Okay, confession time. This SIPP money saving hack won’t change your life. But it could be worth the price of a nice meal out every year.
If I was a better intro writer I’d also highlight it might save you up to 82% on your SIPP fees – which will certainly be true for a few readers.
Either way, it’s surely better to have every pound working for you rather than for the Military-Financial complex, eh?
SIPP money saving in a minute
This tip should only take a couple of emails to sort. It will help two groups of people.
- Firstly, anyone who is not maxing out their pension annual allowance and is not using their platform’s SIPP account to pay their fees could benefit.
You could be paying anything from 25% to 82% extra in foregone tax relief if your platform takes your SIPP fees from a linked dealing account.
- Secondly, anyone who is maxing out their annual allowance and is using their platform’s SIPP account to pay their fees.
In this latter case you can grow the tax-free space in your SIPP faster by paying your fees from a linked dealing account instead.
This was me for a few years because I didn’t know I could pay my SIPP fees from a non-SIPP account.
Annual allowance headroom step-by-step
If you’re not maxing out your pension annual allowance then pay your fees from your SIPP account.
- Set up your monthly direct debit on your SIPP account.
- Instruct your platform to take fees from your SIPP account first.
- If your platform won’t facilitate this request then don’t fund any account other than your SIPP. Leave enough cash in there to cover your fee. They’ll soon take it.
How much can you save?
A basic-rate UK taxpayer makes a 25% saving by using pension contribution tax relief to help pay their fees.
They’d save £60 on annual fees of £300, for example.
That’s because they only need contribute £240 to their SIPP to gain £300 after 20% tax relief.
A higher-rate UK taxpayer makes a 67% saving.
So, for a higher-rate payer a £180 SIPP contribution magically pays a fee of £300, after 40% tax-relief.
Some additional tax rate payers could save 82%. Some Scottish taxpayers will save at different rates. Anybody who can salary sacrifice into their SIPP to use this SIPP money saving tip will fill their boots even more.
No annual allowance headroom: step-by-step
If you are maxing out your pension annual allowance then pay your fees from your linked dealing account.
- Instruct your platform to set up a dealing account for you and to take fees from that account first.
- Set up a monthly direct debit on your dealing account to cover the fees.
This way every last pound of your annual allowance can be put to work expanding your tax-advantaged wealth.
Every little bit helps when the Government is shrinking your annual allowance by the inflation rate every year.
Granted, this is like squeezing the last blob of toothpaste from the tube. But who doesn’t do that?
Relatively minor savings like this will rebound off the incredulity shields of big picture people.
But optimisations stack. The modern world is built on them.
Shave off enough costs like this and they’ll add up like extensions to a money moustache that grows bushier every year.
And of course, optimisation is a psychological comfort and motivator for detail hounds like me.
The originator of this SIPP money saving hack
I can’t sign-off without mentioning that Monevator reader Steve alerted me to the fact that his platform actively made it difficult for him to pay his fees from his SIPP.
I’ve never had this trouble from my platforms. But I did lose out by forgetting to switch my direct debits back to my SIPPs once I stopped maxing out my annual allowance.
Please let us know in the comments if your platform makes it difficult for you to save on SIPP fees – or any other costs.
I’d like to update our broker table with these extra nuggets that passive investors need to watch out for. Reader feedback helps.
Two hidden costs that platforms don’t advertise come instantly to mind:
1. Some platforms aren’t transparent about the currency exchange fees you’ll pay on dividends from funds invested overseas.
2. Many platforms advertise a low dealing fee for regular investing. For example, they say you’ll only pay £1.50 to buy an ETF on a monthly schedule versus £10 to trade whenever. That’s great, but watch out for costly catches.
For instance, some platforms restrict the choice of products available in their regular investing scheme. And some make it hard to undo the commitment.
In contrast one of my platforms lets me chop and change my regular investments every month, or to take a break anytime. So obviously that’s the one to go for if you expect to lean heavily on this feature.
Please add your experiences in the comments so we can create a checklist of questions to fire at new platforms before you transfer to them.
Take it steady,
Interestingly I just this week asked Interactive Investor if they could take all fees (SIPP fees and ‘subscription’) from my SIPP, because I’m over the Lifetime Allowance, so it’s effectively more than twice as expensive for me to pay them from outside.
Sadly, they refused, to take even the SIPP fees from the SIPP.
Worth doing for ISAs too 🙂
Just as a piece of info for HL customers, HL will allow payment of fees from outside either a Sipp or an ISA.
AJ Bell take fees from the SIPP account by default,
Not sure about the SIPP but Charles Stanley Direct give you the option for their ISA Accounts
is there a benefit for doing with an ISA as you don’t get any tax uplift?
