using my tax free lump sum as a short teem loan to myself

NeilC1965

Hi,
my pension is available from November 2020 and I am investigating withdrawing around 20% tax free to fund a house purchase before an inheritance is received. I would then pay back the 20% from inheritance back into the fund. Are there any issues in doing this?

SonOf

Are there any issues in doing this?

It will prevent you from using phased flexi-access drawdown for income in retirement (one of the most popular methods).

Mortgage interest rates are lower than the typical long term average return. So, "financially" it's not likely to be as beneficial as a mortgage.

You are effectively robbing your retirement years to pay for something now (may not be an issue if its a genuine inheritance but if its someone still alive but elderly, then don't count on them passing away when you need them to).

Dazed_and_confused

Do you have enough earnings which qualify for pension contribution purposes to be able to do this or would you be happy contributing and not receiving tax relief over and above the maximum for low income individuals of £720 tax relief?

Do you mean 20% from the TFLS or 20% that includes some taxable income which doesn't actually attract any tax liability as you have low income/spare Personal Allowance?

NeilC1965

SonOf wrote: »

It will prevent you from using phased flexi-access drawdown for income in retirement (one of the most popular methods).

Mortgage interest rates are lower than the typical long term average return. So, "financially" it's not likely to be as beneficial as a mortgage.

You are effectively robbing your retirement years to pay for something now (may not be an issue if its a genuine inheritance but if its someone still alive but elderly, then don't count on them passing away when you need them to).

It is a genuine inheritance, a relative has unfortunately passed away . All in the hands of the solicitor and awaiting probate.

NeilC1965

Dazed_and_confused wrote: »

Do you have enough earnings which qualify for pension contribution purposes to be able to do this or would you be happy contributing and not receiving tax relief over and above the maximum for low income individuals of £720 tax relief?

Do you mean 20% from the TFLS or 20% that includes some taxable income which doesn't actually attract any tax liability as you have low income/spare Personal Allowance?

I currently have no earnings. The 20% is from my TFLS

Audaxer

NeilC1965 wrote: »

It is a genuine inheritance, a relative has unfortunately passed away . All in the hands of the solicitor and awaiting probate.

It seems okay to me, but once you get the inheritance you will not be able to pay it back into the pension, but you could pay it back into the same or similar fund within an S&S ISA probably over a few years, depending on the amount of the inheritance. Whatever sums can't be invested within an S&S ISA meantime, could still be invested in a general investment account until the next tax year(s) when you can move it into the S&S ISA.

Dazed_and_confused

Why wouldn't the op be able to pay back £2,880 per year and have this topped up with the basic rate tax relief?

Dox

Dazed_and_confused wrote: »

Why wouldn't the op be able to pay back £2,880 per year and have this topped up with the basic rate tax relief?

With around £920K invested, 20% of that is £184K. OP will need to be at least 55 to access the lump sum, so 'payback' at £2,880 a year might take rather a long time...

Dazed_and_confused

Fair point but I was posting in response to this and am unclear what would prevent them from contributing to the pension, albeit in relatively small amounts, if they wanted to?

but once you get the inheritance you will not be able to pay it back into the pension

Audaxer

Dazed_and_confused wrote: »

Why wouldn't the op be able to pay back £2,880 per year and have this topped up with the basic rate tax relief?

He would still be able to do that. I was assuming the inheritance will be a significant amount, and I meant that he can't pay all that back into the pension, so suggested the S&S ISA instead.

Dazed_and_confused

Ok, understood