Taking money out of pension pot

candyh

My wife and I are moving house and I urgently want/need to take about £40k out of my pension/investment pot of about £100k to purchase our new property. My wife is a non tax payer and is on a reduced state pension and my present pensions totals approx £21k pa. By taking this money out of my pot am I liable to be taxed at 40% or even higher? Or is there a way of reducing my tax liability?

holly_hobby

Is it in a pension or other non-pension investment vehicle ?

If its a uncrystallised pension, you're not an active member or contributing to any pension, you are aged over 55 yrs, and the 21k pen income you mention is yours, and gted for life from an acceptable scheme ....

You may be able to effect a flexible drawdown option, where there is no cap on benefits taken from the fund, but anything in excess of your max 25% (of fund) lump sum will be taxed at your marginal rate under paye regs.

Speak to your IFA for further guidance - as not suitable for all peeps, and really dependant on a full financial review.

Hope this helps

Holly

jamesd

A normal personal pension has a tax free lump sum of 25% available.

To go over that you'd need to use Flexible Drawdown. That requires a guaranteed pension income from work defined benefit pensions, state pensions and annuities of at least £20,000. Income from capped drawown or other savings and investments is ignored for this income requirement. As soon as you opt for Flexible Drawdown your annual contribution limit for pensions is reduced to zero and there are such large penalties for making pension contributions that you should normally not do so. This bar on more pension contributions means that it's unlikely to be appropriate to use flexible drawdown until you're certain that you will never again want to make pension contributions. Contributions from employers count towards this, also effectively banned. After the tax free 25%, all money taken by flexible drawdown is added to your normal taxable income in the year you take it and paid by PAYE with income tax deducted at source, but no NI. You'll pay whatever income tax rate is appropriate for the levels of income involved.

Pension providers will refuse to let you take out more than 25% unless you use Flexible Drawdown.

Use a higher mortgage amount, perhaps with longer term instead of going over 25% if Flexible Drawdown is inappropriate.