Here's a personal scenario - any thoughts?

jamesd

I ignored inheritance tax issues. Your pension gets good inheritance tax treatment since it's outside your estate. If you want to optimize for inheritance there are two main ways:

1. Carry on as I described and transfer wealth while still alive to children and grandchildren, as regular gifts out of income, thereby depleting your estate.

2. Favour drawing on the non-pension assets to maximise reduce the amount not in the pension and outside the estate. Main drawback might be seen as lack of compounding of benefits for beneficiaries while you're alive to see the results.

I ignored pension lifetime allowance issues. The military pension may have used £320,000 of allowance but maybe not with today's lifetime allowance. The £300,000 SIPP still seems to have room to grow without needing to pay a lifetime allowance charge on some inherited money.

You should both be paying £2880 net into a pension until your 75 th birthdays. The tax gain is only £180 a year before growth but that adds up.

The coarse plan seems to have answered your other questions.

To use your CGT allowance to minimise capital gains tax you sell enough of something that has made gains to trigger a gain that is just within your CGT allowance. The idea is to use it every year so you don't accumulate gains that are taxable. Then the move into ISA as fast as possible limits how long the growth is happening outside a tax wrapper, further limiting the tax potential.

It's unlikely but if your wife would have to sell so much in one year to meet the income target that she'd pay some higher rate tax you could substitute some selling by yourself instead, staying within your own basic rate band. But having most drawing on unwrapped money come from capital in her name should make this unlikely because she has lots of basic rate band available.

I've assumed that you're not interested in using VCT investing to lower your tax bills.

billybach

great help - thank you

jamesd

There's a niche situation that some might want to optimise for: death before age 75. In this situation the beneficiaries get a pension lump sum that can be drawn on tax free at any age, including in childhood. Zero percent income tax beats 20% so this is a tax improvement. By suggesting that you draw on house sale proceeds before pension I already partly optimised for this. To more fully optimise, draw on unwrapped then ISA money instead of taxable pension money until you reach 75.

Where those without income are beneficiaries the benefit continues for death after age 75. Then the money withdrawn from their beneficiary pension is normal taxable income. Children probably don't have other taxable income but do have an income tax personal allowance to use, so that much can be withdrawn free of tax each year.

So in these situations the pension benefit isn't just being outside the estate to avoid inheritance tax but also avoiding income tax.