drawdown tax relief

ianc2003

i am about to crystallise 100k of my 400k pension pot in January 18, to begin drawdown for my pension.

I understand i can take a 25k tax free lump sum, or alternately have each future payment with a 25% tax free relief and pay tax on the lump sum. Is this true?

Based on my 17-18 tax year ending in April, and having had no income that year, so still have a full personal allowance, plus the marriage allowance. Is it more tax efficient to use the tax free lump sum now, or pay tax on that sum and take the 25% relief of all payments in future, I plan to take approx 1200 per month from April 18, when I also get my SP (max SP).

Can i not take 25% of each withdrawal, including the 25k this year, rather than the whole 25k tax free? This would mean i could use my personal allowance this year to reduce the tax bill.

I hope this makes sense, it looks confusing when written down.

dunstonh

I understand i can take a 25k tax free lump sum, or alternately have each future payment with a 25% tax free relief and pay tax on the lump sum. Is this true?

The 25% can be taken in phases over time. It doesnt need to be upfront and indeed, if there is no reason to take it up front, then you shouldnt do so. The 25% is not a tax relief.

Based on my 17-18 tax year ending in April, and having had no income that year, so still have a full personal allowance, plus the marriage allowance. Is it more tax efficient to use the tax free lump sum now, or pay tax on that sum and take the 25% relief of all payments in future, I plan to take approx 1200 per month from April 18, when I also get my SP (max SP).

If you have personal allowance to use up it would be daft to take out any more PCLS than is necessary to use up your personal allowance. Just under £15500 should be aim (so the 75% uses up the personal allowance and 25% on top)

HappyHarry

ianc2003 wrote: »

i am about to crystallise 100k of my 400k pension pot in January 18, to begin drawdown for my pension.

Why do you want to crystallise £100,000 now? Are you needing a large lump sum?

ianc2003 wrote: »

I understand i can take a 25k tax free lump sum, or alternately have each future payment with a 25% tax free relief and pay tax on the lump sum. Is this true?

Yes, but you may have to move to a pension provider that allows this, as not all pensions have these facilities.

ianc2003 wrote: »

Based on my 17-18 tax year ending in April, and having had no income that year, so still have a full personal allowance, plus the marriage allowance. Is it more tax efficient to use the tax free lump sum now, or pay tax on that sum and take the 25% relief of all payments in future, I plan to take approx 1200 per month from April 18, when I also get my SP (max SP).

It certainly makes sense to take as much as you can each year without paying any tax. e.g. for this year you could make a withdrawal of £15,333. 25% of this (£3,833) would be tax free, the remaining £11,500 would be taxable. However, if your personal allowance is £11,500, and you have had no other income, then you would pay no income tax.

ianc2003 wrote: »

Can i not take 25% of each withdrawal, including the 25k this year, rather than the whole 25k tax free? This would mean i could use my personal allowance this year to reduce the tax bill.

Yes, see above.

If you are getting a SP next tax year, then you will have taxable income of, lets say, £8,500. Next tax year, the personal allowance is £11,850, so you would be able to draw £3,350 of taxable income from your pension before paying any income tax. [/QUOTE]

ianc2003 wrote: »

I hope this makes sense, it looks confusing when written down.

Have you taken up your free appointment with Pensionwise, who may be able to answer some of your questions?

https://www.pensionwise.gov.uk/en

ianc2003

thanks for the answers, it was what i thought,

I do need to take 25k to reduce debts and borrowings before the end of the year to try and tidy up finances, and replace ageing car.

DId try pensionwise, my appointment is next week