Drawdown - one chance to take the TFLS?

AnotherJoe

EdGasket wrote: »

I was thinking that taking out amounts each year using UFPLS looked best because so long as I don't take too much, then even the 'taxable' amount becomes non-taxable if kept within the personal allowance. It also means nothing left in the pension is crystalised so if the pension grows, I can take out more tax-free money in the future than if I crystalised it now. It also means I don't have the headache of what investments are crystalised and which ones aren't; sounds an admin nightmare.

Does this sound like a good idea assuming I don't need to make big withdrawals from my pension?

Once you get state pension that will bump you a fair way to the tax allowance. If you have any other pensions even small they will likely take you over. otherwise yes seems like a plan. In my case SP plus a very small company pension will take me just over the allowance to start with so UFPLS means the 75% will all be taxable in my case so I lose nothing by taking out all the tax free and putting it in ISAs. I think I will do it one SIPP ata time though.

Agreed about keeping track of crystallised / uncrystallised especially if issues can arise such as you have funds you'd like to sell and take the cash from but they are in the wrong category.

EdGasket

Please post how crystallised / uncrystallised holdings get divided when you start taking tax-free lump sums. presumably if you are fully invested you might have to sell some of a fund in one category and buy it back in the other or will HL or your SIPP provider just split up units? Who decides what gets crystalised; can you give them a list ?

AnotherJoe

EdGasket wrote: »

Please post how crystallised / uncrystallised holdings get divided when you start taking tax-free lump sums. presumably if you are fully invested you might have to sell some of a fund in one category and buy it back in the other or will HL or your SIPP provider just split up units? Who decides what gets crystalised; can you give them a list ?

There's no way I'm letting myself in for that hassle. I have 3 pensions, I'll take 25% in one fell swoop from each, into ISAs over 2 tax years but one month, and several years apart.

My relatives will get what's left after the bubbles have risen as I scuba dive somewhere warm.

jamesd

AnotherJoe wrote: »

can you explain the VCT thing or point me at a place where its explained? Not VCT's themselves but how it works in terms of moving taxable money out of pension into VCT which is not taxed, which is what I read into that? Presumably it IS taxed but then i get it back when i buy the VCT, is that the jist of it?

Yes, that's how it works.

You can reclaim the VCT relief either in a tax return or by telling HMRC about it and asking them to adjust your PAYE tax code to deal with it. PAYE works well for flexible drawdown with regular taxable monthly income being taken, which uses PAYE.

jamesd

You choose what gets sold or moved when taking lump sums and going into drawdown or doing partial UFPLS. Ask the provider how they handle it. Tracking once done is easy, you see the investments in two different accounts.

AnotherJoe

jamesd wrote: »

You choose what gets sold or moved when taking lump sums and going into drawdown or doing partial UFPLS. Ask the provider how they handle it. Tracking once done is easy, you see the investments in two different accounts.

So that would lead to some inflexibility, say Acme Corp which I'd like to sell to take the cash, being in my crystallised taxable account.

jamesd

Not inflexibility so much as the cost of more transactions to achieve your desired mixture of holdings.

AnotherJoe

Something just occurred to me that's so obvious I need to check.

So, let's say I take out the 25% TFLS from a SIPP and put it in ISAs. What's left is now susceptible to tax. However I have 4 years before SP kicks in. In those 4 years I can take out around £12 a year that otherwise would be taxed at 20%, and pay no tax on it as I'll have no other income. so I'll save 20% of £50k = £10k. That money can then be reinvested and drip fed into ISAs in subsequent years, or spent.

I haven't missed some gotcha here have I?

zagfles

AnotherJoe wrote: »

Something just occurred to me that's so obvious I need to check.

So, let's say I take out the 25% TFLS from a SIPP and put it in ISAs. What's left is now susceptible to tax. However I have 4 years before SP kicks in. In those 4 years I can take out around £12 a year that otherwise would be taxed at 20%, and pay no tax on it as I'll have no other income. so I'll save 20% of £50k = £10k. That money can then be reinvested and drip fed into ISAs in subsequent years, or spent.

I haven't missed some gotcha here have I?

Nope. You have the personal allowance which you can use against your pension income, so no tax if you drawdown up to the PA and no other income.

Only "gotcha" I think is if you decide to move abroad, there was something in a recent budget about the govt not giving a PA to those who live abroad but I don't know the details. Look into it if it applies.

jamesd

You haven't missed anything. I'll be doing the same when relevant to me though I have something like 15k of interest income at the moment and will until I can get my P2P into IF ISA.

What I'll be doing as well is taking out taxable pension income and doing VCT and maybe EIS buying to eliminate the income tax bill on it. Aiming to extract everything as rapidly as I can tax free for maximum flexibility later and to allow some options I can't pursue when they money is in the pension wrapper.