Best option for making use of tax free allownaces

EdGasket

kidmugsy wrote: »

Your provider will organise the assets in your pension into two "arrangements" or "accounts" - the crystallised and the uncrystallised. Then everything is dead easy to manage.

So lets say I take a £10K tax free lump sum under FAD; then £30K is crystalised as income. How does the SIPP provider decide which investments to allocate to that 30K out of the various shares and funds I own and which to leave in the uncrystalised part?

Is it the case that a £30K cash amount is just earmarked as crystalised without worrying about which assets will be used to sell to realise that £30K?

kidmugsy

EdGasket wrote: »

So lets say I take a £10K tax free lump sum under FAD; then £30K is crystalised as income.

How does the SIPP provider decide which investments to allocate to that 30K out of the various shares and funds I own and which to leave in the uncrystalised part?

I can't speak for all providers, but in the case of mine I decide. Why would I let the provider decide?

Judwin

EdGasket wrote: »

I am thinking taking about £12K pa using UFPLS

Assuming no other taxable income in the tax year, you can take £18933 from your pension this tax year. This £18933 will be taxed as...


£4733 = 25% PCLS
£10600 = 2015-16 personal allowance
£3600 = taxed at 20% leaves £2880.


Pay the £2880 back into a pension, and this is grossed back up to £3600.


Your net 'take home pay' is then £15333, all tax free, plus a £3600 gross pension contribution.


Recalculate yearly as/when the govt changes the personal allowance and permissibly pension contribution limits.


Cheers
Judwin

EdGasket

kidmugsy wrote: »

I can't speak for all providers, but in the case of mine I decide. Why would I let the provider decide?

How does that work then with share prices continually changing? Also if the assets allocated to income drop before you take that income, then you will effectively have taken more than 25% tax free. FAD sounds and seems to me at the moment, a lot more complex than UFPLS where you just take out a lump of cash and everything left is in the same pot.

philwal_2

The 25% lump sum is paid on the value at the date the funds are crystallised.

You do not have to take the full 25% in one go you can stagger this as and when you need to top your income up.

jamesd

You don't need to crystallise/ take benefits from the whole pot in one go but if you do not take the whole 25% at the time of crystallising you cannot take more later.

So take 10% tax free from a pot that you're crystallising and that's it, you don't get the 15% later. But crystallise only half of the pot and take 25% tax free from that 50% and you can crystallise some of the other 50% later to get at the 25% of the second 50%.

EdGasket

jamesd wrote: »

You don't need to crystallise/ take benefits from the whole pot in one go but if you do not take the whole 25% at the time of crystallising you cannot take more later.

So take 10% tax free from a pot that you're crystallising and that's it, you don't get the 15% later. But crystallise only half of the pot and take 25% tax free from that 50% and you can crystallise some of the other 50% later to get at the 25% of the second 50%.

Wow that's a quirk I didn't know about; seems like you could really lose out if you get it wrong i.e. thinking you take some more tax-free cash later from a crystalised tranche.

EdGasket

AJ Bell's charges:
Flexi-access admin £100 pa
Flexi-access admin charge where no regular income taken £50 pa
Flexi-access one-off payments £25
Flexi-access put funds into drawdown £75 per tranche
UFPLS regular payments £100 pa
UFPLS one-off payment £75

Based on the above charge structure, UFPLS looks more attractive. I could make one UFPLS withdrawal pa for £75. Think I'll go with that as Flexi-access drawdown is too much of a headache.

jamesd

It depends where your money is but for comparison the comparable costs at Hargreaves Lansdown are zero for either UFPLS or flexi-access and at Virgin the cost of UFPLS is zero, flexi-access not offered.

Whether the lower AJ Bell platform charge than HL compensates for this depends on the pension pot size. For Virgin it's a case of whether the single investment, a FTSE tracker, is sufficient at it's relatively high tracker AMC.

Depending on pot sizes involved it may be cheaper to transfer out either initially or periodically to a place that offers cheaper income-taking.

EdGasket

I am with AJ Bell. I really don't think its worth moving as the costs of selling everything up (I have a large number of individual shares) or transferring out would make it uneconomic. I seem to remember a lot of people unhappy with HL not long ago due to increased charges; they may well introduce charges for taking a pension too before too long.