When to "Crystalise" my pension

Secret2ndAccount

Albermarle said:

Not sure if it is just me , but I can not really understand what you are trying to explain here . Especially this bit 
 I am an accountant so have some tax knowledge and checked that the revue treat trackers issued by different companies as seperate and they do 
Otherwise it can be worth continuing with contributions to your pension , even if you are approaching the LTA, if you are getting 40% tax relief and or employer contributions.

This is all about bed-and-breakfast. If your investments are held outside of a Pension or ISA, then you are potentially liable for Capital Gains Tax. Suppose you buy £10000 of XCORP. One year later it's up to £20000. If you sell it, you have realised a capital gain of £10000. That's okay, because you can make up to £12300 each year before you have to pay any tax. If you hang on to your XCORP for another year and it goes to £30000 you now have a problem. If you sell it all and make a gain of £20000, then £7700 will be subject to Capital Gains Tax. This led to a phenomenon known as bed-and-breakfast. You would sell your XCORP on April 5th, for £20000, then buy them back on April 6th for £20000+/-  This meant that you could use your annual allowance every year, and potentially build up large gains without paying any tax on them. So HMRC brought in a rule that said if you sell a stock, then buy it back within 30 days, then you keep the original purchase price to calculate the CGT - effectively the intermediate transactions didn't happen. So you could sell Apple and buy Facebook, then next year, sell Facebook and buy Apple, but you couldn't keep the same share.

However, if you had a FTSE 100 Index Tracker from company A, you could sell it on April 5th, and buy FTSE 100 Index Tracker from Company B on April 6th, and this would not be caught by HMRC's rules.

Incidentally, bed-and-ISA is allowed. So you could sell your XCORP on April 5th, then buy XCORP in your ISA. You could sell MCORP within your ISA to get the funds to buy XCORP, then buy MCORP outside the ISA with the money you got from XCORP. So, with some administrative work, it's still possible to do pretty much whatever you want to do, up to a gain of £12300/yr.

Sorry to have said nothing in relation to the original post.

PeterBalham

zagfles said:

Yes we've seen loads of examples here of financial advisers not understanding mathematical fundamentals. It's worth having a look at all the LTA related articles aimed at advisers, if you understand the basics and the fundamentals of maths you just need to understand the rules in depth, which are explained well on sites aimed at advisers. Also the HMRC pension tax manual. If you struggle with them then maybe find a good adviser who understands the LTA inside out (good luck!)

Thanks for the advice I think you are right   ,  there are so many imponderables, just take the rumours last budget that CGT rates become aligned with income tax .   Plus the 25% that can be withdrawn tax free changed or capped .   Anyway I will get up to speed with that as much as I can.   

PeterBalham

Secret2ndAccount said:

Albermarle said:

Not sure if it is just me , but I can not really understand what you are trying to explain here . Especially this bit 
 I am an accountant so have some tax knowledge and checked that the revue treat trackers issued by different companies as seperate and they do 
Otherwise it can be worth continuing with contributions to your pension , even if you are approaching the LTA, if you are getting 40% tax relief and or employer contributions.

This is all about bed-and-breakfast. If your investments are held outside of a Pension or ISA, then you are potentially liable for Capital Gains Tax. Suppose you buy £10000 of XCORP. One year later it's up to £20000. If you sell it, you have realised a capital gain of £10000. That's okay, because you can make up to £12300 each year before you have to pay any tax. If you hang on to your XCORP for another year and it goes to £30000 you now have a problem. If you sell it all and make a gain of £20000, then £7700 will be subject to Capital Gains Tax. This led to a phenomenon known as bed-and-breakfast. You would sell your XCORP on April 5th, for £20000, then buy them back on April 6th for £20000+/-  This meant that you could use your annual allowance every year, and potentially build up large gains without paying any tax on them. So HMRC brought in a rule that said if you sell a stock, then buy it back within 30 days, then you keep the original purchase price to calculate the CGT - effectively the intermediate transactions didn't happen. So you could sell Apple and buy Facebook, then next year, sell Facebook and buy Apple, but you couldn't keep the same share.

However, if you had a FTSE 100 Index Tracker from company A, you could sell it on April 5th, and buy FTSE 100 Index Tracker from Company B on April 6th, and this would not be caught by HMRC's rules.

Incidentally, bed-and-ISA is allowed. So you could sell your XCORP on April 5th, then buy XCORP in your ISA. You could sell MCORP within your ISA to get the funds to buy XCORP, then buy MCORP outside the ISA with the money you got from XCORP. So, with some administrative work, it's still possible to do pretty much whatever you want to do, up to a gain of £12300/yr.

Sorry to have said nothing in relation to the original post.

So well written thanks I was trying to say that but you made it crystal clear

kidmugsy

PeterBalham said:

 I suspect I should crystallise my pension when the funds reach a value of 971k 

(i) Be sure that you withdraw only Tax-Free Lump Sum: if you withdraw any taxable money your future pension contributions will be limited to £4k p.a.
(ii) In your shoes I'd be tempted to withdraw lots of TFLS in case a cap is introduced.  That assumes that you can find some reasonably tax efficient way to invest it. Or reasonably enjoyable way to spend it.  Wives can often assist with both these strategies.

jamesd

Robert_McGeddon said:

jamesd said:

When crystallised it's useful to know that different global equity tracker brands are different so you can bed and breakfast (sell one, buy the other) to use your capital gains allowance each year.

Is this in respect of the tax free element, the drawdown element or both?

It's any money that isn't in a tax wrapper, meaning money not in pension any more, not in ISA and also not in VCT, EIS or SEIS.

In the early years it's mainly about the tax free lump sum you take to cause crystallisation. You can put some into an ISA but you could end up with lots outside any tax wrapper. At which point you can prevent accumulating a big capital gains tax bill by using the bed and breakfasting trick.

In later years, there's a lifetime allowance test at age 75 on growth since crystallisation of the flexi-access drawdown part. You avoid that lifetime allowance charge by drawing taxable money out fast enough after retirement so that you don't accumulate any gain in the flexi-access drawdown account. If this means drawing faster than you spend it's another way that you could accumulate invested money outside any tax wrapper.

jamesd

Albermarle said: I can not really understand what you are trying to explain here . Especially this bit 

He said that he'd used the different brands of tracker bed and breakfasting approach that I described and confirmed that HMRC agree that it's legitimate.