Pension and Taxation

mistapike

Hi. I want to understand what Pension I could draw down in a tax year, before I have any tax liability, just as a one off in my final year before I fully retire. (I'm assuming I would draw down as a single lump sum and would have no other income in the tax year).
I say this as I believe that I get 25% of any pension amount tax free, which leaves £12,000 as potentially taxable, but then as the Lower Tax Threshold for a year is £11,850, if I did draw down say £16,000 in the year, only £150 of the £16,000 in reality would be taxable.  I feel I've probably got something wrong here, but I cant find any resource which explains how the Lower Tax Threshold works in conjunction in against the 25% of your pension being tax free.  Any advice gratefully received. Thanks

AlanP_2

What's your personal tax code / allowance?

For most people it is the standard £12,500 a year which means you can take ((12,500 /3) *4) = £16,667.

Working that back 25% TFLS = £4,167 leaving £12,500 of taxable income @ 0% tax rate.

If youtr tax code is different then apply the same logic to calculate for your situation.

Not sure what the Lower Tax Threshold is??

Albermarle

Worth noting that not all pensions are completely flexible on how you take the money , especially older ones.
So you might need to check with the provider what they can actually offer. 

ratechaser

You also mention taking this as a lump sum - you may find that your pension gets taxed on a month 1 basis (I.e. on the assumption that this lump sum would be what you would take every month) and therefore you'd end up getting tax deducted that you would then need to reclaim.

Better to spread the drawdown amount over the year if you don't have an immediate need for it all.

xylophone

Lower Tax Threshold for a year is £11,850,

https://www.gov.uk/income-tax-rates

https://www.pruadviser.co.uk/knowledge-literature/knowledge-library/ufpls/#:~:text=Uncrystallised%20funds%20pension%20lump%20sum%20(UFPLS)%20allows%20pension%20holders%20to,at%20the%20point%20of%20withdrawal.

 See above under 

Example of how UFPLS is taxed