Tax free withdrawals

Nobslouch

Hi MSEs,  I am a retired man of 64, have my pension pot in Royal London, it's growing well enough and is there to supplement my NHS pension of £11500 a year. I took out £15000 of the pot a few years ago and still have a few thousand of tax free left to withdraw from the initial 25% tax free allowance. I'm wondering if there's a legal way of liberating say £40,000 from this £75,000 tax free to put towards a property in Spain. Obviously if I took that 40k all at once I'd go over the basic rate, so should spread the withdrawal over two tax years, but how to avoid losing 1/5 to tax at all? Would any investment purchase like government bonds or gold or ISAs be tax exempt? 
      Thanks R B
     

dunstonh

I'm wondering if there's a legal way of liberating say £40,000 from this £75,000 tax free to put towards a property in Spain. 

It's probably a good idea not to use the word "liberating" when dealing with pensions as the term pension liberation is used to describe scams and using unlawful means.

I took out £15000 of the pot a few years ago and still have a few thousand of tax free left to withdraw from the initial 25% tax free allowance. I'm wondering if there's a legal way of liberating say £40,000 from this £75,000 tax free to put towards a property in Spain. 

Move to Portugal or spread it over multiple tax years to use up any unused personal allowance.

Would any investment purchase like government bonds or gold or ISAs be tax exempt? 

All investments within a pension are tax free.    Any draw from the pension that accesses the 75% segment is treated as income and taxed under income tax after your personal allowance is used up.

Dazed_and_C0nfused

How much of your pot is split between crystallised and uncrystallised funds?

zagfles

Don't you have a financial adviser? I thought RL refused to deal direct with the great unwashed and insisted on an adviser to use their products? But to answer your question, any money you take out of the pension over the tax free element is treated as income and subject to income tax. It doesn't make any difference what you then spend that money on, gold, govt bonds, or property.

jamesd

Dunstonh was serious about moving to Portugal. They have an opt-in scheme that sets a zero income tax rate for foreign pension income. You'll need to be tax resident there, and that is likely to require exceeding the ordinary EU visitor visa limits. I forget the exact nu.ber but something like £100k of taxable money can be taken this way without being taxed again - this time at UK rates as a single lump sum - when you become UK tax resident again. Go over that limit and the tax on return applies if you return within several years, perhaps four, I forget.

You can buy VCTs. Those get you 30% of the purchase price as tax relief that you can use to reduce or eliminate your net tax cost.

Albermarle

Dunstonh was serious about moving to Portugal. They have an opt-in scheme that sets a zero income tax rate for foreign pension income.

I think Cyprus also have a Brit pensioner friendly tax regime ? Although not sure how Brexit affects the ability to stay there for long periods.

JoeCrystal

zagfles said:

Don't you have a financial adviser? I thought RL refused to deal direct with the great unwashed and insisted on an adviser to use their products?

Tell me about it! I remembered sending a letter and a cheque to RL directly to make a lump-sum contribution. The letter and cheque were sent back to me, requesting that I do it through my adviser instead. Helpfully, they already sent my adviser the form's pdf in question, who forwarded it to me. It was a matter of printing the document out, attaching the original cheque, and sending it to RL, so yes, they don't seem to like to deal with their members directly! ...

dunstonh

RL's distribution channel is only through intermediaries.  However, if you already hold the RL product and want to drawdown, for example, then they will do it without an adviser if the product supports it.  If it requires a transfer to another product they will not as they do not have an in-house distribution channel.

Living_proof

I have a small SIPP with HL currently in cash. My only income is state pension, rent a room scheme, solar and NS&I bonds, so all tax-free. If I take out 25% of my SIPP, can I also take out the difference between personal allowance and taxable income tax free please? Sorry to be so dense!

xylophone

My only income is state pension, rent a room scheme, solar and NS&I bonds, so all tax-free. 

Tax free NS&I bonds? Which are they? Or do you mean Premium Bonds? Or the old Index Linked Savings Certificates?

And the State Pension is taxable income - it is always paid gross but if when added to other taxable income (for example earnings or other pension income), the result was a sum in excess of the personal allowance, tax would be due and would be collected if possible by adjusting the tax code on those other sources of income.

Savings income (whether dividend or interest) is also taxable  (unless in a tax shelter) but certain  "allowances" can apply.

With regard to the SIPP, if a person's only taxable income was (for example), a basic state pension of £7,155 (2021/22) and that person had (for example) £10,000 in the SIPP, he could take £2500 tax free and up to £5,415 from the balance without being liable for tax.

However, the SIPP provider would almost certainly deduct tax from the £5.415 so that the person would have to make a reclaim from HMRC.

https://adviser.royallondon.com/technical-central/pensions/benefit-options/emergency-tax-and-lump-sum-withdrawals/

Dazed_and_C0nfused

State pension is taxable income.

As are some NS&I "bonds" but not Premium Bond prizes.

If you haven't applied for Marriage Allowance then you can take taxable income of Personal Allowance (£12,570 in 2021:22) less State Pension.

Any interest would then be taxed but at 0% (assuming you don't earn more than £6k/year in interest).

Taking taxable income will invoke MPAA limiting future contributions to £4k/year (gross).