Tax on pension withdrawals

LordRocket

Despite lots of good advice on here and elsewhere I'm still a little confused about the tax rules when withdrawing from a DC pot! Assuming the pot is in a scheme that allows withdrawals as and when required, and assuming an individuals tax free allowance is £12500 / year, is it correct that I could take out £16666 / year and pay no income tax? (25% tax free and the rest taxable but as it's below £12500 there is no tax to pay)
I assume that if I was to take out a one-off TFLS of, say, £25k, then any future withdrawals would all be taxed at my usual rate or does the tax free allowance of £12500 still count? In other words could I take my £25k TFLS and then continue to take out £16666 / year and not pay income tax?

Dazed_and_C0nfused

 I think you mixing things up a bit

Yes, if your Personal Allowance is £12,500 and you have no other taxable income in the same tax year then yes you can take £16,666 and pay no tax.   £4,166 TFLS and £12,500 taxable income.

If you are UK resident, have not applied for Marriage Allowance and have adjusted net income less than £100k then yes you still get a £12,500 Personal Allowance each year.  Taking a TFLS has no impact on that whatsoever.

There may be providers who give you the option of splitting your pot into two.  You take 25% TFLS from say £100k leaving £75k crystallised.  But you take no taxable income at that point.  If that £75k is invested and grows to £100k again then all £100k is taxable income.

With the second pot you do UFPLS (the £16,666/£4,166/£12,500 option).

Someone else will no doubt confirm if you can have two pots like this within one scheme.

cfw1994

Once you take a TFLS, you have triggered a BCE event (benefit crystallisation).
The remaining 75% associated with your TFLS (in your example, £75k) is then “crystallised” and in drawdown.  

Any further withdrawal from that portion of the pension will all be taxed as income, so yes, you get your personal allowance at 0% tax (£12,500), but anything above is taxed.

nice try at double dipping though, I like the cut of your jib!

Albermarle

Don't forget that when you start getting the state pension , this is taxable income so effectively your personal allowance drops to around £4K.
Otherwise as above - the tax free money from your pension does not have any impact on the normal tax allowances and calculations.