Tax or no tax on pension withdrawls

Langtang

As they say only two things certain in life - Death & Taxes .

If I may ask a hypothetical question:

If I have no other income at all, and I start to use my own pension scheme to take c£6500 py from it, will this incur any income tax? I thought I knew the answer to this (no) but having read a few threads on here recently which talk of tax on the way in (gov't contribution) and tax on the way out (75/25 split) I am now beginning to wonder.

On the same theme, If when my SP kicks in, my total income is c£15,500, how is the tax deducted from the taxable part (over 12.5k) Is it taken from the SP or the private one?

Sorry if these seem obvious/stupid questions!

JoeCrystal

SP is always paid gross so any tax needed will be taken from your other sources of income so in this case, it would be a private one.

Marcon

If you have a defined contribution pension scheme and take no tax free cash when you initially start to withdraw cash from it, then 25% of each withdrawal is tax free and the remainder is potentially subject to tax. If you have no other income and the 'potentially taxable' part of your pension doesn't exceed the personal allowance during the year, you will pay pay no tax on any part of your withdrawal.

State pensions are always paid gross. When your state pension kicks in, any tax due will be deducted from your private pension and the provider will be sent the appropriate tax code to ensure this happens.

Langtang

Thank you very much for your replies. As I expected/assumed on the no tax on 6.5k front, and good information on the tax on the private pension one (I say private pension, it's a policy I took out with Guardian back is '88 when rules were relaxed so I will have to check on what I can/can't do with this when the time comes. Not sure if the terminology "private" is correct or not.)

Just getting my head around all this investment/pension malarky, can I ask another question?  I will be inheriting 2500 (or 1250 at least for myself) US shares soon that pay a good dividend and are not in any tax efficient wrappers. I plan to eventually have them all wrapped. Will the dividend then be tax free (taking into account the double tax thingymabob) and not affect the tax free pension payments?

@MallyGirl , sorry for not responding to you on the other thread - thanks for your reply