Advice for large pension pot

jamesd

britishboy said:

I know of the £1.073m LTA, but anything over that is taxed at 55%?   Am I right?  So if you had a 2m pension pot, up to £1.073m will be taxed as everyone else, and the remaining £927k will be taxed at 55% - (yes painful), but thats still £417k after tax that you've got.

Better to pay 25% and put it into drawdown. At basic rate only drawing rate that cuts the cost to 25% + 20% * 75% = 40% instead of 55%. That's 556.2k after taxes. But slower, takes 18 years before investment growth so likely to take a lifetime. For large amounts paying some 55% charge or 40% income tax (perhaps reduced with VCTs) could make sense.

itsmeagain

1st of all - you flippin' lucky person...

Now for something that could be a genius idea or completely redicklous - I expect It will be controversial and cause some amusement.
 
Here goes...
Is there a partner involved with a 'poor' pension? If so, would it be possible to 'split up' / divorce and sadly have to split your pension into 2 x £1M pots as part of the settlement with a £12.5k personal tax allowance each? Then have a change of heart and get back together!

If there's no partner involved, you'll probably find someone that can help!

Not sure if it would work or be permitted but would definitely require some explaining to the other half!

All I ask for is 10%. I've PM'd you my bank account details...

stranex

jamesd said:

stranex said:

Am I right to think that whatever I have above my requirements for income, I can take as a lump sum (minus the 55% tax) and do with as I please? 

You can and it could be a mistake.

Say you pay the 55% lifetime allowance charge. No income tax to pay and no mitigation strategies. Clean, simple and expensive.

Say you pay the 25% and put the money into drawdown. Within the basic rate band you're ahead, higher rate is break even before income tax mitigation. But you can reduce the tax cost by investing with VCT, EIS or SEIS funds. Say you were to take 100k taxed at 40%, income tax due is 40k. If you were to buy 133k of VCTs you'd get 39.9k of tax relief back from HMRC. You have to hold for 5 years, then you can sell. Dividends are tax exempt and how a lot of the investment returns are normally delivered. Think of it as deferring access to much of the money for five years to get it free of tax, plus whatever the VCT returns are. Boat and property finance are normally cheap enough for this to save a lot of money compared to the 55% charge option.

You don't have to wait until retirement to use these investments.

That’s great, thank you and certainly something to consider. Logically that makes perfect sense but, as myself and many others allude, you don’t know how long you’ve got in this planet. 

Certainly, I can reinvest at 57, wait for 5 years and then effectively have rh cash tax free. In the meantime I’ve gone 5 years without a boat and the “income” part of my pit is still there. Remember, we are talking about leaving the income part alone and just using the “play money”. As one who had cancer at 25, I only too we’ll know there’s no point in never spending, or even delaying your play money if you’re fortunate enough to have some. 

Invest and yes, maybe live and buy a bigger boat at 62 when I’m less able to manage it by myself and have 5 years without one or, leave work, tac the tax hit, enjoy an extra 5 years on a smaller boat 

stranex

itsmeagain said:

1st of all - you flippin' lucky person...

Now for something that could be a genius idea or completely redicklous - I expect It will be controversial and cause some amusement.
 
Here goes...
Is there a partner involved with a 'poor' pension? If so, would it be possible to 'split up' / divorce and sadly have to split your pension into 2 x £1M pots as part of the settlement with a £12.5k personal tax allowance each? Then have a change of heart and get back together!

If there's no partner involved, you'll probably find someone that can help!

Not sure if it would work or be permitted but would definitely require some explaining to the other half!

All I ask for is 10%. I've PM'd you my bank account details...

lol! As one who’s literally just done a pension transfer to the ex wife I wholeheartedly do NOT recommend this! Believe me, the money saved is NOT worth the stress!

Plus, I have new partner now who has a substantial NHS pension herself. She going to be the fuel/mooring/maintenance fund!!

TBC15

Would relocation to Portugal fix the problem?

NottinghamKnight

Nice to hear of a customer getting a yacht...

garmeg

jamesd said:

britishboy said:

I know of the £1.073m LTA, but anything over that is taxed at 55%?   Am I right?  So if you had a 2m pension pot, up to £1.073m will be taxed as everyone else, and the remaining £927k will be taxed at 55% - (yes painful), but thats still £417k after tax that you've got.

Better to pay 25% and put it into drawdown. At basic rate only drawing rate that cuts the cost to 25% + 20% * 75% = 40% instead of 55%. That's 556.2k after taxes. But slower, takes 18 years before investment growth so likely to take a lifetime. For large amounts paying some 55% charge or 40% income tax (perhaps reduced with VCTs) could make sense.

I would consider annuitising the bit in excess of LTA when crystallising it. Gets it out of the way and no further LTA test on that bit. Could be considered as a bond proxy allocation leaving the bit under LTA to be invested in equities for growth and drawdown.

itsmeagain

TBC15 said:

Would relocation to Portugal fix the problem?

Probably a better place for that boat too!

It's a real bummer for high earners - maxing out on £40kpa pension contribution and still paying some 40% tax, then maxing out on LTA and not being able to take pension till 57 in the future. Who knows what the government will bring in to pay the deficit bill too. I wouldn't be surprised if they remove the higher rate tax relief on pension contributions because many of the 50k-90k earners don't get to pay any tax at 40% after pension contributions. Weren't the government looking about doing something to make it worthwhile for doctors? I think that I'd just work part-time from 45.

I'm no expert and usually stay clear of risk but wonder if the tax benefits of venture capital are worth pursuing when you reach the LTA or to bridge the gap from 50-57 before drawing on a DC/SIPP?