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    • happyhero
    • By happyhero 19th May 17, 11:44 AM
    • 1,096Posts
    • 54Thanks
    happyhero
    Panic, Got a problem, please help Drawdown and Child tax credits
    • #1
    • 19th May 17, 11:44 AM
    Panic, Got a problem, please help Drawdown and Child tax credits 19th May 17 at 11:44 AM
    Hi can anybody guide me here. I researched taking drawdown and recycling before doing it and thought I had it all figured out.

    I was on zero income living off investments in ISA's with HL. I also have SIPP with HL which I put into drawdown leaving some money in SIPP to keep it open and hopefully do a bit of recycling.

    My wife is part time on about £10,500 per year and we receive Child Tax Credits for our 2 kids. But I just noticed it has dropped by about £300 this month, and I suppose future months which is a massive drop for us(£3,600/year if it stays at this).

    Just today my wife and I have received updated Child Tax Credit statements showing an added income, for my wife funny enough of £9,650 which is weird as the actual gross withdrawal was made by me and was £9,950, any ideas what the £300 difference is?

    Not sure its relevant but as this amount was under my annual allowance and I paid emergency tax I have just (last few days)successfully reclaimed the tax in full that was taken.

    Is this drop an over reaction that will be corrected when they realise I am only doing this once this year and not every month (a bit like how emergency tax reacts when started off)?

    Is this right that if our household was on roughly £20,000 per year instead of the £10,500 we do get it would effect the tax credits so much?

    If we do lose this amount of money this seems to defeat the object of the drawdown and accessing as much of my money now tax free as I can and recycling etc.

    We are both 56 by the way.

    I thought with zero income and an unused annual allowance, I would exploit this tax advantage until I draw a pension in a few years.

    Any help advive greatly appreciated.
Page 1
    • GunJack
    • By GunJack 19th May 17, 11:53 AM
    • 9,698 Posts
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    GunJack
    • #2
    • 19th May 17, 11:53 AM
    • #2
    • 19th May 17, 11:53 AM
    isn't sipp drawdown classed as income, but living off isas is classed not as income but living off savings as far as hmrc is concerned?
    ......Gettin' There, Wherever There is......
    • happyhero
    • By happyhero 19th May 17, 11:58 AM
    • 1,096 Posts
    • 54 Thanks
    happyhero
    • #3
    • 19th May 17, 11:58 AM
    • #3
    • 19th May 17, 11:58 AM
    isn't sipp drawdown classed as income, but living off isas is classed not as income but living off savings as far as hmrc is concerned?
    Originally posted by GunJack
    Yes Drawdown is income but what I am getting at is that doing what I did taking advantage of my unused allowance to draw my SIPP tax free until I get a pension, any advantage is destroyed by the amount I'm losing on my CTC unless somebody can enlighten me further here.

    If things are as they appear currently for me here it seems Drawdown is not worth doing whilst I have kids and I am getting CTC, is that the case?
    • GunJack
    • By GunJack 19th May 17, 12:06 PM
    • 9,698 Posts
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    GunJack
    • #4
    • 19th May 17, 12:06 PM
    • #4
    • 19th May 17, 12:06 PM
    but ctc is effectively a means-tested benefit, so any increase in "income" from any source will have an effect, surely? Living off isa savings is not deriving an "income"
    ......Gettin' There, Wherever There is......
    • happyhero
    • By happyhero 19th May 17, 12:41 PM
    • 1,096 Posts
    • 54 Thanks
    happyhero
    • #5
    • 19th May 17, 12:41 PM
    • #5
    • 19th May 17, 12:41 PM
    So should I not bother with drawdown as I have kids or is there a way to make this work?

    I've lost £3,600 in CTC after drawing £9,950 in Drawdown and saving the 20% tax on it, worth £1990, so lost £3,600 and gained £1,990 which makes £1,610 lost for this year, ouch!

    Cannot believe this works out so badly for us.

    Am I right in thinking that if my wife accesses the 25% tax free portion of her SIPP this will also count as income?
    • GunJack
    • By GunJack 19th May 17, 1:11 PM
    • 9,698 Posts
    • 7,226 Thanks
    GunJack
    • #6
    • 19th May 17, 1:11 PM
    • #6
    • 19th May 17, 1:11 PM
    dunno....you may have to ask on the benefits section of the forum...
    ......Gettin' There, Wherever There is......
    • stoozie1
    • By stoozie1 19th May 17, 1:30 PM
    • 307 Posts
    • 150 Thanks
    stoozie1
    • #7
    • 19th May 17, 1:30 PM
    • #7
    • 19th May 17, 1:30 PM
    as you mention recycling, just wanted to check that you know that the contributions you make to your SIPP will be disregarded from your income at their grossed up amount. So this will increase the amount of CTC you receive by more than your actual net contributions.
    • happyhero
    • By happyhero 19th May 17, 1:45 PM
    • 1,096 Posts
    • 54 Thanks
    happyhero
    • #8
    • 19th May 17, 1:45 PM
    • #8
    • 19th May 17, 1:45 PM
    as you mention recycling, just wanted to check that you know that the contributions you make to your SIPP will be disregarded from your income at their grossed up amount. So this will increase the amount of CTC you receive by more than your actual net contributions.
    Originally posted by stoozie1
    Hi stoozie1 not sure what you mean can you elaborate please?

