LISA or Pension to save for my child?

liamcas

Ok makes sense thanks.

So if I grow the fund up to 600k by working a few extra years after taking the 50k I'm ultimately entitled to 150k tax free meaning 450k will end up crystallised and I'll draw that as tax efficient income once I stop working?

dunstonh

So if I grow the fund up to 600k by working a few extra years after taking the 50k I'm ultimately entitled to 150k tax free meaning 450k will end up crystallised and I'll draw that as tax efficient income once I stop working?

Your pension pot is segmented into uncrystallised funds and crystallised funds. You can only take a maximum of 25% against your uncrystallised funds.


So, if your uncrystallised pot is 500k and you crystallise £200k to draw £50k tax free, you will have two pots. A crystallised pot of £150k which you can never draw a tax free amount again (caveats apply in respect of death and personal allowance) regardless of what that part grows to. And you will have £300k uncrystallised where you can draw 25% whatever that grows to.

Mr.Saver

liamcas wrote: »

Ok makes sense thanks.

So if I grow the fund up to 600k by working a few extra years after taking the 50k I'm ultimately entitled to 150k tax free meaning 450k will end up crystallised and I'll draw that as tax efficient income once I stop working?

There's one more thing you need to be aware of. After you've taken money out from your pension in certain ways, your future pension contributions will be subject to the lower £4k annual allowance. This may become a problem if you earns more than £4k in the higher rate tax band.

https://www.gov.uk/tax-on-your-private-pension/annual-allowance

As the rule said, as long as you don't do UFPLS, flexi-access drawdown, etc. you will be fine.

cloud_dog

Mr.Saver wrote: »

There's one more thing you need to be aware of. After you've taken money out from your pension in certain ways, your future pension contributions will be subject to the lower £4k annual allowance. This may become a problem if you earns more than £4k in the higher rate tax band.

https://www.gov.uk/tax-on-your-private-pension/annual-allowance

As the rule said, as long as you don't do UFPLS, flexi-access draw down, etc. you will be fine.

No, they won't. As long as no more than the 25% of the crystallised amount is withdrawn, i.e. the £150k remains within the pension wrapper in a crystallised form.

Mr.Saver

cloud_dog wrote: »

No, they won't. As long as no more than the 25% of the crystallised amount is withdrawn, i.e. the £150k remains within the pension wrapper in a crystallised form.

"in certain ways" is the key here. Access the 25% tax free lump sum is OK, but if anyone goes further and take the money from the remaining 75% via a flexi-access drawdown, then the 4k limit will apply. Of course you can also touch the 75% without affecting the annual allowance - try caped drawdown or lifetime annuity.