Starting Drawdown - Tax Free or Taxable?

GSP

My wife has had a dc pension for the last five years, and reaching 55 soon will be ready to start drawing down.
It’s not a large amount compared to some, but the broad hope is generally she will be able withdraw between £5,000 to £7,000 each year.
I may have this wrong but for her first withdrawal this will have to be tax free?
Say this amount is £5,000, £15,000 will then have to be crystallised and will generate a taxable side of her pension.
Is this right, or can she leave the tax free untouched to start off with?
Thanks

Joyousrox

My understanding on a drawdown is that you can either take the 25% tax free cash (TFC) as a lump sum up front, or opt for all your payments to take 25% TFC on each payment and only pay tax on the 75%. As far as I know, you can't start to pay tax & take the TFC later.
Your provider should be able to explain this for free, but they can only give "factual" information, not advice. Pensionwise will also only give "factual info". If you want full advice, you will need to pay a financial adviser.

Albermarle

Similar new thread.
Drawdown Pension - take taxable income first and defer tax-free? — MoneySavingExpert Forum

My understanding on a drawdown is that you can either take the 25% tax free cash (TFC) as a lump sum up front, or opt for all your payments to take 25% TFC on each payment and only pay tax on the 75%. As far as I know, you can't start to pay tax & take the TFC later.

This is largely correct but missing a couple of alternatives. You can take the TFC in stages and take no taxable cash at all OR take some TFC and take the related taxable income later  ( assuming the provider can manage this).

GSP

Joyousrox said:

My understanding on a drawdown is that you can either take the 25% tax free cash (TFC) as a lump sum up front, or opt for all your payments to take 25% TFC on each payment and only pay tax on the 75%. As far as I know, you can't start to pay tax & take the TFC later.
Your provider should be able to explain this for free, but they can only give "factual" information, not advice. Pensionwise will also only give "factual info". If you want full advice, you will need to pay a financial adviser.

Yes from all of it being uncrystallised up to first drawdown, I suppose you have to crystallise some of the pension first in the first instance taking an amount tax free, to create a taxable amount on the crystallised side of the pension?

GSP

Please save your energies and don’t respond to this. I read the link thanks Albermarle and it confirms you can’t take taxable before tax free.
Thanks

bluearmy18

in my case I am planning on working until the end of the tax year, march 2026, i'll be 62.5 years old.

I will be retired on the 1st April & make my pension withdrawal in the new tax year from the 6th April 2026, taking the full £16,780 PA. 

This way I will not be paying any tax as I will take my pension in the new tax year.... Just something to think about. 

deejaybee

bluearmy18 said:

in my case I am planning on working until the end of the tax year, march 2026, i'll be 62.5 years old.

I will be retired on the 1st April & make my pension withdrawal in the new tax year from the 6th April 2026, taking the full £16,780 PA. 

This way I will not be paying any tax as I will take my pension in the new tax year.... Just something to think about. 

Apologies if i am missing something obvious here... How did you get to the £16,780 PA ?

I calculated 12,570 personal allowance + 3142.50 ( 25 % tax free )  = £15,712.50 ?

Dazed_and_C0nfused

deejaybee said:

bluearmy18 said:

in my case I am planning on working until the end of the tax year, march 2026, i'll be 62.5 years old.

I will be retired on the 1st April & make my pension withdrawal in the new tax year from the 6th April 2026, taking the full £16,780 PA. 

This way I will not be paying any tax as I will take my pension in the new tax year.... Just something to think about. 

Apologies if i am missing something obvious here... How did you get to the £16,780 PA ?

I calculated 12,570 personal allowance + 3142.50 ( 25 % tax free )  = £15,712.50 ?

You're approaching it from the wrong end 😊.

The TFLS is 25% of the total cystallised so if you crystallise £16,760 then £4,190 is the TFLS and the other 75% (£12,570) is taxable income.

deejaybee

D & C - Thank you very much for clearing that up for me

billy2shots

bluearmy18 said:

in my case I am planning on working until the end of the tax year, march 2026, i'll be 62.5 years old.

I will be retired on the 1st April & make my pension withdrawal in the new tax year from the 6th April 2026, taking the full £16,780 PA. 

This way I will not be paying any tax as I will take my pension in the new tax year.... Just something to think about. 

I believe that will trigger taxation. 

Quite a hefty tax bill in fact. HMRC will automatically think you will be taking £16780 each month and tax accordingly. 

Of course this tax will be returned later when it's clear what is actually being earned for the tax year. 

Now if you took that £16,780 right at the end of the tax year instead of right at the beginning, then that would avoid the false tax liability. 

AlanP_2

Claiming the tax refund from HMRC takes about 5 mins and is in your bank account within a few weeks so why worry?