I have just been looking into this with ii and noted the following snippet in their ‘Help’ when I queried it about cancelling a Direct Debit:
“Can I cancel the Direct Debit Instruction option to pay my fees automatically?
Yes you can cancel the Direct Debit any time. You’ll need to contact your bank to cancel the instruction first. Please notify us once this is done so we don’t try to take any fees by Direct Debit.
Any future fees will need to be paid separately. The fee will be taken from any cash balance you have in your account, or linked account at the time the fee is charged.
If there’s insufficient cash in your account at the time, the fee will show in the Pending, or Unpaid fees section of the Manage Fee Payments page.”
I’m hoping that that: “The fee will be taken from any cash balance you have in your account” will allow me to use this ‘optimisation’…
Unless I’ve misunderstood something (always likely) then I’m not sure how this reconciles with what they’re telling you…
I’m also an HL customer (SIPP & ISA) as well as an II customer (ISA). Both platforms take fees from each account respecticvely. I don’t pay any subscription fees for any of the accounts. In fact it’s the first time I’ve heard that anyone does(!).
Since I’m getting near to the Lifetime Allowance on the SIPP then continuing to pay the fees from the SIPP would seem to make perfect sense.
However, would it be worth paying the ISA fees by separate subscription? Would I then effectively get an increased ISA allowance equivalent to the fees?
For Vanguard SIPPs, here’s what they told me:
“There are three options for paying your Vanguard account fees:
– Set up a direct debit directly from your bank account. To do this, log into your Vanguard account and click ‘My Profile’ in the bottom of the left hand menu. Then under ‘Account Fee Settings’, click on ‘Settings’ and select ‘Pay from my bank account’ (please ensure your bank details are set up first).
– Keep a small amount of cash in your account. If you do not want to keep the cash in your SIPP, you can open a General Account and the fees will be taken from the cash in there. You can open a General Account under the ‘Open New Account’ tab.
– If there is no cash available then a small portion of your largest Mutual fund will be sold down on your behalf to cover the fees exactly.”
[Note that last bit about “Mutual fund”. The point is they can deal in fractions of a unit for their funds, whereas they only deal in whole units for ETFs. I don’t know what they’d do if you had no cash and only ETFs. Send the boys round, possibly. Otherwise, that seems like a good set of options.]
Also – would it still be worth paying fees from a SIPP for both ISA and SIPP if you’re in draw-down?
All getting a bit confusing (but interesting)?
Thanks for this – it seems so obvious that I deserve the proverbial MMM punch in the face for not realising!
Freetrade doesn’t allow fees to be taken from their SIPP.
I only discovered this myself 2 months ago. With AJ Bell you need to put some cash in a dealing account and send them an email. They now take my ISA fees and Sipp fees from that. (The Sipp is fully funded each year so fees from outside it are better)
My iii account takes my ISA fees by a monthly direct debit so assume the would do the same for a Sipp.
If you are using your full ISA allowance each year, paying fees from OUTSIDE the ISA is definitely the way to go. It effectively increases your annual ISA allowance by the amount of fees taken.
Surely in an ideal world, ISA fees wouldn’t come from inside the ISA? You’re just taking fees from your restricted ISA allowance if you do that?
IWEB take fees from the SIPP by default. I pay £12 per month by Direct Debit, and another £3 is magically added a while later. I think there’s a few weeks’ delay between the two. I could claim back another £36 via a tax return (as I’m a high rate tax payer), but I’ve no other reason to do one so I haven’t bothered.
Recently transferred to Vanguard SIPP and the default set up was to take the platform fee from the SIPP (cash if there is any, otherwise by selling down fund units). I did change from the default to have the fees taken by direct debit on the basis of maximising the SIPP value – extremely easy online check-box. However, have now reconsidered as I’d not orignially considered the tax saving aspect. Hopefully, it will earn me a meal.
@ownitall – I’ve been considering moving to the new Vanguard SIPP. Did you build your own portfolio or did you decide to go for one of the LifeStrategy funds?
I have to admit after reading the Monevator article on LifeStrategy I’m tempted to just put it all in the 60/40 fund and have done with it.
Also, how are you finding the functionality of the platform and customer support?
@ All – thank you for the contributions – it’s good to know which platforms are helpful and which are not. AJ Bell are very responsive on this front and allow you to pay from any account as Playnwatch mentions.
@ Finimus – interesting that you mention Interactive Investor as that was the platform my original source was having trouble with but I couldn’t verify. Hopefully Harps workaround will do the trick. I imagine it will as they’d sell fund units if they couldn’t get cash from you any other way.
@ Chris – I’ve switched to paying my fees from my SIPP now I’m FI. Now I don’t have the income to fill it, I may as well get tax relief on the cash deposits that pay the fees.
