25% tax free

Albermarle

koops said:

Ok...I'm sorry but can someone do me the idiot proof maths equation for my query...cheers

You would need to supply more info, especially would you have any other income during that 4 year period?

koops

ok...no other income and basic 12500 allowance..£67000 DC to draw over 4 years.....cheers 

ADA58

if you  have taxable income over 12500 in 20/21 i.e. this tax year if at all possible do not access your pension until after 6th April 2021 other wise you will pay 20% minimum on any withdrawal (although in theory you could I think take the 25% tax free element immediately, but no "drawdown")  and potentially far higher 

the 1st 12500 (based on current tax law) would then be tax free in any given tax year. In addition 25 percent of a SIPP is tax free (upto certain limits and restrictions based on a life time allowance   (LTA) which is far higher than the 67000 you have quoted so need to worry about these limits)   

So you can take 25% up front ie 16750 in April 2021 plus the 12500, then in each subsequent year take 12500 tax free with no other taxes payable assuming you have no other income   ie  2021 (12500+16750) , 2022 (12500) 2023 (12500) 2024 (12500) 2025 (balance, a very small amount) 

ALTERNATIVELY you can take lump sums every year that include the 25% , i.e. no lump sum upfront , this is where the 16667 comes from   so 2021 (16667) 2022 (16667) etc until all depleted.  

Suggest you also speak to the administrator of your pension (SIPP provider?) and ask them what options they provide for payment 

It does depend on how you  want the cash (front loaded or split equally ) and your other income ie your  TAX position, and all assumes tax bands do not change nor (and unlikely in short term) the ability to take 25% tax free. 

koops

12500÷3×4=16667....please explain 

garmeg

koops said:

12500÷3×4=16667....please explain 

You take tax free cash of £4,167 from your pension which is a quarter of £16,667.

You take the remaining £12,500 as taxable income but as this matches your tax free allowance, there is no tax to pay, unless you have other income that uses some or all of your tax free allowance.

mark55man

OP you've had it explained 3 times. 

As a mistake here could leave you short of money between your retirement and your DB+state pension I think you need to take time to follow the clues, do some reading and then work it out for yourself until you are comfortable with it.

I suggest just creating a basic spreadsheet (or notepad) with lines showing some alternatives
* one line showing taking all the tax free element up front, and then taking out the taxable elements over the following years until you run out
* one line showing doing UFPLS (ie each year take a proportion of tax free and taxable money out)

Markneath

Op there’s 2 ways to get your 25% tax free.
The way you mentioned as in 25% of your total fund at the beginning or as mentioned here. 

Basically by not taking the 25% at the beginning your entitled to receive 25% of each year’s payment tax free. 

When you allow for your personal allowance on top of your 25% tax free each year you would pay no tax on the amounts you want to withdraw. 

JamesP8

dunstonh said:

koops said:

Hello...I am planning to take my tax free lump sum from from my DC pot leaving the remainder to hopefully grow. Question is,is any future growth 25% tax free or is it all taxable

Currently, your pension is uncrystallised.   You can draw 25% of uncrystallised funds tax free.    Once you do that, the remaining 75% becomes crystallised. There is no tax free cash option on crystallised funds.  Any growth on crystallised funds remains crystallised.

edit: typing error corrected.

A quick question please, regarding investment growth on crystallised funds. At a further LTA check, prior to the age of 75 (at age 60), does the investment growth on previously crystallised funds count towards the total overall value for LTA purposes ? Thanks.

garmeg

JamesP8 said:

dunstonh said:

koops said:

Hello...I am planning to take my tax free lump sum from from my DC pot leaving the remainder to hopefully grow. Question is,is any future growth 25% tax free or is it all taxable

Currently, your pension is uncrystallised.   You can draw 25% of uncrystallised funds tax free.    Once you do that, the remaining 75% becomes crystallised. There is no tax free cash option on crystallised funds.  Any growth on crystallised funds remains crystallised.

edit: typing error corrected.

A quick question please, regarding investment growth on crystallised funds. At a further LTA check, prior to the age of 75 (at age 60), does the investment growth on previously crystallised funds count towards the total overall value for LTA purposes ? Thanks.

Yes, other than that already taken as income / drawdown.