25% Tax Free

jjjacqueline

Hello,


I have just joined this forum and wondering if some kind person could answer my query.


I am taking early retirement and I have two pension funds, both have allowed me to take the 25% cash lump sum which I am keen to take, am I allowed to take the 25% from both or just the one?


thanks in advance.


Jackie

davidquizer

Hi Jackie, its 25% from both. Remember your pensions will be classed as income, however the new personal allowance starts April of £12500.

Linton

Is this two different funds held in one pension or in two different pensions? If the latter, each pension pot is treated separately - you can take 25% from pot A and 25% from pot B as you wish. You cannot take As 25% from B.


If you just have one pension that happens to hold two different investment funds, then all that matters is the overall 25%. It does not matter in which fund the money happens to be invested.

Paul_Herring

You can take 25% of the whole amount as tax free, and while theoretically and legally you could take that figure from just one of the funds (and thus have the remainder from that one and have all of the other taxable,) practically, if the funds are with different providers, they will each likely limit you to 25% of what you hold with them.

An alternative is to merge both under one provider so that you've only got one fund, but this may be more effort than it's worth if that's the only reason you want to do it.

jjjacqueline

Great thanks for your replies very helpful, I will take the 25% from both A and B, my pension will not be more than the personal allowance anyway, I do have savings and intended saving the cash lump sums, sorry just one more quick question, if I invested all of the money and earned over £1000 in interest would this be taxable, my annual income will be less than £8000, so can I earn up to £4500 in interest, or does it not work like that?


My pension would be only income and £64 carers allowance, I had to give up work to look after my parents.

xylophone

Tax year 2019-20

Pension Income/CA £8000

Savings Income £4500

Deduct PA of £12,500

Tax 0

Other combinations of savings/pension/salary here

https://www.litrg.org.uk/tax-guides/tax-basics/what-tax-rates-apply-me#two

jonesMUFCforever

-Or put cash into an ISA

jjjacqueline

Thanks for your replies, the interest in banks seems higher than the ISA's at the moment so am better off, just wasn't sure if it was tax free, thanks again very useful info! Would rather invest for one year at 2% vs 2.3 fixed ISA for 5 years, 5 years is a long time, interest rates might go higher, or is that wishful thinking!

mgdavid

I don't see the point of taking the 25% taxfree then 'saving' it. Just leave it invested in the pensions to continue to grow at a higher rate than you can get in any ISA or bank account. When you want / need some money out of the pension(s) you use UFPLS to withdraw a small lump sum, 25% of each is taxfree and the rest is taxable but if you are not using all your personal allowance (£12500) then no tax to pay on that bit either.
Or am I missing something?

jjjacqueline

I understand what you are saying, but to take a lower pension and take the cash seems more profitable to me, as to get the cash back in my pension I wouldn't benefit until 16 years, so what is the point of getting an extra say £150 a month, or get £50k cash upfront?


Each month I getting a regular income to pay my bills, and can gain interest on the cash lump sum.


I might be missing something though am knew to this, I was happily saving in ISA's good income but have to leave as my parents needs me.

Paul_Herring

but to take a lower pension and take the cash seems more profitable to me

What are you going to do with that £50K cash up front though?

If it's just sticking it into a cash savings account, the point being made is it would be better off left in the pension since it could 'earn' more than simply gaining interest, and thus be more profitable than withdrawing it.

Basically what you think is the more profitable, typically isn't, and that's driving your decision to simply withdraw it all.