Avoid Paying Tax on Drawdown?

gm0

Stargunner - you don't get to stack tax free cash twice. 

25% TFC and 3x marked for drawdown as taxable income or 25% embedded in a UFPLS payment with the taxable 75% coming out with it in one go.  There are subtleties about when each is superior around your annual allowance getting cut to 4k and around lifetime allowance rules.  But there is no take TFC and then take 25% again in a UFPLS on the same fund to take the non-TFC bit.

If you take your overall pension benefits in parts - then you can use either technique on the different (untouched) portions as suits your particular situation - provided your old pension scheme(s) or chosen SIPP platform support the desired approach. Not everything is available on older schemes so you sometimes have to transfer first.

Mrmeaner - it is true that risk of regulation change and wealth taxes and pensions fiddling are one of the biggest risks we all face.  However conventional wisdom remains that the IHT protection in the pension means that taking TFC if you don't need to spend or gift it is the wrong answer - usually for IHT estate size reasons.  However some people think that when the chancellor comes to collect for the pandemic he will have pensions, property, general investment accounts, isa's on his list.  Each with a size of prize (for him/her) and a political cost attached.  Hedging may be appropriate across several of these.  Impossible to predict completely how deep the axe will bite in each area.  I'd rank the risk as Property/Pension/ISA reducing but you'd get lots of different opinions I am sure.

NedS

Mistermeaner said:

Is there a logic in perhaps taking the full 25% tax free lump sum asap in case future legislation removes this ?

Yes, although I think this is unlikely relative to other changes they could make. I see a greater risk in rising income tax rates meaning I've received 20% tax relief on the way in, but may have to pay a higher rate of tax on the way out should income tax rates rise due to corona virus / government debt levels.

The government have effectively limited how much tax free cash anyone can take with the £40k annual allowance and lifetime allowance caps they have introduced, and by not increasing these each year with inflation they continue to erode the tax benefits.