Flexible drawdown method

236dave

Hi, I want to confirm my method is correct.
ie, if I crystallise £80k, I can pass the 25% tax free allowance (£20k) to my bank account plus move another £12570 amount which is tax and NI free (within personal allowance)
See picture attached.
I'd appreciate it if someone can give me confirmation of my method.
Thanks

MX5huggy

Yes, I haven’t checked the maths. Note there is never NI to pay on pension income. 

Albermarle

The maths is correct but you might struggle to get your pension provider to do it in exactly the way you want.
Probably they will want to pay the £20K tax free in one go, then the £12,570 could be in one go, or monthly.
You would need to talk to them, as you often have to do before starting drawdown usually anyway.
You also might find you pay some tax on initial payments, but you can claim it back.

236dave

Albermarle said:

The maths is correct but you might struggle to get your pension provider to do it in exactly the way you want.
Probably they will want to pay the £20K tax free in one go, then the £12,570 could be in one go, or monthly.
You would need to talk to them, as you often have to do before starting drawdown usually anyway.
You also might find you pay some tax on initial payments, but you can claim it back.

I will talk to my pension provider, I'm hoping to drawdown my pension so its like a monthly wage.  If I have to take the tax free lump sum in one go, fair enough, but I don't know why they would tax me on the other £12570 if I'm within my personal allowance?  Maybe if its drawn in 12 x monthly installments that would help?

Albermarle

 Maybe if its drawn in 12 x monthly installments that would help?

Probably will help. Often the issue is with lump sums, as the tax system assumes you will take the same amount every month.

westv

I wish my handwriting was that neat! 

gm0

Read the (many threads) about this. 

Usage of emergency taxcodes and some related rules at pension commencement mean that the tax man doesn't always immediately tax correctly. 

It's a bit bizarre but the way it works is well established and neither the providers nor the tax man want to talk to you to do anything different and special for you.

This can and will wash through via self assessment after a year or so. 
Or you can get any overpaid tax paid back via specific forms if this happens.

Clearly if the assumed repeated monthly incomes match what you are doing then the problem will be much reduced. It's the annual payment or quarterly payment crowd who tend to get caught out if they don't understand what will happen

236dave

westv said:

I wish my handwriting was that neat!