any reason not to crystallise?

anselld

aldershot wrote: »

I wasn’t necessarily intending to take the 25% out now. I have enough cash in the fund for the first year and I was considering taking it annually so £16,666 on top of £50k pa and leaving the rest accruing and then convert £66k pa to cash.

I’m so close to the LA I feel I have to do something.

I thought you had to take the 25% TFLS when you crystallise. Is that not the case?

aldershot

anselld wrote: »

I thought you had to take the 25% TFLS when you crystallise. Is that not the case?

Somebody correct me if i am wrong, but i thought that crystallising or moving to drawdown was just a BCE event and the funds at market value would move to a new account and have the % of current LA marked against them at that point. So if i move £525k in this tax year, it will switch to a flexi access drawdown account and use up 525000/1030000 or 51% of my LA. That money doesn't get tested again and I can do whatever I like with it. 25% is available tax free and the rest at marginal rate in any tax year. I don't have to do anything after moving from an uncrystallised to a crysallised account.

Is that correct?

anselld

aldershot wrote: »

Somebody correct me if i am wrong, but i thought that crystallising or moving to drawdown was just a BCE event and the funds at market value would move to a new account and have the % of current LA marked against them at that point. So if i move £525k in this tax year, it will switch to a flexi access drawdown account and use up 525000/1030000 or 51% of my LA. That money doesn't get tested again and I can do whatever I like with it. 25% is available tax free and the rest at marginal rate in any tax year. I don't have to do anything after moving from an uncrystallised to a crysallised account.

Is that correct?

I would also appreciate any clarification as I am in similar position and crystallisation does seem a good opportunity in a down market.

My understanding in your example is that the 25% becomes outside the pension wrapper. Depending on your pension provider they may have the facility to leave it invested but that investment would be subject to tax (income, cgt, iht) in the same way as any other unwrapped investment. So effectively you have "taken it out" as far as the pension is concerned, even if you haven't converted to cash in bank.

dmelife

When you crystallise you have to take the 25%. So if you phase drawdown, and take say £50k per annum, you crystallise £50k of which 25% is tax free.

Linton

If you do not need a large lump sum you could use UFPLS with the SIPP whereby each drawdown includes 25% tax free. This will smooth out the cash flow making it easier getting excess drawdown into his & hers S&S ISAs. You dont really want unwrapped investments if you can avoid them.

aldershot

dmelife wrote: »

When you crystallise you have to take the 25%. So if you phase drawdown, and take say £50k per annum, you crystallise £50k of which 25% is tax free.

So if I phase drawdown, moving say £66,000 pa into drawdown, I take 25% tax free and the balance is taxable income so a tax bill of around £7,500 (£37.5k *20%) pa. BUT, each £66k will be its own crystallisation and its own BCE? If the pot grows faster than CPI, I'm going to be over the LTA when my DB pension kicks in? Or do I kick that can down the road and worry about it when I've finally used it all up?

wjr4

aldershot wrote: »

Somebody correct me if i am wrong, but i thought that crystallising or moving to drawdown was just a BCE event and the funds at market value would move to a new account and have the % of current LA marked against them at that point. So if i move £525k in this tax year, it will switch to a flexi access drawdown account and use up 525000/1030000 or 51% of my LA. That money doesn't get tested again and I can do whatever I like with it. 25% is available tax free and the rest at marginal rate in any tax year. I don't have to do anything after moving from an uncrystallised to a crysallised account.

Is that correct?

Remember that there is also another LTA test at age 75 if you’re in drawdown.

StellaN

Linton wrote: »

If you do not need a large lump sum you could use UFPLS with the SIPP whereby each drawdown includes 25% tax free. This will smooth out the cash flow making it easier getting excess drawdown into his & hers S&S ISAs. You dont really want unwrapped investments if you can avoid them.

Hi Linton, please can I ask your thoughts on this. My husband was 60 last June and is a retired non earner and we live off my earnings. He has a SIPP value of around £140K and wants to take as much money out of his SIPP over the next 7 years before his State Pension to minimise any tax on withdrawals. At the moment tHe intention is to take the full 25 per cent TFLS before April and his personal allowance for this year as a non earner. We would then use this cash to invest in the same funds in both mine and his S&S ISA allowances of £20K each.

Is the the best method to withdraw the maximum amount to minimise tax or should we also consider the UFPLS route?

dmelife

Correct.

You could take enough from the DC pension so that when added to your DB pension you stay under the LTA, then see what happens in the future. LTA may be removed altogether, tax rates could change, you could leave it there to reduce IHT liability. Or take the hit from the DC pot which may be preferable to a reduced DB pension.

Linton

StellaN wrote: »

Hi Linton, please can I ask your thoughts on this. My husband was 60 last June and is a retired non earner and we live off my earnings. He has a SIPP value of around £140K and wants to take as much money out of his SIPP over the next 7 years before his State Pension to minimise any tax on withdrawals. At the moment tHe intention is to take the full 25 per cent TFLS before April and his personal allowance for this year as a non earner. We would then use this cash to invest in the same funds in both mine and his S&S ISA allowances of £20K each.

Is the the best method to withdraw the maximum amount to minimise tax or should we also consider the UFPLS route?

In you case it doesnt really make any difference as your husbands 25% can be ISA'ed in 1 year. The OP has a much larger pension pot so the lump sum is more of a problem.


One option that may make sense for some people is to defer taking their SP in order to extract more from a DC pot at a low or zero tax rate. This is again more for people with a very large DC pot where it may not be possible to extract all of the money without paying higher rate tax.