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    • nxdmsandkaskdjaqd
    • By nxdmsandkaskdjaqd 3rd Jan 17, 8:39 AM
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    nxdmsandkaskdjaqd
    Paying £2880 into pension when retired
    • #1
    • 3rd Jan 17, 8:39 AM
    Paying £2880 into pension when retired 3rd Jan 17 at 8:39 AM
    Jamesd wrote in another thread the following:
    "She can make £720 a year tax free by paying 2880 net into a pension, having it grossed up to 3600 then withdrawing it. Can only do the withdrawing part from age 55. Can only pay in for this until age 75."

    I have just retired at 60 and have transferred my DC pension to a new SIPP. I plan to live off savings till state pension kicks in.

    I am correct that the above approach should be part of my strategy of being tax efficient?
    Last edited by nxdmsandkaskdjaqd; 03-01-2017 at 10:14 AM.
Page 12
    • JohnB47
    • By JohnB47 4th Mar 17, 4:32 PM
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    JohnB47
    It's not the entire taxable income it's relevant earnings, so primarily salary but excludes pension income, rental income etc
    Originally posted by bigadaj
    OK, the wife has just got her self employment income. No other sources until her SP kicks starts in 2021. So that answers that. Ta.
    • JohnB47
    • By JohnB47 4th Mar 17, 5:47 PM
    • 869 Posts
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    JohnB47
    Two more questions, please.

    I understand now how my wife can start a cash SIPP for this financial year, and she'll do that using a lump sum. After 5th April, she'll want to invest monthly, building up to her expected taxable income for the year 2017 - 2018. Do these monthly deposits go into the same SIPP, or does she start a new SIPP each financial year?

    Also, I'm not sure how a SIPP and a Drawdown account work. If, around June time, she decides to take the 25% tax free and maybe draw down some funds, does that mean a separate account is created? So maybe, as the financial years roll on, she would have just one cash SIPP, into which she pays funds and one Drawdown account, which is used to move funds from the SIPP to allow for withdrawing money as a yearly 25% tax free amount and/or monthly withdrawals.

    Or is it a new SIPP and potentially a new paired Drawdown account for each financial year?

    Cheers.
    • busybee100
    • By busybee100 4th Mar 17, 8:09 PM
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    busybee100
    Hi. You can leave it in one account. Have you read bowlhead's post? I found it useful as it explains how flexible drawdown can be.


    You can choose to do it either way.

    Traditionally, people would take a tax free "pension commencement lump sum" of 25% at the beginning, and then they would know that all the rest of it (75%) was taxable, and draw that remaining amount, taxable, over time. So in a £100k pot, take £25k out now tax free and then the £75k+ growth will give you ongoing taxable income over your chosen timescale.

    However, the other way to do it is:
    -if you have a big stack of money in your pension account that has not yet been "crystallized" (i.e., you have say £100k in the account and you have never taken a tax free sum or any taxable drawings from it), you are able to partition off just a little bit of it (e.g. £10k) and pull it out right now(£2.5k tax free and £7.5k taxable), and then leave the remaining £90k completely untouched, non-crystallized.

    That remaining £90k is treated as if it is just a smaller pot which has never had any tax free money or taxable drawings taken out of it. It is raw and un-crystallized. It can sit around and grow (maybe back up to £100k, £200k or more)... and in the future you will still have the choice of (a) taking a big 25% lump tax free and leave the rest as taxable income, or (b) again grabbing a chunk out of it and having just that chunk be received as 25% tax free and 75% taxable.


    So on your £3600 if you want £900 taken out of it you have a choice: you could take out £900 up front and later draw down the remaining taxable £2700 ; or take out, say, £900 of which £225 tax free and £675 taxable and the remaining £2700 you can take a decision on later.

    That latter option of just grabbing a chunk of uncrystallized funds and having it 25% taxfree and 75% taxable and leaving all the rest behind un-crystallized, is sometimes known as taking an "Uncrystallized Funds Pension Lump Sum", with a 25/75 split of its taxability. As opposed to taking the traditional 25% tax free pension commencement lump sum at the beginning and then eventually drawing the rest of the 75% all taxable over your chosen timetable.
    Originally posted by bowlhead99

  • jamesd
    It's one SIPP and one drawdown SIPP for all years combined.
    • pioneer
    • By pioneer 5th Mar 17, 10:02 AM
    • 238 Posts
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    pioneer
    Could you tell me if once you start drawdown of the remaining taxable sum via UFPLS, are you precluded from applying additional sums above £4000 for life or only the year in which you made the withdrawal?
    "Didn't I try to Warn them I said !"
    David Essex War of the Worlds.

