This idea is following up from this post:
Currently if the FT SIPP is charged outside the SIPP basic income tax payers loose a 20% discount while higher income tax payers loose a 40% discount.
For example let’s assume that I will always cover the FT fee with my monthly earnings so the fee is charged outside the SIPP it will come off my credit card and if it is within the SIPP I’ll make a new contribution to the SIPP to cover the fee.
A FT SIPP will cost me £10 a month from my annual earnings if this is charged outside the SIPP.
As a higher tax payer if this is charged within the SIPP it will cost me £6 per month instead (-40%).
This is because I can fund the SIPP with 80% of the amount £8 followed by HMRC that tops up 20% (£2) directly in the SIPP. Then on self-assessment I can claim back another 20% (£2) from HMRC.
So in the end from my yearly earnings the FreeTrade SIPP is costing me £120 per year as it stands but if it was charged inside the SIPP it would cost me £72 (60%) instead.
By having the fee charged outside the SIPP we are basically forgoing the tax advantages offered by a SIPP. When we drawdown from our SIPPs in the future we still have to pay Income Tax. This is why HMRC tops up SIPP contributions according to our income tax status.
The difference is £48 (40%) a year that I could use to make a new SIPP contribution or ISA investment for example.
The suggestion here is for this to be changed so that first FT attempts to take the SIPP fee from available funds within the SIPP account itself and on the absence of funds use a credit card instead as fallback.
Edit: Rather than make the change mandatory for everyone, clients should have the ability to choose if the fee is charged within the SIPP account or outside.
A. FT attempts to take the SIPP fee from available funds within the SIPP account itself and on the absence of funds use a credit card instead as fallback.
B. FT takes the SIP fee from a credit card outside the SIPP.