Taking a Tfls from Sipp but not the full 25%

Vasquez65

I may need to take @£15k  from my Sipp in December when I hit 55,  I’m in the process of transferring my Aegon pension of £50k  into said Sipp of £45k as Aegon retiready don’t have a drawdown option (or an annuity option for that matter 🤔) 

I’ve read conflicting information about Crystalisation / UPFLS etc. 

I want to take the TF cash but then leave the rest to grow ( will be replacing the withdrawn amount over a couple of years to avoid ‘recycling’ issues).
The latest thing I read said that taking a tfls triggers full crystalisation,   presumably that doesn’t matter much? 

Are there any pitfalls to be aware of? 

I’m hoping I don’t need to take the cash,  but it is dependent of how fast my late Father’s house sells, it goes on the market next week. 

The cash is for my Daughter, she wants to buy a house before the end of the stamp duty freeze next March as her partner isn’t a first time buyer and they are looking at £250k houses.   They had a 5% deposit saved then covid happened so obviously now need 10% at least.  I am gifting her £20k from the house sale.  

MallyGirl

what is happening to the other £5k?
If you take anything more than the 25% tfls then you would be impacted by more than just recycling. You would have MPAA issues

Marcon

There's a very clear explanation here which should help: https://www.youinvest.co.uk/pensions-and-retirement/accessing-your-pension/tax-free-cash

Vasquez65

I’m only going to be taking 16% of the £95k . 

What other £5k do you mean? 

If it’s the rest of the £20k gift,  it’s the proceeds of the cash from the estate ( well half of it as my sister is joint beneficiary)  . 

p00hsticks

Vasquez65 said:

What other £5k do you mean? 

I think Mallygirl read the first sentence of your original post to mean that you were transferring £45k of the Aegon pension into your SIPP, not that you were adding the £50k Aegon pension to an existing SIPP that already has £45k in itt - I read it the same way myself at first 

dunstonh

You only crystallise enough of the pension to draw the figure you need.   So, if you needed £15k PCLS then you would crystallise £60k.  Not the whole pension.

MallyGirl

p00hsticks said:

Vasquez65 said:

What other £5k do you mean? 

I think Mallygirl read the first sentence of your original post to mean that you were transferring £45k of the Aegon pension into your SIPP, not that you were adding the £50k Aegon pension to an existing SIPP that already has £45k in itt - I read it the same way myself at first 

yep - exactly that

Vasquez65

That’s what confused me,  everything I’ve read suggests that taking the tfls triggers full crystalisation but they probably assume taking the full 25%. 

How does it work regarding the investments when there are, in effect,  2 pots?   

Another question -  the transfer will be in cash from Aegon ( from Blackrock funds iirc)    Is it wise to leave £15k in cash in my Sipp for the potential tfls given that I would only hold the investments for 3 months before having to sell them in order to withdraw? 

Albermarle

If you have £95K and take £15K tax free . Then £60K of the £95K will be crystallised .
So you are left with £45 k crystallised and £35 K uncrystallised .
You are still entitled to 25% of the £35K tax free but then the rest  will be become crystallised , meaning you have then crystallised the whole pot and no more tax free sums possible. Any money taken from a crystallised pot is taxable .
If you later add more contributions it will increase the size of the uncrystallised part but you can not 'put back ' the TFLS you took out .
The above is known as flexi drawdown . UFPLS is different and not relevant to what you want to do .

Vasquez65

Presumably I will get tax relief on the amount I put back and eventually I would be able to take 25% of it as tfls if I wanted to?  

caveman8006

Just to note that you can of course choose to crystalize the whole of the £95,000 but only take £15,000 as the TFLS leaving £80,000 in drawdown rather than £60,000...not something that often makes sense (as the option of taking the full 25% tax free is lost for good if not taken up at the outset) but can sometimes  be advantageous if the main use of the Pension Pot will eventually be to avoid IHT