    It sounds positive but can you give me an example of what you mean using my figures. in 2016/17 I paid in to my SIPP £2880 grossed up to £3600(this SIPP already had money in it). I put £10,950 of the SIPP into drawdown but to leave the drawdown account open I had to leave £1000 in it so I took £9950 as drawdown payment in 2016/2017 and paid and recovered the tax as this was more than my tax free part and was emergency taxed. Hope that all makes sense.
    • dunstonh
    • By dunstonh 19th May 17, 2:47 PM
    • 89,490 Posts
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    dunstonh
    • #9
    • 19th May 17, 2:47 PM
    • #9
    • 19th May 17, 2:47 PM
    Paying into the pension was a good idea. Drawing against it was you did was a bad idea.

    Thr 75% element is income whether it is paid monthly or yearly or a single amount. So, any benefit that is means tested on income would be affected by this.

    Paying into the pension can increase tax credits (as it lowers your income). Drawing on the pension can decrease tax credits as it is increasing your income.

    Money in a pension is usually disregarded from means-tested benefits until age 60.
    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.
    • happyhero
    • By happyhero 19th May 17, 3:18 PM
    • 1,096 Posts
    • 54 Thanks
    happyhero
    Paying into the pension was a good idea. Drawing against it was you did was a bad idea.

    Thr 75% element is income whether it is paid monthly or yearly or a single amount. So, any benefit that is means tested on income would be affected by this.

    Paying into the pension can increase tax credits (as it lowers your income). Drawing on the pension can decrease tax credits as it is increasing your income.

    Money in a pension is usually disregarded from means-tested benefits until age 60.
    Originally posted by dunstonh
    Thank you dunstonh, so what my best way forward, can you comment please?

    I think I should not do any more drawdown withdrawals as i have kids and so CTC?

    Your comment implies I can take the 25% without effecting my CTC or mentioning it to them, do I understand that correctly...I'm double checking everything now in panic)?

    So my wife could do this too, just take the 25% part?

    Is there any repair I can do, I mean how can I get CTC to increase my tax credits by using the £3600 gross I paid in....how do you do that, will it work for me as a non tax payer(not sure if that effects this)?

    Any other repair possible?

    My CTC form which came today says we owe them £3000 which they will now recover over the year. I contemplated paying them this as I have this money from my just received tax refund, then I would/should go back to normal monthly payments but is that the best idea, ie I could manage and put the money into my SIPP or ISA and struggle for a while?

    Or is there another option I havent thought of?
    • NotSkint
    • By NotSkint 19th May 17, 3:46 PM
    • 44 Posts
    • 33 Thanks
    NotSkint
    You need to get your household income back down.
    One way of doing this would be to pay into your wife's pension up to her max allowable earned income taking into account grossing up. As gross pension contributions are deductible from earnings for tax credit purposes then that would neatly leave you in a pretty similar position to where you were, except that you have redistributed monies from your pension into hers.
    Any additional income affects tax credits; depending upon the size of your wife's pension there may or may not be a benefit in drawing from your pension and paying into hers. Or you may just be better of delaying whilst you can receive such credits.
    Hope that helps
    • sheramber
    • By sheramber 19th May 17, 5:50 PM
    • 3,574 Posts
    • 2,657 Thanks
    sheramber
    funny enough of £9,650 which is weird as the actual gross withdrawal was made by me and was £9,950, any ideas what the £300 difference is?


    £300 of pension income is ignored. When you advice TC of the amount you deduct £300 from the total.

    Whether you drawdown in monthly instalments or in a lump sum Tax Credits use the annual figure.

    You provide an estimated income for the year and confirm the actual amount at renewal. If you under estimate the amount you will have an underpayment when the year is finalised.
    • happyhero
    • By happyhero 19th May 17, 5:55 PM
    • 1,096 Posts
    • 54 Thanks
    happyhero
    Ok thanks everybody, I think I have sorted out this problem. After reading all your replies and a bit of Googling I then felt armed enough to attempt contacting HMRC and discuss it all and as mentioned above I can offset all the contributions I made which means I actually will end up better off in the long run although it can take up to 10 weeks they said as they process all the information..

    I paid enough in, in 2016/17 to mine and my wife's account to not only rectify the problem of drawing drawdown but it also to knock some off off my wife's wages, thereby increasing our future payments once they are sorted out.

    Only annoying thing after all that is I was told I must wait for my renewal pack before I can enter the SIPP contributions which means low payments for a little while, but I can happily suffer this considering where it was I thought I was this morning, owing £3000 to HMRC.

    Now I know I can continue to recycle my SIPP and add some more as long as I keep tabs on the effect on the CTC. Using the online CTC calculator makes this straight forward. Thank you everybody for your help and inputs.
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