Tax free income for 22-23...logic check

Sanxxx

Logic check and a couple of questions.

I’ve recently retired, currently living off of savings and wish to maximise my tax-free income for 22-23.  I have both DB and DC pensions, none of which have yet been accessed.

The first calculation is as follows;

Pers Allowance	£12,570
Job Income	£327.70			(from P45)
Balance			£12,242.30
Take UFPLS of	£16,323.07

 

I’ve opened a HL SIPP and contributed £2880, if I withdraw all that my calculation becomes;

Pers Allowance		£12,570
Job Income		£327.70	(from P45)
HL SIPP Income		£2,700		(£3600 - 25% tax free)
Balance		£9,542.30
Take UFPLS of		£12,723.07

 

Is the above correct?

If you were to withdraw and then ‘recycle’ £2880 every year from a DC pension into a new SIPP and then withdraw £3600 once the tax relief has been added is that a double dip on LTA? i.e. the LTA amount is really £6480 (£2880+£3600) even though the ‘real’ income is £3600.

zagfles

Sanxxx said:

Logic check and a couple of questions.

I’ve recently retired, currently living off of savings and wish to maximise my tax-free income for 22-23.  I have both DB and DC pensions, none of which have yet been accessed.

The first calculation is as follows;

Pers Allowance	£12,570
Job Income	£327.70			(from P45)
Balance			£12,242.30
Take UFPLS of	£16,323.07

 

I’ve opened a HL SIPP and contributed £2880, if I withdraw all that my calculation becomes;

Pers Allowance		£12,570
Job Income		£327.70	(from P45)
HL SIPP Income		£2,700		(£3600 - 25% tax free)
Balance		£9,542.30
Take UFPLS of		£12,723.07

 

Is the above correct?

Looks right

If you were to withdraw and then ‘recycle’ £2880 every year from a DC pension into a new SIPP and then withdraw £3600 once the tax relief has been added is that a double dip on LTA? i.e. the LTA amount is really £6480 (£2880+£3600) even though the ‘real’ income is £3600.

It's not a double dip it's counting the same money multiple times for the LTA. LTA is based on BCEs, ie each crystallisation. So if you "recycle" you're recrystallising the same money again and again. So a very bad idea if you will exceed the LTA as you'll get 20% tax relief and pay 40% tax (25% LTA charge compounded with 20% tax assuming basic rate taxpayer) on the way out. A good idea if you don't exceed the LTA, as you'll get 20% tax relief and pay 15% tax on the way out (accounting for tax free lump sum and assuming basic rate taxpayer).

Notepad_Phil

Provided you're only doing one of those UFPLS withdrawals in the tax year then they do look right from a quick use of my calculator.

With regard to the LTA, yes, as you seem to be doing everything via UFPLS then it would be calculated via firstly taking the £2880 from your DC pension as part of a UFPLS then a further LTA event for taking the £3600 from your new SIPP via a later UFPLS - so possibly not something to do if you are likely to get close to the LTA.

So in your case take the UFPLS of £12723 from your DC (which includes the £2880 you'll recycle) all of which is counted against the LTA, add the £2880 to the SIPP, wait for the tax-relief, then take a UFPLS of £3600 from the SIPP which again is counted against the LTA (though you may need to keep a small amount in the SIPP to stop it being closed).