Uncrystallised Lump Sum Withdrawals - Help Please

Hope2015

Hello all


I'm about to start drawing cash from a SIPP.

• The cash value of the SIPP is £37000. It is held as cash and will remain so.
• I initially wish to take a tax-free lump sum of £5000 and a further £10000 which I would expect to be taxed at 20%.
• My provider says I need to crystallise £20000 in order to get £5000 tax free.This would leave £5000 in the crystallised part of my fund. I don't fully understand the meaning of crystallisation in the context of pensions.
• I intend withdrawing the whole of the fund within the next two tax years.

Please can anyone advise me on the following:

1. Should I be requesting a flexi-access arrangement or to take uncrystallised lump sums? These are options given by my provider and I thought I had chosen the latter. Do they mean that the lump sums become crystallised once I take them?
2. How do I check that I won't exceed my lifetime allowance?
3. Would there be any detriment or benefit to crystallising the whole pension now - my understanding is that tax is incurred at drawdown, provided the lifetime allowance is not exceeded?

Thank you - I'm very confused!

xylophone

http://www.retirementplanner-sw.com/digital_assets/15890/Freedom_and_choice_-_new_ways_to_take_pension_tax_free_cash_and_income.pdf

Does the above clarify?

dunstonh

I don't fully understand the meaning of crystallisation in the context of pensions.

Pensions are uncrystallised in the growth stage. When you start drawing on them, you crystallise some or all of the pension fund to obtain the lump sum or income. it is a way of classifying your pension fund to ensure you dont get two lots of tax free lump sums etc.

How do I check that I won't exceed my lifetime allowance?

By adding the value of your pensions.

Would there be any detriment or benefit to crystallising the whole pension now - my understanding is that tax is incurred at drawdown, provided the lifetime allowance is not exceeded?

unnecessary tax bill if done in one year would be most likely reason to do it over two years.

Should I be requesting a flexi-access arrangement or to take uncrystallised lump sums? These are options given by my provider and I thought I had chosen the latter. Do they mean that the lump sums become crystallised once I take them?

Lump sum withdrawal in year one seems to be make sense.

Hope2015

Thanks xylophone. My browser won't allow the link you provided - I'll try another way.

Hope2015

Thanks dunstonh
Assuming I don't exceed the lifetime allowance:
Is the income tax liability incurred at crystallisation or at drawdown?
If I crystallise the remainder of the SIPP in year 2, will I still get 25% of the remainder tax free?


Much appreciate your advice.

xylophone

For some reason, the full stop after income is in the wrong spacing.



Should be income.pdf

dunstonh

Is the income tax liability incurred at crystallisation or at drawdown?

Depends on how you do the drawdown. However, as this is phased drawdown, you will be crystallising part of the pension only in year one and the rest in year two. You get 25% of the part of the fund you crystallise each time.

zagfles

Hope2015 wrote: »

Thanks dunstonh
Assuming I don't exceed the lifetime allowance:
Is the income tax liability incurred at crystallisation or at drawdown?

At drawdown.

If I crystallise the remainder of the SIPP in year 2, will I still get 25% of the remainder tax free?

Yes.

So if you crystallised £20k, and took £5k as a tax free lump sum, the remaining £15k is "crystallised" and you can take it out whenever you want, and you're taxed on it as income when you take it out.

The uncrystallised £17k you'll have left can be treated the same, ie you can take 25% tax free and drawdown on the rest as taxable income whenever you want.

If you take an uncrystallised lump sum (UFPLS) then you get 25% of it tax free and the other 75% is taxed as income now.

jamesd

Your provider is right.

You told your provider that you wanted to do something that the Uncrystallised Funds Pension Lump Sum option cannot do. If you wanted to use UPFLS and get £5k as a tax free lump sum you would need to take £15k taxable. UFPLS is always 25% tax free and 75% taxed. Flexi-access Drawdown is what you effectively asked for. that does let you leave some of the 75% until later.

jamesd

The benefit of crystallising now is that today's £1.25 million Lifetime Allowance is used, not the lower one likely in the future. So you have less chance of exceeding it.