Tax planning for retirement

woody190388

If I drawdown £10,000 from my Sipp in a year (which includes 25% tax free) have I used £7500 or £10,000 of my annual tax free allowance? If the answer is £10,000 does it make sense to start to siphon off the tax free cash into Isa's each year to reduce the tax burden in retirement?

I am 55 and still working part time. I estimate I will start needing to use Sipp funds in 5 years time. Maybe longer if we move more funds into ISA's.

Any guidance would be much appreciated.

Jerben

£7500


The answer to your wider question depends on your requirements and many other things!

Linton

If you are in danger of being a higher rate tax payer in retirement than now it is worthwhile using up your spare tax allowance whilst you have it. But as Jerben says there is more to it than that....
1) S&S ISA or cash ISA? The former in general would be more sensible though it depends on your cash/investment planning.
2) Once you drawdown some taxable SIPP money your ability to put more money in a pension is severely restricted.

woody190388

Thank you for the replies Jerben and Linton.

My wife and I currently have Sipps, Isa's (s & s) and rental property to keep us going in retirement. As the assets are evenly spread between the two of us we can avoid higher rate tax. We are still working part time and do not need to drawdown on the Sipps and Isa's for maybe another 5 years. We plan continue to make some Pension contributions for the next 5 years if work continues to be enjoyable.

From what you are saying it seems that there is no benefit in moving tax free money from the Sipps to the Isa's at this stage?

Stubod

..we are in a similar situation but we have now actually "retired", (but not taking any pensions yet).

I have been advised by our FA to take money out of our SIPPS and put it into SS ISA's (or spend it), to reduce the tax liability before MOH starts taking her pension in 2 years. This pension will be enough to take her over the minimum allowance so will need to pay tax. ie we plan to take remove all the money from her SIPP (30k) over the next 2 years when she is not earning, so hopefully we will not pay any tax on it.

kidmugsy

woody190388 wrote: »

From what you are saying it seems that there is no benefit in moving tax free money from the Sipps to the Isa's at this stage?

There might be advantages but they'd be speculative. You could, for instance, try to protect yourselves from changes in the law that you might fear from this or a future government.

If you think that contributions to ISAs might become limited you might like to push ahead with some now. If you think the TFLS might be attacked in some way, you might choose to use it now.

On the other hand, money in pensions is free of IHT and, if you should die before age 75, free of income tax too. Might that matter to you?

If you are inclined to remove a large sum as a TFLS and also increase your pension contributions substantially, you might like first to check the rules against "pension recycling".

Linton

woody190388 wrote: »

Thank you for the replies Jerben and Linton.

My wife and I currently have Sipps, Isa's (s & s) and rental property to keep us going in retirement. As the assets are evenly spread between the two of us we can avoid higher rate tax. We are still working part time and do not need to drawdown on the Sipps and Isa's for maybe another 5 years. We plan continue to make some Pension contributions for the next 5 years if work continues to be enjoyable.

From what you are saying it seems that there is no benefit in moving tax free money from the Sipps to the Isa's at this stage?

From a quick think...

There is no benefit in moving tax free money now rather than later after retirement unless you are in danger of breaking the LTA.

There may be benefit in moving taxed money now rather than later if there is a danger that you will be unable to drawdown all you need later without paying a higher rate of tax than now. But there is the disadvantage of the reduction of the pension annual contribution limit to £4K and increased liability to IHT

woody190388

As far as lifetime allowance is concerned I think we should both commence drawdown before reaching the LTA limit of £1 million, although if investment returns are moderately favourable we may have to deal with this sooner. Am I right in thinking that we will need to be below £1 million per Sipp at 75 to avoid higher taxation on income taken?? If so, I guess we will need to carefully manage how we take income from the various taxable and tax free sources to keep the Sipps under the LTA, whilst still avoiding higher rate tax.

Thank you all of you for taking the time to help. I am just turning my mind to working out how best to take our income in retirement. It's not as straightforward as I thought it would be. Perhaps the Chancellor will solve the problem for me on Wednesday by removing the LTA?

cloud_dog

This was an interesting post. This question is on my 'Pension Planning - Questions to Consider' list

We are nowhere near pensionable age(s) yet but our situation is:

1. I will be subject to income tax on DB pension (managing that and SP to be below 40% bracket)
2. OH has two small DB pensions (probably around the £2kpa)
3. OH currently in a LGPS scheme
4. OH also has a SIPP (hopefully around the £80k mark at retirement)

So, my plan was to utilise the UFPLS from age 55 whilst OH still working. Would like to continue making use of UFPLS after stopping work but would also aim to remove as much capital from the SIPP as possible and place in an ISA, potentially completely emptying the SIPP (at some point), although see UFPLS consideration.

The precise mechanics of how I complete the second part I was going to come back to nearer the time. I thin kit is all going to come down to when the OH wants to stop working and how many years before SP that actually is. Obviously receiving SP doesn't preclude continuing but would cut down on the available allowance to use for removing SIPP money.

The aim would be to keep the OH as a non-tax payer with the idea of transferring some of their income tax allowance to myself.

The only non-ISA investments/savings we hold are nominated for our DD so, any of our investment income / CGT would be tax-free (I'm ignoring our DD investment).