How Much Can I Drawdown Without Paying Tax?

NANNYALLY

Hello, after years of scouring these forums for all information financial I have finally plucked up the courage and joined.

I have recently turned 60 and have money invested in a HL Vantage SIPP. I retired from work in July last year and do not have any income and will not until state pension age in 6 years time. My husband is retired and receives his state pension in January 2020.

We are currently living off my husbands final salary pension and we supplement this by about £500 per month from some cash savings. He is a tax payer and I have transferred some of my tax allowance over to him.

I paid £2,880 into my SIPP last year and intend to do the same in this and future years.
I have not taken any money from my SIPP as yet and my intention is to get as much money as I can from my SIPP and into the equivalent stocks and shares ISA.

In my HL Vantage SIPP I currently have:
£100,000 Vanguard life strategy 40
£40,000 Vanguard life strategy 60
£25,000 Cash
I also have
£90,000 in a L & G Multi Index Fund ISA
I have not used any of my ISA allowance for this year.

Thanks for your time and any guidance would be much appreciated.

TCA

The answer to your question (according to the HL website) is:

"When you withdraw money from your pension, normally up to 25% is tax free and the rest taxed as income"

http://www.hl.co.uk/pensions/sipp/frequently-asked-questions

If your personal allowance for 2017/18 is the standard £11,500 and you're transferring the maximum 10% to your husband then that leaves £10,350 for you. The maximum you could then withdraw from your pension without paying tax is £13,800 (£10,350/75%). If you have other income, like bank interest from the cash savings you mentioned, then this has to be included in the calculation.

Also bear in mind that when you start withdrawing money from your pension, you'll trigger a lower annual limit on pension contributions (the Money Purchase Annual Allowance), which is currently £10,000 per year.

The above is only my understanding of the rules, so hopefully someone else can confirm or otherwise. HL of course would give you the definitive answer.

grey_gym_sock

TCA wrote: »

If your personal allowance for 2017/18 is the standard £11,500 and you're transferring the maximum 10% to your husband then that leaves £10,350 for you. The maximum you could then withdraw from your pension without paying tax is £13,800 (£10,350/75%). If you have other income, like bank interest from the cash savings you mentioned, then this has to be included in the calculation.

that is 1 method of drawing from the pension. that's the UFPLS (uncrystallized funds pension lump sum) method - described by HL here: http://www.hl.co.uk/pensions/ufpls

another method is drawdown. with drawdown, you can immediately take 25% of the whole pot, as a tax-free lump sum - in your case, that's c. £41,250. then everything you draw after that is taxable pension income. so in the current tax year, you could draw £10,350 (in addition to the £41,250). and then in each subsequent year, you could only draw £10,350 (or a bit more, since the personal allowance will probably have increased).

either way, 25% is tax-free, and the rest has to fit within your allowance, if you are to avoid paying tax on it. drawdown lets you take money out more quickly initially.

NANNYALLY

Thanks to both TCA and grey jim so for your prompt and informative replies .
It is so straightforward when you explain it like you have done.

You can understand how I have struggled to understand when I couldn't even put my first post into the correct forum, I intended to post it in the pension forum.

Sally57

NANNYALLY wrote: »

Hello, after years of scouring these forums for all information financial I have finally plucked up the courage and joined.

I have recently turned 60 and have money invested in a HL Vantage SIPP. I retired from work in July last year and do not have any income and will not until state pension age in 6 years time. My husband is retired and receives his state pension in January 2020.

We are currently living off my husbands final salary pension and we supplement this by about £500 per month from some cash savings. He is a tax payer and I have transferred some of my tax allowance over to him.

I paid £2,880 into my SIPP last year and intend to do the same in this and future years.
I have not taken any money from my SIPP as yet and my intention is to get as much money as I can from my SIPP and into the equivalent stocks and shares ISA.

In my HL Vantage SIPP I currently have:
£100,000 Vanguard life strategy 40
£40,000 Vanguard life strategy 60
£25,000 Cash
I also have
£90,000 in a L & G Multi Index Fund ISA
I have not used any of my ISA allowance for this year.

Thanks for your time and any guidance would be much appreciated.

Is your L & G Multi Index Fund ISA also with HL? If so, at the moment you have a combined investment amount of £255K so if you transferred to the Fidelity platform (purely as an example because there are other platforms) then the charges would reduce to 0.20% with Fidelity and even better still with a flat fee platform.