Avoid Tax overpayment on Pension

rizla01

Hi.
I expect(Hope) this is a straightforward Q with a straightforward (Ish) reply.

I am retired with no income and my partner & I share the bills --- Her from rental income & pension (She also has her own home), and me from savings. I am now 2 weeks away from 65th B/day, so have now decided to take some action re my pensions.

I have an £1800 pension pot which I am thinking of taking in one go and suffer the tax payment, now. I also have another £20k pot and I was about to request payment of my State pension but something occurred to me.

My State Pension will be an income, right? So, if I draw all the 20k I will surely have a smaller remaining annual allowance and would therefore pay more tax than if I were NOT in receipt of my State pension?
So would I benefit from deferring the state pension?

I do not need the monthly amount from my private pensions, just the cash.

xylophone

Re tax on savings income

https://www.gov.uk/apply-tax-free-interest-on-savings/tax-free-savings

You can take 25% of each pot tax free, with the balance taxed as income in the year of receipt.

You could defer your state pension until you have used up the pension money.

https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/372517/dwp024-102014.pdf

rizla01

So just to clarify, would I be correct in assuming that I can draw-down the difference between my State pension payment annual total and my Annual Tax allowance (11k) and NOT pay tax on the remainder and that I can do this annually until the pot is used up and THEN commence my State pension?

This sounds to be the most efficient way to do it unless there are any catches?

Are there?

mania112

No Xylophone is saying that you could hold off the state pension until such time as you've used up your personal pensions.

So this way you'd still have your full annual allowance to use on personal pensions

rizla01

What would be the most tax efficient way of taking my money?

I am not desperately needing ANY of it right now but I want the Government to earn as little from me as is possible but inconvenience myself as little as poss.

xylophone

Discussed before?
https://forums.moneysavingexpert.com/discussion/comment/68310022#Comment_68310022

rizla01

xylophone wrote: »

Discussed before?
https://forums.moneysavingexpert.com/discussion/comment/68310022#Comment_68310022

But is there a reason that you are unable to simply state the solution to my dilemna without sending me on a journey of reading guide after guide.

If I were happy to do that I wouldn't have posed my questions in the first place.

Had I the answer I wouldn't be asking the same question would I?

I would have been much happier if you had stated from the off either:-

1) I am unable to advise on this matter or

2) I am unwilling to advise on this matter.

jem16

rizla01 wrote: »

What would be the most tax efficient way of taking my money?

Defer your state pension. For every year that you defer you earn an extra 10.6% when you come to take it.

Meanwhile draw down an amount from each pension ( after taking the tax free lump sum ) up to the Personal Allowance so it will all be tax free. Remember that you need to include savings interest in that amount as it is taxable. From next year the first £1000 of savings interest is tax free too.

Once you've drawn down both pots, claim your state pension which will be higher.

I am not desperately needing ANY of it right now but I want the Government to earn as little from me as is possible but inconvenience myself as little as poss.

Then why take it at all? It's in a tax free wrapper and growth is tax free. If you die before age 75 it all passes tax free to whomever you leave it to. After age 75 it can still be passed on and taxed at whatever their tax level would be.

So you do have a choice but state pension referral is a good deal.

clivep

jem16 wrote: »

Remember that you need to include savings interest in that amount as it is taxable. From next year the first £1000 of savings interest is tax free too.

The starting rate for savings in the current tax year was dropped from 10% to 0% and the starting rate limit raised from £2,880 to £5,000. Consequently, if you are only drawing down an amount up to your personal allowance then you usually don't need to factor in the savings income.

For some reason HMRC don't seem aware of this (or are ignoring it for some reason). In my recent UFPLS tax refund they included tax due on estimated savings income at 10% in their calculation. I'm sure this will all come out in the wash when I do the tax return next April and I'll get the small balance of the tax refund at that time.

xylophone

The starting rate for savings in the current tax year was dropped from 10% to 0% and the starting rate limit raised from £2,880 to £5,000.

Already pointed out to OP (first link in post above), could he have been bothered to read it

and in earlier post 17 with link to calculator

https://forums.moneysavingexpert.com/discussion/comment/68310022#Comment_68310022