Taxation on 25% SIPP drawdown

Rheumatoid

I'm 56 and about 2 years from retirement. I have a small SIPP (36k)with HL to fund the gap between retirement and taking my teachers pension at 60. I have done well with the equities based funds in there but as a means to reduce risk as I approach retirement I have sold some and am holding cash. I can obviously get a better rate of return on the cash than HL are paying if I invest it elsewhere, so was thinking of going in to drawdown and taking the 25% to put elsewhere.

If I do take 9k as cash will I be taxed and have to claim it back or is it just paid tax free?

Also, how is the value of the SIPP calculated in order to determine the 25% when its value fluctuates by the day?

Thanks
R.

ProDave

I am just in the process of doing this, filling in the forms today (a bit archaic that you have to fill in the forms and post them)

The 25% is paid tax free with no deductions.

You can choose a drawdown rate and period, or do as I have and select "none just now" and organise starting to draw it when I need it.

You must first sell all equities and investments and have the pot you wish to transfer to drawdown all sitting there as cash, and you will get 25% of that tax free. As it's cash it won't be fluctuating as you transfer to drawdown.

Rheumatoid

ProDave wrote: »

I am just in the process of doing this, filling in the forms today (a bit archaic that you have to fill in the forms and post them)

The 25% is paid tax free with no deductions.

You can choose a drawdown rate and period, or do as I have and select "none just now" and organise starting to draw it when I need it.

You must first sell all equities and investments and have the pot you wish to transfer to drawdown all sitting there as cash, and you will get 25% of that tax free. As it's cash it won't be fluctuating as you transfer to drawdown.

Great, thanks. Once the 25% is drawn down I assume I can buy funds again with what is left and then transfer back to cash again when I need to take more out?

ProDave

Yes that's right. The only limitation is once you have taken the TFLS you are then limited to paying no more than £4000 per year into the fund.

It's a bit of a clunky process. You first have to request a drawdown illustration. You then have to fill in (and post) a risk assesment form showing you know the risks of drawdown. Only then will they give you the application form to apply for the drawdown, which you have to post to them.

I'm in my 4th week now of this slow process, but that also included transfering funds in from another provider.

westv

ProDave wrote: »

Yes that's right. The only limitation is once you have taken the TFLS you are then limited to paying no more than £4000 per year into the fund.

Actually, the £4k limit only comes into affect once you have taken more than the TFLS 25%.

bob_a_builder

ProDave wrote: »

I am just in the process of doing this, filling in the forms today (a bit archaic that you have to fill in the forms and post them)

The 25% is paid tax free with no deductions.

You can choose a drawdown rate and period, or do as I have and select "none just now" and organise starting to draw it when I need it.

You must first sell all equities and investments and have the pot you wish to transfer to drawdown all sitting there as cash, and you will get 25% of that tax free. As it's cash it won't be fluctuating as you transfer to drawdown.

Can someone please expand on the bit is bold as it relates to the 25% TFLS

I had assumed it was taken as single lump payment, but at my Pensionwise meeting last night this was raised as a possibility that I wasn't aware of

AlanP_2

bob_a_builder wrote: »

Can someone please expand on the bit is bold as it relates to the 25% TFLS

I had assumed it was taken as single lump payment, but at my Pensionwise meeting last night this was raised as a possibility that I wasn't aware of

You can take, for example, an annual £16k. £4k would be the 25% TFLS with £12k taxable at your marginal rate.

If you were a non-taxpayer you would effectively get the whole £16k tax free (based on a £12k Tax Allowance to make the example clearer).

caveman38

Rheumatoid wrote: »

I'm 56 and about 2 years from retirement. I have a small SIPP (36k)with HL to fund the gap between retirement and taking my teachers pension at 60.
R.

Not a Maths Teacher then?

Deneb

ProDave wrote: »

You must first sell all equities and investments and have the pot you wish to transfer to drawdown all sitting there as cash, and you will get 25% of that tax free. As it's cash it won't be fluctuating as you transfer to drawdown.

You only need to sell sufficient of your holdings to ensure that there is enough cash in the account to cover the PCLS. The remaining holdings including any cash over and above the lump sum taken will be placed into a SIPP drawdown account.

I recently did this with HL and also left a small part of my SIPP uncrystallised so that I can continue to contribute to it. My drawdown account is still around 90% invested in funds.

Mnd

Just to clarify 1 point..if you take just the 25% taxfree you will not be limited to 4000 future contributions , only if you take any more than that even by £1 will the MPAA be activated

ProDave

Mnd wrote: »

Just to clarify 1 point..if you take just the 25% taxfree you will not be limited to 4000 future contributions , only if you take any more than that even by £1 will the MPAA be activated

Thanks for the clarification. The form I have just filled in and posted to HL suggests just drawing the 25% TFLS limits mr then to £4K pa contributions.so a bit misleading.