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    • Shylock
    • By Shylock 17th Oct 16, 8:00 PM
    • 12Posts
    • 1Thanks
    Shylock
    UFPLS & Income Tax Question
    • #1
    • 17th Oct 16, 8:00 PM
    UFPLS & Income Tax Question 17th Oct 16 at 8:00 PM
    If I have no other income and take an amount equal to my Tax Free Personal Allowance from my Pension Pot as a UFPLS each year will I be able to re-claim any Tax deducted by the Pension company from HMRC? And can I keep doing this until my Pension Pot is exhausted thus taking it all Tax Free, providing I can afford to live on my Tax Free Personal Allowance?
Page 1
    • Linton
    • By Linton 17th Oct 16, 8:08 PM
    • 6,935 Posts
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    Linton
    • #2
    • 17th Oct 16, 8:08 PM
    • #2
    • 17th Oct 16, 8:08 PM
    You get 25% of the UFPLS tax free anyway and the rest would be free of tax upto the tax allowance - exactly the sames as if the UFPLS after 25% deduction was wages. After the first year HMRC should get the tax code right so that tax is never deducted in the first place.
  • jamesd
    • #3
    • 17th Oct 16, 11:10 PM
    • #3
    • 17th Oct 16, 11:10 PM
    Yes.

    But you can make your life a bit easier by taking the tax free lump sum and placing all of the rest into drawdown, then setting up a monthly payment from the drawdown pot that will use your personal allowance over the year. The first month's payment will have too much tax deducted, then HMRC should issue a new tax code to take care of it. Once you've received the first payment you can tell HMRC about your anticipated income for the tax year to help them to get it right.

    You can decrease the payment amount for the new tax year to stay on target with the extra number of months in a full tax year.

    Taking the whole tax free lump sum up front can help on the income side since you can do things like investing the money to generate some extra income, perhaps inside an ISA.
  • jamesd
    • #4
    • 17th Oct 16, 11:12 PM
    • #4
    • 17th Oct 16, 11:12 PM
    Also do remember to continue to make pension contributions since you can make £720 a year of tax free income from doing it.
    • brewerdave
    • By brewerdave 18th Oct 16, 8:55 AM
    • 4,012 Posts
    • 1,600 Thanks
    brewerdave
    • #5
    • 18th Oct 16, 8:55 AM
    • #5
    • 18th Oct 16, 8:55 AM
    Also do remember to continue to make pension contributions since you can make £720 a year of tax free income from doing it.
    Originally posted by jamesd

    ...but if your only income was from drawdown of a pension,would this not fall foul of recycling rules ???
  • jamesd
    • #6
    • 18th Oct 16, 10:12 AM
    • #6
    • 18th Oct 16, 10:12 AM
    ...but if your only income was from drawdown of a pension,would this not fall foul of recycling rules ???
    Originally posted by brewerdave
    No. To see why just look at the recycling rules. I gave a summary in the link I included in my earlier post.

    The easiest limit is £7,500 of tax free lump sum taken within a rolling twelve month period. Easy to stay within that one when the most you can pay in is £3,600 gross. If that one would be exceeded then the rest of the rules can be checked.

    The greatest chance of going over the limits is at the start if a large lump sum is taken from existing pots. Then the 30% of the lump sum or increase of more than 30% rules can be used to stay within the limits. Be within any of the limits and it's fine, you have to be outside all of them.
    • Shylock
    • By Shylock 18th Oct 16, 11:00 AM
    • 12 Posts
    • 1 Thanks
    Shylock
    • #7
    • 18th Oct 16, 11:00 AM
    • #7
    • 18th Oct 16, 11:00 AM
    Yes.

    But you can make your life a bit easier by taking the tax free lump sum and placing all of the rest into drawdown, then setting up a monthly payment from the drawdown pot that will use your personal allowance over the year. The first month's payment will have too much tax deducted, then HMRC should issue a new tax code to take care of it. Once you've received the first payment you can tell HMRC about your anticipated income for the tax year to help them to get it right.

    You can decrease the payment amount for the new tax year to stay on target with the extra number of months in a full tax year.