    "Thats Ancient History, Been There! Done That!" Hercules
    • outofoakes
    • By outofoakes 5th Mar 17, 12:27 PM
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    outofoakes
    I came across this thread whilst looking for info on another pension related topic and have read it through from the beginning and found it all very informative, I have no knowledge of SIPPS (or much else pension related if it comes to that) pretty much learning as I go along.
    My OH decided to quit work in July of last year at age 60, we now live off my wage and savings. I am trying to make sure we make the most of tax allowance etc and intend to transfer 10% of his allowance to mine in 2017/2018.
    Regarding pensions I think I now understand the £2880 contribution for non earners scenario but wondered if my OH could contribute more this tax year as he has earnings (Apr - July) of £9.5k out of this there was £1230 tax deducted and he made contributions to a personal pension of approx £160 per month (4 months). I guess the government will have made a contribution also on these. If I am doing the math right can he therefore open a SIPP this tax year with 80% of the £9.5k less the 20% he has already had on the four pension contributions or am I getting this totally wrong?
    • Dazed and confused
    • By Dazed and confused 5th Mar 17, 12:54 PM
    • 1,691 Posts
    • 736 Thanks
    Dazed and confused
    If OH has only had £9.5k income this year why is he/she only applying for Marriage Allowance for 2017:18, why not 2016:17 as well?

    Personal Allowance this year is £11000 less 10% Marriage Allowance = £9900 so unless he had other income you've not mentioned he would still be a non taxpayer (and due the £1230 tax paid back if not already claimed) and you could benefit from the Marriage Allowance for both this year and next.

    Regarding the pension, why are you only considering 20% of his previous contribution, hasn't he paid 4 x £200 (including the tax relief claimed from the pension company)?
    Last edited by Dazed and confused; 05-03-2017 at 12:57 PM.
    • outofoakes
    • By outofoakes 5th Mar 17, 1:39 PM
    • 18 Posts
    • 1 Thanks
    outofoakes
    Thanks for your reply, I didn't know we could claim marriage allowance for this year as he had earnings of 9.5k, we were planning on claiming his tax back but thought we had to wait till end of tax year.
    On the pension point I was thinking we needed to take into account the fact that he has had tax relief already on those 4 contributions. Sorry if I appear thick but this really wasn't something I was expecting to sort out.
    • Dazed and confused
    • By Dazed and confused 5th Mar 17, 1:50 PM
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    Dazed and confused
    If OH is not working and not signing on for jobseekers allowance then you could try form P50 on gov.UK to claim the tax refund now.

    I don't know why earnings of £9.5k would stop you OH applying for Marriage Allowance? In some situations you can have income of nearly £16000 (a lot must be savings interest) and still apply and it be beneficial, potentially even £21000 if you have dividend income.
    • JohnB47
    • By JohnB47 5th Mar 17, 2:43 PM
    • 869 Posts
    • 279 Thanks
    JohnB47
    Hi. You can leave it in one account. Have you read bowlhead's post? I found it useful as it explains how flexible drawdown can be.
    Originally posted by busybee100
    Thanks. Very interesting. I think I'll set down and read through every post on this thread - saves repeat questions.

    Having said that, the last para you quoted was particularly interesting:

    "That latter option of just grabbing a chunk of uncrystallized funds and having it 25% taxfree and 75% taxable and leaving all the rest behind un-crystallized, is sometimes known as taking an "Uncrystallized Funds Pension Lump Sum", with a 25/75 split of its taxability. As opposed to taking the traditional 25% tax free pension commencement lump sum at the beginning and then eventually drawing the rest of the 75% all taxable over your chosen timetable."

    This is what I'm hoping my wife can take advantage of, in the next four years in which she will be a non tax payer. I'm thinking that she can withdraw 'a chunk' of the cash SIPP fund each tax year (uncrystallized funds), then reinvest it in the fund, together with additional cash up to the 80% of her earnings. So, if the chunk is the amount of that years HMRC contribution, she'll be recycling it each year.

    If this plan is possible, we'll have to decide how to withdraw all of the funds, tax free, before her SP kicks in and she starts paying tax.

    Is this plan workable in the way I've described - for a non tax payer? How much can 'a chunk' be? 25% of the fund each year?

    Thanks.
  • jamesd
    Using UFPLS a chunk can be anything up to the whole balance. 25% of whatever is taken out will be tax free.

    UFPLS is not suitable for a person who is still earning and may want to pay more than £4,000 gross into a pension each tax year. Because it is taking taxable money it causes the annual allowance to be reduced to £10k under current rules, likely soon the £4k mentioned ed in the consultation last year.

