Where to put TFLS of 300k?

happyandcontented

If someone could tell me if I have this correct I would be grateful.

If we remove 300k as a TFLS from a pension pot and put 50k into Premium Bonds and the rest into NS&I for accessibility (we may buy a property abroad next year) would that be tax beneficial for the LTA calculation at 75?

Our thinking is that if the calculation is done on growth the pot would be smaller and therefore the tax would be lower. Is that correct?

Or could the gains if the tax-free amount was left in outweigh the tax?

One spouse is a non-taxpayer so should all the pot go into one name or does it not matter? That spouse currently has c80k in savings already so would exceed the tax-free allowance. The other spouse is a high rate taxpayer.

What % is considered the optimum for the cash element of a pension pot?

We have an IFA and intend to ask all of these questions of him but I wanted to be clear that we had it right!

Albermarle

If we remove 300k as a TFLS from a pension pot and put 50k into Premium Bonds and the rest into NS&I for accessibility (we may buy a property abroad next year) would that be tax beneficial for the LTA calculation at 75?

Yes because you remove the potential growth of the £300K from the LTA calculation .

The downside is that you are ( I assume ) moving invested funds into low returning funds/savings , so will probably lose out some growth .

You are letting the tax tail wag the investment dog , which is normally advised against on here , but may be the right thing to do in your circumstances . The IFA will no doubt have an opinion. 

happyandcontented

The money is not yet invested in our Sipp. We have a couple of days to say what we want to happen. 

Thrugelmir

Presumably you had a mapped out plan before deciding to take the CETV ?

AnotherJoe

What do you mean "not yet invested in our SIPP"?  Has it already been moved to cash but was investments?
anyway if you have  use for it in a years time Then this seems like a reasonable plan to me. 

AnotherJoe

hang on is this two SIPPs each £600k? Or one that's already hit the limit ?

Malthusian

Or could the gains if the tax-free amount was left in outweigh the tax?

No. There is nothing you can invest in within a DC pension that you couldn't invest in outside it, without the lifetime allowance charge on further growth on the tax free cash.

One spouse is a non-taxpayer so should all the pot go into one name or does it not matter? That spouse currently has c80k in savings already so would exceed the tax-free allowance. The other spouse is a high rate taxpayer.

Premium Bond winnings are tax free. You should put enough taxable savings in the HRT spouse's name to use up their £500 savings interest allowance, the rest in the BRT spouse's name. Assuming that this doesn't result in you being hit by the withdrawal of personal allowance above £100,000 or the child benefit tax charge above £50,000. Don't forget your ISA allowances.

What % is considered the optimum for the cash element of a pension pot?

There is no optimum %.

happyandcontented

Thrugelmir said:

Presumably you had a mapped out plan before deciding to take the CETV ?

Yes, we did, but we are considering changing it before the transfer is complete. We have been asked are we sticking with the broad plan or tweaking it.

wjr4

Why don’t you leave it in the pension if you don’t need it? Outside of your estate for IHT purposes, can live on it monthly until it runs out? 

happyandcontented

We are intending to buy a holiday home for the family to use and this will be when world circumstances allow travel without restrictions. This will be within 18 months (hopefully) so we want easy access to the cash.
Given that these are the IHT rules I don't think having the savings outside the pension wrapper would affect us.

 Who pays inheritance tax? In the 2020/21 tax year, everyone is allowed to leave an estate valued at up to £325,000 plus the new 'main residence' band of £175,000 giving a total allowance of £500,000 per person. For estates worth less than this, beneficiaries won't pay inheritance tax.

pjread

I wonder if you might get a better deal on a holiday home before things get back to 'normal', depending on where you're looking... 

For 18 months and no risk (besides inflation), NS&I is probably the sensible option.  50k each in PB's & the rest with whoever pays the least tax.  Or if you don't mind risk and don't really need it all in cash, fill both your ISA's too if you don't already.