25% TFLS - what happens to the 75%

DoctorStrange

How about taking the 25% tax free as income?  It will give you £4k a year more tax free whilst still leaving 25% tax free available on the pension remaining, should you ever need it.

I'm unsure how this works. If I don't take any lump sum, are you saying that I can take £16k a year tax-free? ( If so, I'm presuming that the calculation is that 25% of whatever I withdraw each year is tax free (so £4k in this case) and the remainder is then taxed at normal rates (so £12k would fall under my TFA)?)

Is that right?

If so, say I done that for 10 years (and my fund magically grew at the same rate of withdrawalsl!) are you saying I could then still take £100k tax free?

MallyGirl

You can tax just over £16k each year and pay no tax if it is your only income - 25% of the drawdown being tax free and the remaining £12,500 being within the personal allowance. I wouldn't take the full 25% tax free lump sum unless you need it. It is wise to have some cash on hand so you don't have to sell investments in a slump.

Sea_Shell

MallyGirl said:

You can tax just over £16k each year and pay no tax if it is your only income - 25% of the drawdown being tax free and the remaining £12,500 being within the personal allowance. I wouldn't take the full 25% tax free lump sum unless you need it. It is wise to have some cash on hand so you don't have to sell investments in a slump.

Unless your TFLS is just enough to fill you and your OHs ISAs, which is what we're planning on doing.

It'll still be invested, just in a different wrapper.

Then any future growth on that lump remains tax free.

TVAS

Remaining fund. If you can take it in month 12 which is March because you will have 12/12ths of the annual personal tax allowance so if you took £12,500 in March it would be paid gross. If you have no other income no tax to pay. If you have other income your tax code would be adjusted from the other income. If you take more than £12,500 only the amount above that sum will be taxed at source. Please remember any income taken will be added to other income so depending on the amount you could go into higher rate tax.

[Deleted User]

DoctorStrange said:

zagfles said:

DoctorStrange said:

Thanks - that's what I originally thought but then I saw Martin's "Swiss roll" analogy which suggested you can't take the "jam" without the "roll" and confused myself. 

Thanks for clarifying so quickly 

That wasn't well explained IMO. There's a thread about that show here. He did then explain you can take the jam later, or was it the roll... If you go into drawdown you can take the 25% tax free and leave the rest in the drawdown pension, and you're taxed when you take it out.

Is there a process for "going into drawdown"?

In my head, I've simply got a SIPP and I was going to leave the 75% invested in whatever funds are appropriate at the time,  making withdrawals as needed i.e. treating the SIPP much like any other savings account (except paying tax on withdrawals above the TFA).

I'm not sure if that's what they mean by  "going into drawdown" or if there's a more formal process one must do e.g. switch from a SIPP to a separate kind of product / "drawdown account"?

This is the process for HL (drawdown -- UFPLS is different)
When you are allowed to take the cash ie on or after your 55th birthday, you go into your SIPP account and start an online process
It asks how much you want to crystallise and you need to ensure you have enough cash to cover the 25% TFLS
For example is you wanted to crystallise £100k you make sure you have at least £25k in cash (probably more) as the calculation will take place in the next 2-3 days and price will move 
You then say which funds and % of those funds you wish to move into drawdown
You then specify any income you want - this will then be paid like a monthly salary (you can skip this part and do it later - although it will be form filling and not online - from memory)
Within 2-3 days (that's how long 3 of mine took) you will have a new drawdown account as well as your SIPP account.
The funds would have moved from one to the other and cash will be in your bank
Note - on HL if you still have funds left in your SIPP account - you will be charged for this account and the drawdown account.
If you totally clear the SIPP account then you will find after a few weeks the ability to put money into it will be greyed out and you need to contact HL via DM to add money

jamesd

Deleted_User said:

You then specify any income you want - this will then be paid like a monthly salary (you can skip this part and do it later - although it will be form filling and not online - from memory)

A secure message is enough to start or change monthly payments.

Deleted_User said:

Note - on HL if you still have funds left in your SIPP account - you will be charged for this account and the drawdown account.
If you totally clear the SIPP account then you will find after a few weeks the ability to put money into it will be greyed out and you need to contact HL via DM to add money

To clarify a little, the two are charged independently so you're less likely to benefit from their tiered charges.

When you say what to transfer you can ask them to leave enough in the account for ongoing contributions. £1 is what they left in mine.

agent69

Can somebody clarify a minor query that I have, assuming £100k in a SIPP?

1. If I take 25% tax free, then no matter how much the remaining £75k grows by it will all be taxable
2. If I use UFPLS to take the same amount, any subsequent growth in the remaining £75k will result in an additional tax free element?

Or am I missing something

Croeso69

agent69 said:

Can somebody clarify a minor query that I have, assuming £100k in a SIPP?

1. If I take 25% tax free, then no matter how much the remaining £75k grows by it will all be taxable
2. If I use UFPLS to take the same amount, any subsequent growth in the remaining £75k will result in an additional tax free element?

Or am I missing something

Yes and Yes

Vasquez65

You can also do what I’ve just done and crystallise a portion of the SIPP,  I needed £17k as a tfls so crystallised £68k, the £17k was already in cash from a transfer,  the rest is left invested,  leaving the other £30k uncrystallised.

   So say that £30k doubles in 10 years, (here’s hoping) I can take a £15k tfls. 

I had to fill in a form indicating that I didn’t want to take any drawdown income at the present time. 

tigerspill

Apologies if this question is too far removed from the original topic.
My OH has an HL SIPP - all in cash.  This was set up purely as a short term measure to put large amounts of her salary in before she stopped work and the to withdraw this tax free to utilise several years of £12500 tax free income before starting het DB pension (which will be above the tax free allowance).
She stopped work this FY.  The final payment she will be making is £2880/£3600 on around 6th April (next FY).  The tax is added on 21st June.
In 2021/22 FY, the plan is to withdraw 25% PLUS £12500 and pay no tax.
And then withdraw £12500 (or what ever the allowance is) for three more years to reduce the account to zero.
The aim is to pay no tax on the way out.  She has no plans for any earnings during this time.
So the plan is to take the 25% TFLS and put the remaining 75% into "flexible drawdown".
Then to withdraw a further £12500.
Am I doing the right thing from a technical perspective?  Have I got the terminology right?  I am just preparing what it is we need to tell HL.  I am not sure f the exact process/steps.
Can the 25% TFLS and the £12500 be withdrawn at the same time or must it be two separate transactions. Can they be done on the same day?
Thanks for any help