    Such a person should either only take the 25% tax free lump sum, letting the 75% go into flexible drawdown to be taken after work, or might consider the small pot rule instead. Small pot rule lets people take all of the money out of a pension pot with up to £10k in it up to three times a lifetime without triggering the reduction.
    • JohnB47
    • By JohnB47 5th Mar 17, 7:03 PM
    • 869 Posts
    • 279 Thanks
    JohnB47
    Using UFPLS a chunk can be anything up to the whole balance. 25% of whatever is taken out will be tax free.

    UFPLS is not suitable for a person who is still earning and may want to pay more than £4,000 gross into a pension each tax year. Because it is taking taxable money it causes the annual allowance to be reduced to £10k under current rules, likely soon the £4k mentioned ed in the consultation last year.

    Such a person should either only take the 25% tax free lump sum, letting the 75% go into flexible drawdown to be taken after work, or might consider the small pot rule instead. Small pot rule lets people take all of the money out of a pension pot with up to £10k in it up to three times a lifetime without triggering the reduction.
    Originally posted by jamesd
    Thanks. So you're saying that, for a person still earning, to avoid the 'pay in' allowance dropping to £10 (or £4k), they could withdraw 25% in the first year tax free but would have to let the fund go into drawdown, even though they had no initial intention of drawing funds? They could then add this 25% to new funds and add that to the SIPP, then do the same next year etc?

    What I'm getting at is, if an earner wants to be able deposit the maximum they could (up to 80% of taxable earnings) in a cash SIPP each year, how much can they take out of existing SIPP funds, tax free, to invest in the next tax year? And can this be done year after year?

    I've requested a booklet on this from HL, pity it's not a download. Actuall I've downloaded a UFPLS factsheet from HL and it says:

    "The money purchase annual allowance
    is £10,000 for the 2016/17 tax year. The
    government has proposed this will reduce to
    £4,000 from the 2017/18 tax year. In contrast,
    you will only trigger the reduced contribution
    limit from drawdown in this way when you
    start to take an income: taking tax-free cash via
    drawdown does not in itself trigger the reduced
    contribution allowance."

    Does that not suggest that, even someone earning can take out the 25% tax free amount of the fund each year without effecting the contribution limit? Sorry to be a bit thick here. All new to me.

    (I'm presuming here that the tax mans contribution, each year, is based on the value of deposits made in the year, not the overall fund value).

    Thanks again for bearing with me.
  • jamesd
    Yes, anyone can take out 25% tax free from an uncrystallised pot tax free as often as they like, unless they have no lifetime allowance left. Taking an income means taking any taxable money out, except using the small pot rule.

    Yes, tax relief adds 25% to give 20% basic rate relief on the money paid in.

    Your first two paragraphs are right, they can take out the 25% tax free lump sum and/or use the small pots rule.

    However, there are limits on recycling tax free lump sums into new pension contributions.
    • missile
    • By missile 6th Mar 17, 12:33 AM
    • 8,844 Posts
    • 4,275 Thanks
    missile
    .... Thanks again for bearing with me.
    Originally posted by JohnB47
    Please be advised:
    1.You deposit into a SIPP account. Funds can be invested or held as cash.
    2.You can transfer all or some of the SIPP funds to a SIPP Drawdown account.
    3.You can withdraw 25% tax free
    4.You can drawdown as much or as little as you wish. Tax will be deducted per your tax code.
    "A nation's greatness is measured by how it treats its weakest members." ~ Mahatma Gandhi
    Ride hard or stay home
    • JohnB47
    • By JohnB47 6th Mar 17, 1:28 PM
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    • 279 Thanks
    JohnB47
    Thanks missile.


    I can't help thinking of you having a stern look on your face as you typed that :-)

    I suppose it doesn't really matter but I thought I'd got the hang of this process and then I started reading about Uncrystallized Funds Pension Lump Sum (UFPLS). This threw me a bit. Then there is a small pots rule and then £10K/£4K came along!


    Anyway, I think I've got it now, at least good enough to actually start a cash SIPP for the wife, with the max lump sum available (80% of her expected taxable income this year).


    I'll figure out the finer points of crystallized/Uncrystallized, small pots etc. next year, when we get to the position of taking funds out purely to put them back in again to maximise the tax benefit (not drawdown as such). We will be doing this, for at least 4 years, on the basis that the withdrawals will be tax free (whether automatically tax free or tax free 'cos the wife has ample tax allowance).


