Early retirement

ringer

I hope to retire in 7 years time when I reach 60. I have a preserved pension that I will drawdown on till I reach state pension age at 67, when I will also get a small direct benefit pension and will also drawdown on a works pension pot.
If I drawdown £11,850 + 25% TFLS and I don't have any other income apart from savings, would I pay zero tax?
That being the case I have 10k that I was going to invest in a stocks a shares ISA to help fund my early retirement. Would it be more tax beneficial to open a SIPP?
I am a normal rate tax payer and I already pay 16% (10+6 from employer) in to a works pension.

Dazed_and_confused

If I drawdown £11,850 + 25% TFLS and I don't have any other income apart from savings, would I pay zero tax?

Depends on the amount interest received from taxable sources.

You would definitely have £5,000 of savings interest which would be taxable at the savings starter rate of 0%.
And then you would have upto a further £1,000 also taxable at 0% courtesey of the savings nil rate (Personal Savings Allowance).

Subject to any changes in next weeks budget

ringer

Dazed_and_confused wrote: »

Depends on the amount interest received from taxable sources.

You would definitely have £5,000 of savings interest which would be taxable at the savings starter rate of 0%.

Sorry don't understand this bit. I don't have enough savings to pay tax on the interest.

Dazed_and_confused

Badly phrased sorry.

What I meant was that you could earn up to £5,000 of savings interest and, under the current rules, it would be taxed at a 0% tax rate.

If you had more than £5,000 interest then the next £1,000 would also be taxed at 0%. If you had £35k or so in interest then this £1,000 might drop to £500 but if you could earn that much interest then paying a bit of tax would be a nice problem to have!

I don't have enough savings to pay tax on the interest.

If you are drawing down a pension equal to your personal allowance then all savings interest (except genuine non taxable things like cash ISA's) will be liable to tax. Fortunately at the moment that tax rate is 0% for up to £6,000 of interest.

Albermarle

If you were a 40% taxpayer , then paying more into a pension would probably be the best bet due to the tax relief .
However when you take the pension you will probably pay tax on it , so for a 20% taxpayer , there are arguments on both sides between S & S ISA and a pension ( assuming you had similar types of funds in both )

ringer

Yes, but I'm planning to draw just enough not to pay tax, that's why I mentioned a SIPP. I know it doesn't seem a lot to live on but by then I will be debt free and my partner will still be working.
I have a fairly physical job, and can't see myself doing it in my sixties.

xylophone

I have a preserved pension that I will drawdown on till I reach state pension age at 67,

This is a DC pension in an arrangement that allows flexible drawdown?

ringer

Yes it is a DC Pension. I'm not sure if it does offer flexible drawdown, but it matures when I'm 55 and I can transfer it if needed.

p00hsticks

ringer wrote: »

Yes, but I'm planning to draw just enough not to pay tax, that's why I mentioned a SIPP.

If you use a SIPP, to avoid having any tax deducted, withdraw it in equal monthly installments rather than as a single lump sum (which will result in tax being deducted - you can get it refunded quite quickly rbut it's less hassle not to have to do so(

kidmugsy

ringer wrote: »

If I drawdown £11,850 + 25% TFLS and I don't have any other income apart from savings, would I pay zero tax?

Yes. And as already said, you'd pay no tax on the savings interest unless it exceeded £6k p.a.

ringer wrote: »

That being the case I have 10k that I was going to invest in a stocks a shares ISA to help fund my early retirement. Would it be more tax beneficial to open a SIPP

Yes, though you might like to wait until you are 55 so that you can reverse it whenever you want to or need to.

xylophone

https://www.hl.co.uk/pensions/tax-relief