Sipp tfc clarification

SeniorSam

We have only drawn from ISA's to help top up holiday needs and there is just over £120k of those and some other cash bits around.

With the initial plan of crystalising £150k, taking the 37,500 TFC to fund two £11, 520 ISAs for this tax year and drawdown of GAD maximum, this would about replace the £8k that is about to cease soon from the only other taxable income.

With my State (£14566) and modest occupational (£1063)pensions, my income is £23,630 and with personal allowance and MCA, that only leaves £5215 taxable and that will stay the same when the drawdown replaces the other income that is to stop soon. Possibly some overlap.

Even when thereis overlap, the amount of taxable income will only be £13,740.

The additional ISA's taken up from the TFC would give more tax wraped capital to draw from if needed.

If I were to fully crystalise a pot of about £320k, this would leave me with more capital to sit around until I can invest in the 2015/6 ISA area and I feel it would be wiser to split the crystalisation for that reason.

I had previously used the HL drawdown calculator to work figures out and that showed the GAD rate being 8.4%. Not sure who's cvorrect on this? As such I had calculated £150k would give me a higher drawdown amount. On a 7.4% calculation, the maximum crystalisation would give me a drawdown of £17,760 and a taxable income of £41,390 and after allowances, 22,975 taxable.

Sam

A further thought ..... we set up a investment bond in Trust in 2009, which has been growing at 9% per annum and could add capital into that Loan Trust on the basis that the Trustees can make loans to whoever?

jamesd

HL would have been right for when you got the calculation, I'm right for a current calculation.

The GAD limit varies depending on the 15 year gilt rate when the calculation is done. Also for a couple of years that calculation was multiplied by 100% instead of the past and current 125%. The payment increases with age as well, up to age 85. The gilt yield dropped from about 4-4.5% in late 2011 down to 2% but is now rising again and is now back up to 3% for August drawdown starts. So a HL calculation before late 2011 would have given a higher value than a current one. Blame quantitative easing for this, as well as interest rate expectations.

You can ask for a new GAD calculation on the anniversary of starting drawdown.

If you would take money out of ISAs instead of taking it from the pension, it would be better to take a bit more out of the pension, up to the point where higher rate income tax starts. Anything taken out of the ISA has the same effect as not putting it in now, so better not to do that.

SeniorSam

Thanks again Jamesd,

I have been working on my figures and based on £320 k, will crystalise £200k and take the 25% TFC. Will drawdown after one year, but taking only £10 K pa (less than maximum to retain growth) and on a quarterly basis. Assuming a 5% continued growth of the funds, I should maintain the posts fairly well. Just before age 75 (2.5 years time) I will crystalise the remaining pot, which should then be around £132,300.

As I took 25% of 62.5 % of the original pot, is the calculation of final TFC more complicated than just 25% of the final crystalisation pot, or not?

Sam

jamesd

It's not more complicated than 25% of the final crystalisation pot. Each portion crystalised gets up to 25% of its value at the time.

SeniorSam

Thanks again. That was what I had hoped.

After another sleep, I have decided that earlier advice about taking from tax free to invest in tax free has sunk in, so I will not now take TFC to put into ISA's ....... silly me!

Have now decided to crystalise only £100k, take the 25% TFC and drawdown £5k pa taking half yearly.

Can you please clarify that additional crystalisation can take place at any time and that the drawdown can be changed any time as long as it is within the GAD rates? Or is the latter only annually? SORTED THIS NOW!

Sam .......................getting there!

jamesd

Additional crystalisation can take place at any time.

The GAD limit can only be recalculated at the start of crystalisation of a pot or on the anniversary date. New pots either get merged with the existing one or create new ones, depending on how the SIPP provider does it, HL combines so new crystalised money there gets the same dates as the existing HL pot. If you want different dates you can do that using a different provider.

The amount of money that can be taken can be varied from nothing up to the annual GAD limit at any time.

It is not silly to take a lump sum from a pension to put into ISAs. Both are tax free places for the money. It would be silly to take income from ISAs when you could instead take income from a pension pot.

SeniorSam

A final thank you Jamesd. The last paragraph may change my thinking a bit as I was under the impression that it was not good policy to take TFC for ISA funding. I was previously considering taking about £50k, to fund both our stocks & shares ISA's for this tax year, which we havend done as extra cash was not available.

The extra crystalisation would also allow more income and still within basic tax rate.

Thank you very much for all your help.

Sam