Lose or use personal tax allowance this financial year?

PolsteadBlack

Should I withdraw a sum from my pension pot equivalent to my personal tax allowance, plus the 25% tax free sum (£17k) or should I not use my personal tax allowance for this year and instead use our savings?

I am 62 with over £500k in a pension pot but no income this financial year, nor do I expect to be employed again. We have my 72-year-old husband’s pensions which cover our everyday needs but do not cover things such as holidays which we would like to do whilst we can. 

We do have savings from moving and down-sizing, and those we expect to use for renovations in the next 12-18 months. I currently plan to use uncrystallised drawdown when I start my pension but may need to re-think that if the renovation exceeds my savings.

Is it better to leave my currently accruing pension pot invested where it is and use our savings for holidays this financial year as the increment from the £17k may exceed the tax savings? Or is it better to withdraw £17k ((£12,750 personal allowance + (17,000*25%)) tax-free and start my drawdown pension this financial year? Help please and sorry if it's a daft question.

MX5huggy

Yes it’s best to use your allowance as you described. But as soon as you take 1p or more of the 75% (taxed bit but even if you don’t pay tax because it’s within your personal allowance) you trigger MPAA which limits you to pension contributions of £4000 per year forever. This is not a problem if you aren’t going to work again as you don’t have the income to make contributions of £4000 per year. 

dunstonh

Is it better to leave my currently accruing pension pot invested where it is and use our savings for holidays this financial year as the increment from the £17k may exceed the tax savings?

Depends on your overall situation.   You dont say the size of your savings or any other investments you have.   Utilising tax allowances is a justifiable reason but it may be more suitable to draw the allowance to put it in an S&S ISA rather than in your savings if you happen to have a large amount already in savings.

Dazed_and_C0nfused

£17,000 would mean you have some tax to pay.

£16,760 is the sweet spot for no tax.

Or £15,080 of you have applied for Marriage Allowance.

PolsteadBlack

Dazed_and_C0nfused said:

£17,000 would mean you have some tax to pay.

£16,760 is the sweet spot for no tax.

Or £15,080 of you have applied for Marriage Allowance.

Thank you. I calculated a withdrawal of 17,000 x 25% = 4,250 tax free leaving 12,750 which is the personal allowance?

Stargunner

Thank you. I calculated a withdrawal of 17,000 x 25% = 4,250 tax free leaving 12,750 which is the personal allowance?

The personal allowance is £12570 not £12750. As stated above the figure is £16760

PolsteadBlack

Stargunner said:

Thank you. I calculated a withdrawal of 17,000 x 25% = 4,250 tax free leaving 12,750 which is the personal allowance?

The personal allowance is £12570 not £12750. As ststed above the figure is £16760

Oops, thank you! What a mistake to make. Thank you for correcting me.

Albermarle

Help please and sorry if it's a daft question.

It's not a daft question at all . A lot more sensible than some that are posted on here !

Apart from the tax position , a £500K pot should be able to sustain withdrawals of < £20K pa. In other words if it is invested correctly and we do not have a very long period of depressed financial markets , the pot should easily outlast you, and most likely there will be a significant amount to pass on , without any inheritance tax liability .

It helps in this respect to have cash savings to live off during periods when markets are down , so you do not have to cash in pension investments at the bottom of the market. 

Audaxer

PolsteadBlack said:

Is it better to leave my currently accruing pension pot invested where it is and use our savings for holidays this financial year as the increment from the £17k may exceed the tax savings? Or is it better to withdraw £17k ((£12,750 personal allowance + (17,000*25%)) tax-free and start my drawdown pension this financial year? Help please and sorry if it's a daft question.

I would think it is best to withdraw the sum to use your Personal Tax Allowance. If you don't need the income, you could just reinvest it in the same investment(s) within an S&S ISA, providing you have not already used your ISA Allowance this tax year.