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How to minimise tax when cashing-in a Pension
gammyleg
Posts: 29 Forumite
Hi,
As part of my divorce settlement I have to give my ex £35k in cash. The only way for me to raise this money is to cash-in some of my pensions of which I have four in total. We are both over 55 and still working.
The CETVs are roughly £164k, £66k, £20k & £11k.
If my maths are correct, using the £20k & £11k pots would realise the following
£31k = 25% Tax Free £7.75k
£31k - £7.75k = £23.25k
£23.25k taxed @ 40% would leave = £13.95k
Total sum retrieved = £7.75k + £13.95k = £21.7k
Shortfall = £35k - £21.7k = £13.3k
Total cost to me = £31K + £13.3k = £43.3k.
If however I dipped into my £164k pot I would only need to liquidate 21% of this to raise the full £35k
Do these figure sound correct or am I missing something?
As part of my divorce settlement I have to give my ex £35k in cash. The only way for me to raise this money is to cash-in some of my pensions of which I have four in total. We are both over 55 and still working.
The CETVs are roughly £164k, £66k, £20k & £11k.
If my maths are correct, using the £20k & £11k pots would realise the following
£31k = 25% Tax Free £7.75k
£31k - £7.75k = £23.25k
£23.25k taxed @ 40% would leave = £13.95k
Total sum retrieved = £7.75k + £13.95k = £21.7k
Shortfall = £35k - £21.7k = £13.3k
Total cost to me = £31K + £13.3k = £43.3k.
If however I dipped into my £164k pot I would only need to liquidate 21% of this to raise the full £35k
Do these figure sound correct or am I missing something?
0
Comments
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Another reason to avoid taking the whole of the smaller pots is you would trigger the MPAA and be subject to only being able to add 4k p.a. to your pensions. Taking only Tax free cash from the larger pension would not trigger this.0
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As part of my divorce settlement I have to give my ex £35k in cash. The only way for me to raise this money is to cash-in some of my pensions of which I have four in total. We are both over 55 and still working.
Are you sure that is the only way?
Normally, transferring part or all of the pension to the ex is the usual method.
Why has your solicitor told you to UFPLS your pension?0 -
Are you sure that is the only way?
Normally, transferring part or all of the pension to the ex is the usual method.
I don't think pension sharing was stipulated as part of the divorce - £35K in cash was, and the OP sees the only way of acquiring the money being to get it from his pensions...Why has your solicitor told you to UFPLS your pension?
I don't think they have.Conjugating the verb 'to be":
-o I am humble -o You are attention seeking -o She is Nadine Dorries0 -
I would have thought that the OP's solicitor, being aware of the assets, would see that there is not £35k cash available and would have proposed alternatives.
Passing £35k to the ex-spouse within the pension would out the tax issue on the spouse and avoid the MPAA.0 -
I would have thought that the OP's solicitor, being aware of the assets, would see that there is not £35k cash available and would have proposed alternatives.
Passing £35k to the ex-spouse within the pension would out the tax issue on the spouse and avoid the MPAA.
Maybe the solicitor did. Maybe pension savings wasn't what the spouse wanted - immediate access to cash may have been agreed because that was what was required and the ex was actually prepared to settle for less, providing it was supplied as hard cash.0 -
Another reason to avoid taking the whole of the smaller pots is you would trigger the MPAA and be subject to only being able to add 4k p.a. to your pensions. Taking only Tax free cash from the larger pension would not trigger this.
This is really important to understand since the OP is still workingI’m a Senior Forum Ambassador and I support the Forum Team on the Pensions, Annuities & Retirement Planning, Loans
& Credit Cards boards. If you need any help on these boards, do let me know. Please note that Ambassadors are not moderators. Any posts you spot in breach of the Forum Rules should be reported via the report button, or by emailing forumteam@moneysavingexpert.com.
All views are my own and not the official line of MoneySavingExpert.0 -
Maybe the solicitor did. Maybe pension savings wasn't what the spouse wanted - immediate access to cash may have been agreed because that was what was required and the ex was actually prepared to settle for less, providing it was supplied as hard cash.
Exactly correct. Ex wants cash, not pension.0 -
Exactly correct. Ex wants cash, not pension.
Are all the pensions DC and is any pension to which you are currently contributing also DC?
Re MPAA
https://www.pruadviser.co.uk/knowledge-literature/knowledge-library/money-purchase-annual-allowance-mpaa/0 -
Exactly correct. Ex wants cash, not pension.
Ok - so could you address this previous observation?I would have thought that the OP's solicitor, being aware of the assets, would see that there is not £35k cash available and would have proposed alternatives.
Did you solicitor expressly advise this course of action, and did he make you aware of the issues raised in this thread (like the MPAA?)Conjugating the verb 'to be":
-o I am humble -o You are attention seeking -o She is Nadine Dorries0
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