HMRC and tax will be deducted at source before the payment is made.

  5. #5
    It's pretty much what I do with my SIPP with Hargreaves Lansdowne (though I don't give it to my children, I fritter it away!).


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