UFPLS - Check my maths please

DairyQueen

I am in the process of using UFPLS to transfer unused personal allowance from SIPP to ISA. I calculate the max tax free I can withdraw this tax year as:

Unused tax allowance = £8490

UFPLS of £11000.
£11000*25% (tax free) = £2750
Balance (offset against personal allowance) = £8250.

I know that I will be taxed at 'week 1' rate and will need to reclaim the tax (a complete pain in the butt but, hey ho, needs must).

Could you kind folks check my maths please?

(Afterthought) yes, I am over 55.

Flying_Dodo

No problem with your figures, but why vest money out of your SIPP to then fund an ISA? Might not be applicable to your situation of course, but it then restricts any future pension contribution you can make.

The main issue is that on death the monies in the SIPP can be paid tax free to anyone you nominate, and that would normally be done within a few days. With the ISA on death, the monetary amount can only go tax free to a spouse, otherwise it's liable to inheritance tax and would only be paid out after probate.

DairyQueen

Thanks for marking my maths

We are using UFPLS now as a strategy to reduce income tax in retirement.

Our circumstances are such that income tax once retired (a few years to go) needs to be carefully managed. Moving funds from SIPP to ISA now allows me to use my (otherwise surplus) personal allowance to transfer retirement funds from a taxable to a tax-free drawdown wrapper. When SP kicks-in the tax-free drawdown available from my SIPP will be substantially reduced.

I am married, no children, not working and unlikely to return to regular employment. I have a small income from investments. OH works. Inheritance isn't an issue.

I have only paid the max pension contribution for non-earners for the last, few years (3600 gross) and this is less than the MPAA (already triggered).

badmemory

Withdraw £100 & get over taxed & HMRC send the provider a tax code. When the tax code is received withdraw whatever & it will be taxed correctly. Well sort of! But may give you a better result.

Dazed_and_confused

Unused tax allowance = £8490

I am married, no children, not working and unlikely to return to regular employment. I have a small income from investments

The existing income you have could potentially be liable to tax at one of the 0% tax rates so it may be possible for you to take £11,850* of taxable income from your SIPP and still not have any tax to pay.
*£15,850 UFPLS using same logic as in your op

With having low income you miss out on the Personal Savings Allowance but could benefit from either the savings starter rate or dividend allowance rate.

I'm assuming you haven't applied for Marriage Allowance but even if you have you could potentially take taxable SIPP amount of £10,660 and still have no tax to pay if your "investment" income is the right sort of income!

OldMusicGuy

DairyQueen wrote: »

We are using UFPLS now as a strategy to reduce income tax in retirement.

Same for me. I plan to UFLPS for the next 5 years until SP age so that I can take money from my pension pot without paying tax and not use all of my 25% tax free lump sum. We will be able to live tax free for the next 5 years and I'll review the situation when we both start getting SP.

DairyQueen

Thanks for the tips folks.

Looks like OMGuy and I have adopted the same, tax-efficient strategy.

I care for my disabled mother and my only non-savings, non-divi income is the carer allowance. This counts against my personal tax allowance. Interest on cash, and unwrapped divi payments, are below their respective allowances. OH pays HRT so I am unable to transfer any of my personal allowance to him

The issue for us (and I appreciate it's a lucky issue) is that we are pensioned to the point where spouse will have difficulty accessing pension funds without paying HRT. He has a generous DB plus DCs and SIPP. I have a reasonable SIPP and we will both qualify for the max SP.

OH isn't ready to retire yet. This is fortunate as our family circumstances are now such that we are not able to enjoy the retirement lifestyle we had planned at this age.

He reaches DB NRA next year but the benefits of deferral, and the tax implications of taking his DB whilst still working, are such that he plans to defer for three years. He took LTA protection in 2016 so is unable to make further contributions.

I am using UFPLS to increase our cash fund pre-retirement, plus transferring any surplus to ISAs will allow flexible access to assets free of income tax and CGT once pensions kick-in.

OH has two adult daughters. They have received the best start in life courtesy of OH's hard work. Both are now independent. We have no desire to be the richest corpses in the graveyard and, when circumstances allow, we plan to retire, kick-up our heels and spend as much of our savings as possible during our lifetimes. Notwithstanding allowances made for the unknowns - life expectancy and later-life care needs - we have arranged things such that my stepds and nephews will inherit if we fail in our mission to spend the lot. If IHT is part of that package then so be it.

jamesd

Your maths is OK but it might be better not to use UFPLS. Tax free lump sum to allow maximum ISA funding then regular monthly income might be a better move.