LTA confusion

ukdw

Judwin wrote: »

I think the better option is to crystallise the whole £1M pot on day one, and take the 25% PCLS. So you get £250K out, and start drawing down from the remaining £750K. You'd need to withdraw all the growth from the £750K every year up till you're 75. 6% on £750K would be £45K p/a.


The issue then is what to do with the £250K lump sum. Various options, but in the end it's a nice problem to have.


The other issue is that the state pension (£8.5K ish) will kick in at age 67/68 and require you to reduce your drawdown to £36.5K ish if you're determined to stay a basic rate tax payer.


Needs a spreadsheet to investigate the options.

Whilst the £750k LTA test level wouldn't increase by inflation prior to the age 75 test, hopefully the £45k basic rate tax level would increase occasionally instead to allow larger percentages of the £750k to be withdrawn in the years closer to age 75.

If state pension after age 67/68 starts to cause a problem I suppose it could always be deferred until after Age 75.

lisyloo

Cheers I am PAYE and my employer passes on their 13.8% employers NI so I am taking max advantage of that and filling my basic rate tax band with divs @ 7.5% income tax.

Much more interested in retiring early than meeting/breaching LTA.
I dont believe either of us need LTA to have a comfortable retirement.
We have 2 pensions for 2 of us and from what I've seen that's not always the case, for example those who have divorced would have split their pension provision.

Since you're talking about Ltd companies you have to work out if company contributions to your personal pensions and busting the LTA are the most efficient way of extracting money from your company.
We will have a large mortgage free home so we have the opportunity to downsize at some point.

Dont know but contributing £40k pre-tax and retiring early certainly is Very tax efficient.

lisyloo

ukdw wrote: »

Whilst the £750k LTA test level wouldn't increase by inflation prior to the age 75 test, hopefully the £45k basic rate tax level would increase occasionally instead to allow larger percentages of the £750k to be withdrawn in the years closer to age 75.

If state pension after age 67/68 starts to cause a problem I suppose it could always be deferred until after Age 75.

Good point.
We are 50 & 52 so both have SPA of 67 I believe.

kidmugsy

ukdw wrote: »

If state pension after age 67/68 starts to cause a problem I suppose it could always be deferred until after Age 75.

What a good idea. Then at 75 you cut back the income drawdown, draw the much-boosted state pension, and have lots of money in the pot for leaving to grandchildren or whomever. (Though I'll bet that that lovely opportunity will be binned in the next few years.)

lisyloo

What a good idea.

The downside of course is that you might not make it to 75 or may not be in a physical state to do all the activities you wish.


I certainly don't expect to carrying heavy scuba gear at 75 and you don't see many 75 year old scuba divers.


No grandchildren either.


I went to the funeral of a 53 year old colleague 2 days ago (the 3rd such), so there is such a thing as leaving it too late. Sadly I know this to be a fact.

kidmugsy

lisyloo wrote: »

The downside of course is that you might not make it to 75 or may not be in a physical state to do all the activities you wish.


I certainly don't expect to carrying heavy scuba gear at 75 and you don't see many 75 year old scuba divers.


No grandchildren either.

Oh well, if you live past 75 it'll pay for your care home, presumably.

Malthusian

lisyloo wrote: »

Ah ok.
I did look into I think a little (for second property rather than pensions) which might be why I missed the joke.

It is a good joke but terrible tax planning. A "tactical divorce" risks losing 50% of the entire pension and other marriage assets, for the sake of a tax bill which at most is 55% of a fraction of the pension only (the growth in the drawdown fund in excess of your remaining Lifetime Allowance). It's cutting off your face to avoid a tax charge on your nose.

The more lengths you go to to avoid HMRC deeming the arrangement to be artificial, the greater the possibility that your newly-eligible and independently-wealthy spouse will not be inclined to get back together with you. And if you were too much in love to contemplate not resuming the marriage, you wouldn't break it for several years over a mere tax bill in the first place.

lisyloo wrote: »

I certainly don't expect to carrying heavy scuba gear at 75 and you don't see many 75 year old scuba divers.

I imagine that by age 75 one coral reef starts to look the same as another and it's time to take up skydiving or motocross racing.

lisyloo

kidmugsy wrote: »

Oh well, if you live past 75 it'll pay for your care home, presumably.

Well yes, but I think have the age somewhat wrong.
We have 2 parents who went into care homes recently both aged 89.
Having carers visiting at home and new tech can help people stay on
their own homes longer.

It;s made much of but it;s a minority who end up in care homes and generally not for long.

In the period before the care home our parents spent a lot less when they couldnt drive and couldnt go out and could;t do much.
One could presumably use ones home for care fees but that doesnt work if the spouse is still living in it.

lisyloo

I was never serious about a tactical divorce merely took an interest as one learns things whilst researching.
Personally i think it;s impossible these days unless you are prepared to live under a rock - for example my movements yesterday ( and most days) were recorded on oyster 4 times, plus 2 credit card purchases. Its too easy to track people these day so that kind of fraud would mean using cash and abandoning the internet completely.

pensionpawn

I have to agree with Lisyloo insomuch that I would like to retire comfortably as early as possible as oppose working mainly to boost the pension pot up to LTA (which if my circumstances remain unchanged is likely to happen around 65) to retire in luxury. If LTA is an issue from 55, well done, however I would imagine that that is a problem for a very small percentage of the population. My father used to say that 'tomorrow is never promised' (he went through WW2, so you can probably understand why) however none of us are getting any younger / healthier, so unless my job becomes more exciting than the plans I have for retirement I'm going to press the button as soon as I can retire on my current net pay, indexed. I heard an old (easily in his late 70's, early 80's) man recently say that he now too old to enjoy the money he has (his wife had died a couple of years ago). Use it whilst you can, don't wait until it's too late!