Tax free lump sum,s

Ganga

Can anybody tell me how many TFLS you are allowed to take?or is there a financial cap on totals/
The reason i ask is i have taken one tfls last year but have a small money purchase pension,less than 8 k that is sitting there and not growing,would like to take 25% tax free and the rest later again tax free as i am a non tax payer ( live off my wifes money )
Any guidence would be much appreciated.

Ganga:)

ermine

Ganga wrote: »

Can anybody tell me how many TFLS you are allowed to take?or is there a financial cap on totals/

The cap is 25% of an uncrystallised amount, of which there can be more than one if you have multiple pensions, or indeed contribute new money to a SIPP after you have taken a TFLS.

So if your small MP pension hasn't been touched you can take 25% of that, provided the provider can cope with that (and if not transfer it to one that does).

If you are a non tax payer then you can do even better. Put in £2880 new money to a SIPP (or add it to that 8k pension) this tax year and take a TFLS of 25% of the grossed up £3600 (£900). Since you are a non tax payer you can take out the remaining amount almost tax-free too for the following reason

You will have drawn out of your 8k £2k TFLS plus 6k taxable, if you flatten that. If you had a separate £3600 SIPP this year you would draw out £900 TFLS from that plus £2700 taxable. Your taxable income for the year would be £6000 + £2700 = £8700, which is less than the personal allowance for taxable income.

This works because non taxpayers may contribute up to £3600 gross to a SIPP. If you don't pay tax on it that is a £720 win every year. Note drawing any more than the TFLS from an DC pension reduces the amount you may put into a pension to a makimum of 4k p.a. so if you are taking a career break then don't ever draw more than the TFLS from any DC pension.

Ganga

ermine wrote: »

The cap is 25% of an uncrystallised amount, of which there can be more than one if you have multiple pensions, or indeed contribute new money to a SIPP after you have taken a TFLS.

So if your small MP pension hasn't been touched you can take 25% of that, provided the provider can cope with that (and if not transfer it to one that does).

If you are a non tax payer then you can do even better. Put in £2880 new money to a SIPP (or add it to that 8k pension) this tax year and take a TFLS of 25% of the grossed up £3600 (£900). Since you are a non tax payer you can take out the remaining amount almost tax-free too for the following reason

You will have drawn out of your 8k £2k TFLS plus 6k taxable, if you flatten that. If you had a separate £3600 SIPP this year you would draw out £900 TFLS from that plus £2700 taxable. Your taxable income for the year would be £6000 + £2700 = £8700, which is less than the personal allowance for taxable income.

This works because non taxpayers may contribute up to £3600 gross to a SIPP. If you don't pay tax on it that is a £720 win every year. Note drawing any more than the TFLS from an DC pension reduces the amount you may put into a pension to a makimum of 4k p.a. so if you are taking a career break then don't ever draw more than the TFLS from any DC pension.

Thanks for the info,for the last two years both my wife and myself have opened private pensions with Virgin money and then closed them making £720 each per year.
I am 67 and have not drawn my state pension but have applied for the lump sum payment now and de-retired again till at least July2018,i know the enhanced pension is better than the lump sum for the long term but due to health problembs the lump sum is a better option.
As i do not pay tax the state pension lump sum should be tax free and does not count as income ( i am hope this is right )so could take the small money purchase pension as a trivial pot but am just being cautious as i do not want to fall into the trap of paying tax on my planned income.

ermine

Ganga wrote: »

As i do not pay tax the state pension lump sum should be tax free and does not count as income ( i am hope this is right )so could take the small money purchase pension as a trivial pot but am just being cautious as i do not want to fall into the trap of paying tax on my planned income.

These guys seem to agree with you, provided you do not have any taxable income over the personal allowance the SP lump sum isn't taxed. You need to watch it if you have any savings or dividend income though, because if these plus your income from other sources take you over the personal allowance you get taxed on the whole of the SP lump sum :eek: even if the savings would normally be taxed at the special savings and dividend rates of 0%

Ganga

ermine wrote: »

These guys seem to agree with you, provided you do not have any taxable income over the personal allowance the SP lump sum isn't taxed. You need to watch it if you have any savings or dividend income though, because if these plus your income from other sources take you over the personal allowance you get taxed on the whole of the SP lump sum :eek: even if the savings would normally be taxed at the special savings and dividend rates of 0%

I have no savings or dividend income so should be ok,thanks for the info/help.:)