For Interactive Investor, if you only have Personal Assets Trust (PNL) in your ISA, then the platform fees are waived (you can see this advertised on the PNL website). You don’t get the investing credits if you do this, but can still use the free regular investing option.
Have also noticed that they also don’t charge the SIPP fee (if you only have PNL in your ISA). Not sure if this is a mistake by them or not..
– Opted for life strategy.
– Functionality of platform – appropriate for purposes of a SIPP with access only to Vanguard funds i.e. SIPP will mostly be left alone probably until drawdown time.
– Hardly needed it, but both email support and phone customer support have resolved all my queries. Mostly that was before the transfer when I was asking the same question as you are now.
@Dave S. If you are a higher rate tax payer but otherwise not required to fill in a tax return, such relief can be claimed through changes to your tax code. It can even be done online these days through your personal tax account. Just before tax year end, I gather all such changes – professional subscription fee changes, any contributions to SIPP, any gift aid etc – and then put through the changes.
Must admit Im having difficulty with this – I would have thought that if a fee (or part of it) properly relates to a transaction or cost made or incurred by the SIPP (which will be administered by separate trustees and, particularly if used as a workplace scheme, subject to the UK pensions scheme charging regime and caps) the platform provider couldnt arbitrarily allocate it outside the scheme. Likewise, if the fee (or a proportion of it) does not relate to the SIPP, it could only be met outside of it. I would want to understand more about how the provider justifies any choice of how to pay, where there is one. If the fee is paid by the member from outside the scheme, but the whole or part of it strictly relates to the scheme, Id want to ensure there was no risk this could effectively be treated as a contribution to it by the member. It seems too easy to get round the rules otherwise. Apologies if I have misunderstood what the fees relate to. That must be key to all this.
@JP – I can’t fault your logic, but I asked Vanguard about this, and they said “If you choose to set up a direct debit from your bank account or to open a General account to pay fees I can assure you that it would not contribute towards the £40,000 annual allowance.” I’m assuming that if HMRC disagreed one day, I’d get hit with a tax bill for overrunning the Annual Allowance by an amount equivalent to the Vanguard annual fee, which wouldn’t be much.
@Chris – I agree with Ownitall. It won’t affect you if you’re buying the LifeStrategy, which are mutual funds, but one thing that I hadn’t twigged in advance was that for the ETFs they only deal in whole units/shares and a lot of the Vanguard ETFs are around £100 per share, so when I make my modest monthly contribution, and split it percentage-wise, there’s always some cash left over. And then some more when they eventually get the reclaimed tax (takes about two months), which they invest in the same proportions. Since there’s no dealing charge, it’s not the end of the world: I just have to let the cash build up until there’s enough to buy some more units.
@David C, Vanguard’s response is interesting. I am still rather dubious, but its well to have got it from them in writing. I’d have done the same.
@Ghengis – Thanks for the tip. I had no idea it was that easy to claim the extra tax relief. (And I thought I was so savvy when it came to personal finance.)
@JP – I should perhaps clarify that I hold only a SIPP with IWEB. I doubt they’d let you pay any non-SIPP fees from there.
Halifax Share Dealing tweaked their fees from 01/04/21. For ISAs, there used to be a £12.50 “ISA admin charge” taken from your nominated bank account, so from outside the ISA, but now there’s an overall £36 “customer administration fee” taken “from available funds within your share dealing account or ISA”. And then it says “if there are no funds available within your account, we will collect the charge from your nominated bank account”. I’m _assuming_ that when they say “available funds” they mean uninvested cash and not funds/ETFs/stocks that they could theoretically sell. So I think that means that I can protect my ISA either by having no cash in the ISA so they’re forced to direct-debit my nominated bank account or by opening a general share dealing account and putting enough cash in it.
As for the extra charges for a SIPP, they say “all charges will be deducted from your SIPP”, so I think you’re stuck with that.
I have a retired relative paying £2880 (£3600 gross) per year into a Vanguard SIPP, the maximum available to her as she has no relevant earnings. She pays the admin fee via direct debit.
I’m not quite following this?
Can someone explain in “simple terms?
Are you saying take money from you bank account and leave it in your SIPP account to pay your fees? How does that save you tax?
Or are you saying let vanguard, my SIPP provider, sell some of you SIPP fund to pay your fees? I thought it was all about accumulation and not to sell?
My understanding is that if you don’t expect to hit the annual allowance, then it’s more tax efficient to pay the SIPP fee from a contribution. Example: suppose you have a SIPP and currently pay, say, £50 per quarter via direct debit. Instead, you could cancel the direct debit, put the £50 cash into the SIPP (without purchasing any funds, ETFs, shares, etc) and let your provider take the quarterly fee from there instead. The beauty is that HMRC will still treat it as a contribution (apparently) and provide £12.50 tax back.