    Taking the whole tax free lump sum up front can help on the income side since you can do things like investing the money to generate some extra income, perhaps inside an ISA.
    Originally posted by jamesd
    James, thanks for taking time to reply. TBH I'm failing to see the attractiveness of swapping it to a Draw Down Scheme, which seem to incur some hefty fees, when I can achieve the same result from an annual UFPLS without any fees? Also, by leaving the bulk remainder invested in the pension pot I'm (admittedly, with risk attached) hopefully achieving a greater return than any ISA? I feel I must be missing something?
    • bigadaj
    • By bigadaj 18th Oct 16, 11:48 AM
    • 7,785 Posts
    • 4,741 Thanks
    bigadaj
    • #8
    • 18th Oct 16, 11:48 AM
    • #8
    • 18th Oct 16, 11:48 AM
    James, thanks for taking time to reply. TBH I'm failing to see the attractiveness of swapping it to a Draw Down Scheme, which seem to incur some hefty fees, when I can achieve the same result from an annual UFPLS without any fees? Also, by leaving the bulk remainder invested in the pension pot I'm (admittedly, with risk attached) hopefully achieving a greater return than any ISA? I feel I must be missing something?
    Originally posted by Shylock
    Fees will vary from one provider to another, yours might be cheaper with ufpls whereas others will be with drawdown, depending on the quantum then a transfer and change of approach may be worthwhile.

    Returns within an isa and pension will be the same if they are invested in the same things, if not they won't. The options available are pretty similar or identical now so it's personal choice.
    • dunstonh
    • By dunstonh 18th Oct 16, 12:03 PM
    • 85,078 Posts
    • 50,103 Thanks
    dunstonh
    • #9
    • 18th Oct 16, 12:03 PM
    • #9
    • 18th Oct 16, 12:03 PM
    BH I'm failing to see the attractiveness of swapping it to a Draw Down Scheme, which seem to incur some hefty fees
    Fees vary but there are a number of providers that charge no more for the decumulation stage than they charge for the accumulation stage. Where there is a charge, you tend to find it is low (often because their annual charge is low).

    when I can achieve the same result from an annual UFPLS without any fees?
    Your pension will have fees. It may not have a fee specific to UFPLS but it will have charges. For example, the annual management charge. Yours could be 1% p.a. whereas a drawdown personal pension could be 0.40% p.a. with a one off drawdown charge of £184.

    Also, by leaving the bulk remainder invested in the pension pot I'm (admittedly, with risk attached) hopefully achieving a greater return than any ISA?
    ISAs and pensions have the same investment options and can be the same charges. So, returns would be the same in that case. Some pensions can be cheaper than ISAs though.
    I am an Independent Financial Adviser (IFA). Comments are for discussion purposes only. They are not financial advice. Different people have different needs and what is right for one person may not be for another. If you feel an area discussed may be relevant to you, then please seek advice from a Financial Adviser local to you.
  • jamesd
    I'm failing to see the attractiveness of swapping it to a Draw Down Scheme, which seem to incur some hefty fees, when I can achieve the same result from an annual UFPLS without any fees?
    Originally posted by Shylock
    Just means that the place you're with no has chosen to price one higher than the other. The largest direct to consumer place - Hargreaves Lansdown - has no extra fees at all for drawdown.

    Also, by leaving the bulk remainder invested in the pension pot I'm (admittedly, with risk attached) hopefully achieving a greater return than any ISA? I feel I must be missing something?
    Originally posted by Shylock
    Maybe you were thinking "cash ISA" when I just wrote "ISA" which includes stocks and shares and Innovative finance (P2P lending) ISAs? S&S ISA can hold most things that a pension can hold. The IF ISA can hold things that today are normally too costly to hold in a pension for most people but most of the IF ISA attractive deals aren't available yet due to the time the FCA is taking to get the firms approved.

    So it's not that moving out of the pension has to change how you invest the money, it's just a shift of tax wrapper around the money, potentially with identical investments. Though the IF ISA is particularly interesting once more providers are able to offer it, since it offers lots of really interesting diversification away from equities and corporate or government bonds.
    • Shylock
    • By Shylock 19th Oct 16, 4:22 PM
    • 12 Posts
    • 1 Thanks
    Shylock
    Maybe you were thinking "cash ISA" when I just wrote "ISA" which includes stocks and shares and Innovative finance (P2P lending) ISAs? S&S ISA can hold most things that a pension can hold. The IF ISA can hold things that today are normally too costly to hold in a pension for most people but most of the IF ISA attractive deals aren't available yet due to the time the FCA is taking to get the firms approved.
    Originally posted by jamesd
    Yes, I made the error of thinking only in terms of Cash ISA but I now understand your point about a S&S ISA. Thanks.
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