Trusts and Tax

No need to buy an annuity.

If you keep the SIPP till 75 years of age the minimum withdrawal is zero per annum but you can take 25% tax-free. The SIPP is made up of 1000 units. Of the entire fund thus in year 1 you can take 25% of each and every unit you can then continue to take 25% of the remaining units at the value later on i.e. benefit from increase in value.

If you die before 75 there is some tax namely 35%. If you survive after 75 there is no tax but the balance of the fund must go towards funding pensions for others e.g. children or grandchildren etc. i.e. you can then start them on their own Pensions. It is wise to have many grandchildren, because the maximum you can contribute to each is £215,000.

The SIPP is rather like an ISA with a tax wrapper.

Tax is deducted at source on drawdown.

On death a spouse can step in and continue to take the Pension.

There is very wide individual freedom of investment up to the maximum allowed of £1.5m. This will go up in steps varying from £100,000 in a year to £50,000 in a year for the next 5 years and then be reviewed by the Revenue. If the fund goes above that there will be tax on the profit.

You can “opt out” (but you are only allowed to opt out once) and then opt in again. This needs careful consideration each year.

Tax Relief is given at the marginal rate on contributions to the fund.

You need to consider carefully the weightings as you get older (e.g. you may want to get more of the weighting towards secured investments e.g. Gilts or Corporate Bonds). On Corporate Bonds and Gilts there is no tax payable by the fund on the interest.

The tax deducted on share dividends cannot be recovered.

SIPPs will provide an excellent tax free haven for investment and with scope for tax planning for the family.