Self employed pension question - age 63

[h0rsewithn0name]

I'm 60, working, with my own pension provision. No problems there.

DH has numerous life-long health issues and has never had a good income. Not a problem as I've always provided for the family. DH is self employed and earns just above/below the personal tax allowance generally. He has never been in the benefits system, as his health conditions have varied from year to year. To be honest, he has always had a low age expectancy.

DH has just unexpectedly come into a lump sum of £10K. We don't need this for the forseeable future. Should we put it into a stocks and shares ISA or a SIPP? He will retire at 67. He hasn't got any pension provision apart from a full state record, so I wondered if the tax benefits of a SIPP would be best?

It's worth noting that we have been married for over 40 years and are still besotted with each other. Our finances are completely joint, what's his is mine etc. Any advice appreciated.

Thank you.

If he puts it in to a SIPP, he gets tax relief on that (as he has earned income this tax year) so long as his earnings this tax year are more than the amount paying in to the SIPP.

As he is over 55, he can access the money in the SIPP as soon as it has gone in. Tax relief takes around 8 weeks to be added. Then if he does not touch it, he gets growth on the 10k plus on the tax relief of £2500.

On withdrawal from the SIPP, some of what he takes out may be taxable, as State Pension uses personal tax allowance first, then other pension income/employment income would use up whatever personal tax allowance remains. If managed well, if using UFPLS, he could take out each year the amount between State Pension and Personal Tax allowance plus 25% of that amount tax free (UFPLS - Uncrystallised Funds Pension Lump Sum).
Vanguard and others provide simple SIPPs which have flexi access drawdown and/or UFPLS. So you can look at the drawdown options and pick a SIPP based on how he would be accessing the money when that time comes.

If he uses an ISA, there is no tax relief but also it is all tax free.

Something else to look at is Marriage Allowance - as if he gets to a point where he has less income than his personal tax allowance, you may at that stage have more income than your tax allowance, so you may want to transfer a bit of his tax allowance to you... using Marriage Allowance.
www.gov.uk/marriage-allowance

I can't see why you would not use a SIPP for this money, it looks like he would get the immediate tax relief uplift on it and that it would be invested for probably 5 years, maybe more.

Thank you @nannynick for your very clear explanation and thoughts. It's really appreciated and has given me plenty to look into.

We do already transfer some marriage allowance over, some years, so we're pretty tuned into this, but it's good to get a reminder.

If he puts it into a SIPP he will get tax relief even if he hasn’t paid any tax this year. HMRC will automatically add an extra 25%. So if he puts in the whole £10k, it will be uplifted to £12.5k.

The total amount (including the uplift) must be less than his total earnings for the tax year.

So if (for example) he earns £10k this tax year, then the maximum he could personally pay into a SIPP would be £8k. After the HMRC uplift that becomes £10k, which would be his limit for the year.

There’s a calculator on this page to work out how much he can pay into a SIPP:
www.which.co.uk/money/pensions-and-retirement/personal-pensions/contributing-to-a-private-pension-explained/tax-relief-on-pension-contributions-explained-a27f53z7qg3f

Thank you @Hazelnut5, that is very useful to know. This is my target for today!