    Thanks for the reply.
    • missile
    • By missile 7th Mar 17, 10:25 AM
    • 8,844 Posts
    • 4,275 Thanks
    missile
    Thanks missile.
    I can't help thinking of you having a stern look on your face as you typed that :-)
    .
    Originally posted by JohnB47
    Hi John,
    Not at all, sorry if I gave that impression.

    Please be advised, I started the thread referred to in post No1 back in March 2016. I am very grateful for the advise given by Jamesd and others. I was trying to pass on my own experience.

    As an engineer, I try to Keep It Simple and hope my comments were helpful?
    "A nation's greatness is measured by how it treats its weakest members." ~ Mahatma Gandhi
    Ride hard or stay home
    • JohnB47
    • By JohnB47 7th Mar 17, 11:02 AM
    • 869 Posts
    • 279 Thanks
    JohnB47
    hope my comments were helpful?
    Originally posted by missile
    Absolutely, thanks. No apologies needed.

    I am about to start a cash SIPP for my wife, just before the budget. I've also just received a booklet from HL on UFPLS and on reading it, the penny has finally dropped on the difference between:

    1. taking 25% of a fund out tax free and going into drawdown

    2. using UFPLS to take funds out and keeping the fund intact (not
    going into drawdown).

    If you use UFPLS, whatever sum you take out, it's 25% of that amount that is tax free. (I was thinking that they both involved taking out 25% of the fund tax free and therefore I couldn't see why anyone would want to take the option that forced the fund into drawdown).

    I'm pretty sure that that's what people have been telling me in replies to my posts but the subtle difference didn't really sink in.

    Still, the SIPP will be started today and that gives me plenty of time (around four years during which the wife will remain a non tax payer) to think of future strategy.

    Thanks again for the help.
    • moneyfoolish
    • By moneyfoolish 7th Mar 17, 2:44 PM
    • 450 Posts
    • 261 Thanks
    moneyfoolish
    Absolutely, thanks. No apologies needed.

    I am about to start a cash SIPP for my wife, just before the budget. I've also just received a booklet from HL on UFPLS and on reading it, the penny has finally dropped on the difference between:

    1. taking 25% of a fund out tax free and going into drawdown

    2. using UFPLS to take funds out and keeping the fund intact (not
    going into drawdown).

    If you use UFPLS, whatever sum you take out, it's 25% of that amount that is tax free. (I was thinking that they both involved taking out 25% of the fund tax free and therefore I couldn't see why anyone would want to take the option that forced the fund into drawdown).

    I'm pretty sure that that's what people have been telling me in replies to my posts but the subtle difference didn't really sink in.

    Still, the SIPP will be started today and that gives me plenty of time (around four years during which the wife will remain a non tax payer) to think of future strategy.

    Thanks again for the help.
    Originally posted by JohnB47
    Like you, John, I was struggling with the difference between the 2 options although for anybody in my wife's position as a non-taxpayer with only a state pension as income and limited to £2880 per year to add to the SIPP, I cannot see any reason to use UFPLS because you can do virtually the same with drawdown if you take the 25% tax free amount each year and withdraw the taxable money whenever you want to ensure that it is within the range to maintain paying zero tax.
    • JohnB47
    • By JohnB47 10th Mar 17, 5:58 PM
    • 869 Posts
    • 279 Thanks
    JohnB47
    Like you, John, I was struggling with the difference between the 2 options although for anybody in my wife's position as a non-taxpayer with only a state pension as income and limited to £2880 per year to add to the SIPP, I cannot see any reason to use UFPLS because you can do virtually the same with drawdown if you take the 25% tax free amount each year and withdraw the taxable money whenever you want to ensure that it is within the range to maintain paying zero tax.
    Originally posted by moneyfoolish
    Just one last question on this old but very useful thread.

    You said "you can do virtually the same with drawdown if you take the 25% tax free amount each year and withdraw the taxable money whenever you want..."

    So, using the drawdown route, can you take 25% of the fund, each tax year?

    I thought, with drawdown, you get one chance to take 25% of the fund tax free, then everything else taken out is liable to tax, for that tax year and all future ones.

    Ta.
  • jamesd
    You have two accounts/pots:

    1. Uncrystallised money. You can still take 25% tax free from this, either using UFPLS or taking 25% tax free and moving the 75% to the drawdown account. You can do this for any portion of the pot, doesn't have to be all at once.

    2. Crystallised money drawdown account. All money in this is taxable when taken because you've already had your 35% tax free on it.

    What moneyfoolish was referring to was paying in a new 2880 each tax year and taking out 25% tax free from the new 3600 that ends up being. Not taking out any more tax free money from the crystallised drawdown account.
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