Of course, I may have misunderstood this.
@Craig – When you add money to your SIPP, the SIPP provider will top it up with the equivalent of the basic rate tax you paid before you got the money. So, to pay a £15 monthly fee, you only have to add £12 to your SIPP – the other £3 is added for you. That’s ideal for most people. But if you’re lucky enough to be hitting limits on your contributions or your total pension, then that’s when you might rather the fees were taken from your investments instead.
As others have noted the same logic can be applied to the ISA accounts, as the amount you can pay into the accounts is limited, its advantageous to pay the fees from outside of the account.
Interestingly AJ Bell have allowed me to do this with the fees I incur on my LISA: they deduct the fee from my cash/general account. Which is certainly a bonus, as the maximum contribution only £4,000.
I’m not sure I fully understand the subtle minutiae of this ‘optimisation’; is the payment of the SIPP fee coming from cash in the Uncrystallised or the Crystallised part of the SIPP?
If it’s the former, then you’re losing out on the 25% tax-free element (of that fraction) unless you’re using UPFLS; if it’s the latter then you must have gone into Drawdown, in which case you will almost certainly be maximising your now much-reduced Annual Allowance and should instead be looking at Option 2 above.
Apologies if I’m being as “Thick as a Whale Omelette” (to quote The Prince Regent in Black Adder III).
@Dave S – Thanks for the explanation. I was really struggling to understand what the article was taking about before I read your comment.
I have a SIPP with Fidelity and I think I’m paying the fees from a separate account that I top up with cash every now and then.
@Harps – In my case it’s all uncrystallised because I’m below retirement age, but I’m not sure it makes a difference unless you’re hitting limits. The point is that these are fees that you’re paying every month/quarter, so they’re gone – you’ll never get a lump sum from them. As I’ve said above, this means I pay in £12 per month to cover a £15 fee – and as a high rate tax payer I can claim back money to effectively bring this down to £9. If I paid these fees direct from my bank account, I’d have to pay the full £15.
I can’t pay anything into my SIPP because I took out fixed protection and I’m close to the LTA .. I’d always thought that I’m better to pay charges out of the SIPP with untaxed money rather than paying it from outside with after tax money. Am I missing something?
@PC – No, you’re not missing anything. You’re not one of the groups that TA’s article says it’s aimed at. The only difference between your situation and mine is that you’re paying with funds that have been in your SIPP for a long time, whereas I’m adding new money each month specifically to cover the fees. We’re both getting the same tax advantage.
One thing the article has made me realise is that, if I’m likely to eventually hit the LTA, then I might regret adding new money each month to cover the fees, and perhaps I should be using the funds that are already in there instead.
“Some platforms aren’t transparent about the currency exchange fees you’ll pay on dividends from funds invested overseas.”
Does anyone know if this affects VWRL dividends? Is it the platform or the fund converting them from USD?
Just noticed Naeclue already answered my question here:
Nice tip, this could potentially make approx. £60 per year from II for minimal effort.
Just sent II an internal secure message asking if the charges can be taken from my Sipp cash.
I will let you know the answer, curious if others have positive or negative replies from II.
Had a response from II for my Sipp.
“Cancel the DD or they can” and then inform them to take charges from Sipp cash.
I have done it already, just have to wait until Sept 18th to see if its that easy….
I have an active ISA & SIPP with II, and also an unused trading account…. I just got a different response from them:
“The only way this could happen is if the SIPP account was not linked with an ISA or Trading account. Because the accounts are linked, if you would like to use the cash balance to pay for the fees, it will have to be from the Trading account cash balance.”
God, II are making it difficult. Presumably if you unlink the accounts then they’ll charge you extra flat rate fees?
It seems with II only having Sipp I get away with it but with other active II accounts its not possible.
I was informed by HL that it was not possible to pay my ISA fees from my SIPP account. However they did say I could do this from a standard trading account if I opened one.
Not sure what difference this makes – but there you go!
I cancelled my DD with ii and they sent me the following message:
“If you choose not to set this [another Direct Debit] up we will debit any future fees directly from your account.
You can pay any outstanding fee by debit card through your account online.
Please login to your account and select ‘Account>Service Plan’.
Please note – If you have insufficient funds in your account to cover the fee
payment and you hold another account with us, the fee may be taken from that account.”
I hold an S&S ISA with II as well as my SIPP. Presumably they could sell holdings in my S&S ISA to cover fees on either account (I’m on a £13.99/month funds fan plan) which would leave me no better off anyway?