DB pension. Can I take 25% lump sum plus this years personal allowance (no income) all tax free?

Frances63

Dazed_and_C0nfused said:

Frances63 said:

xylophone said:

The PCLS is tax free.

You have a personal allowance which can be set against earnings/taxable benefit/pension income for the tax year 22/23.

What is your situation regarding savings income (interest/dividends) outside tax privileged accounts like ISAs?

Not enough savings interest to be near anywhere near the 1,000 pounds allowance.

From what you've posted you're not going to be able to benefit from the savings nil rate band (aka Personal Savings Allowance).

You have to have used your Personal Allowance and the savings starter rate band (0% tax rate) before you can use the savings nil rate.

And if your non savings non dividend income i.e. JSA, earnings, pension income only uses up your Personal Allowance then you will have the full £5,000 savings starter rate band to use before the savings nil rate band can be used.

Dazed and Confused, I am too. I'm afraid I didn't fully understand that. 

As I understand it you can earn up to 1000 pounds in interest before you have to pay tax on any savings interest and even with my lump sum of around 45,000 the interest on it will be about 2% if I'm lucky so maybe 900 pounds for the whole year. However I will not manage to keep it for a year as I have bills to pay and probably would pay off some of my mortgage anyway. So that's why I say tax on savings interest isn't an issue as the rules currently stand.

Are you saying that as a non-tax payer, until or unless I hit that threshold then the 1,000 interest tax break doesn't even begin to come into the equation?

Frances63

NannaH said:

You would have to account for your JSA within your personal allowance so would that plus whatever your pension income is, amount to more than £12570? 

Given that it’s only 5 months to the end of this tax year, it seems unlikely.   

Thanks NannaH. 
Yes I realise the amount would all count towards the total and I would need to work out how much additional lump sum I can keep without hitting the taxable bracket. In which case it is better to not take the extra as a lump sum, but rather as a monthly income (staying under the bracket). 

I think it would be best to wait until after the next budget to see what happens to the starter rate tax threshold, as it may well increase (though I suspect any changes will not appy until the next tax year, after April 23).

My question is more "does the extra cash from a lump sum negate (retrospectively) my need for the contributions based JSA as all in the same tax year? and therefore will I be required to pay it back? Or are the two sums not linked?"

Frances63

A little calculation (If I take pensions in the New Year after turning 55 years old) :-

 - -  I'm sorry my Chromebook has no pound sign (only $)



pension income 792 per month (from January 23 to early April 23)=         =  2,376
jsa payments 77 pounds per week (12 weeks) =                                       =     924
part-time work all April 22 total                                                                   =     540

                                                             Total annual income for tax year  =  4,380


Commencement lump sum from DB pension (25%) 45,000 tax free anyway

My DC pension has 12,000 in the pot currently, of which 25% can be taken tax free as a lump sum (3,000), leaving 9,000 with which to decide what to do.

So am I right that I can take 8,190 (being 12,570 personal tax allowance minus 4,380 income) from the DC pot tax free in this tax year?

xylophone

I think it would be best to wait until after the next budget to see what happens to the starter rate tax threshold, as it may well increase (though I suspect any changes will not appy until the next tax year, after April 23).

Do you mean the Personal Allowance (currently £12,570)?

In the country's current situation it seems unlikely that this will increase.

With regard to savings interest, had you read the link in my post above?

Let's take a person whose only non savings income is from a part time job - he earns £10,570 a year.

He has a savings account (non ISA) from which he receives £8000 a year in interest.

He is not liable for tax on that interest.

£2000 is covered by the balance of his personal allowance, £5000 is covered by the starter rate for savings and £1000 is covered by the personal savings allowance.

If his savings income was only £7000, he would not use the PSA.

If it was £2000, he would not need to use the starter rate for savings or the PSA.

You mention that in the tax year 1922/23 you would anticipate non savings income of £12570.

This would be earnings/benefits/ monthly DB pension income/ a lump sum of income taken from your DC pension.

If your taxable savings interest was anything up to £6000, you would not be liable for tax thereon because you could use the starting rate for savings and the PSA.

If it were only £1000, you would not use the PSA because you could use the starter rate for savings.

kassy64

My understanding to your initial question is YES, you get your 25% lump sum tax free PLUS you can have tax free income from other sources up to £12,570 as well as your interest on savings allowance.

Albermarle

and even with my lump sum of around 45,000 the interest on it will be about 2% if I'm lucky 

With rates going up you can get more than 2% for an easy access account, and over 4% if you could tie some of it up for a year or more
Compare The Best UK Savings Accounts | moneyfacts.co.uk

Brie

JSA won't be affected by taking the 25% lump sum which will also be tax free.

JSA will be affected by the monthly income you then receive from the pension.  If it's deemed that you earn too much from your pension in any month the JSA was paid I do believe you will need to pay it back.  But if you got JSA from May to end Oct and are starting your monthly pension payments in Nov then the JSA will stop at that point.  At least that's basically what happened to me.

Brie

Are you intending to work in the future??  (you are collecting JSA after all.....)

If so you may want to be careful about getting anything out of the DC scheme.  I'm still a bit confused by it all but I was told that putting my DC schemes into drawdown (which seemed to be the only option to collect them) would limit the amount of tax free pension contributions I could do in the future.  Ultimately for me it's not an issue as I won't be working enough to actually hit even the £4k limit.

Dazed_and_C0nfused

Frances63 said:

Dazed_and_C0nfused said:

Frances63 said:

xylophone said:

The PCLS is tax free.

You have a personal allowance which can be set against earnings/taxable benefit/pension income for the tax year 22/23.

What is your situation regarding savings income (interest/dividends) outside tax privileged accounts like ISAs?

Not enough savings interest to be near anywhere near the 1,000 pounds allowance.

From what you've posted you're not going to be able to benefit from the savings nil rate band (aka Personal Savings Allowance).

You have to have used your Personal Allowance and the savings starter rate band (0% tax rate) before you can use the savings nil rate.

And if your non savings non dividend income i.e. JSA, earnings, pension income only uses up your Personal Allowance then you will have the full £5,000 savings starter rate band to use before the savings nil rate band can be used.

Dazed and Confused, I am too. I'm afraid I didn't fully understand that. 

As I understand it you can earn up to 1000 pounds in interest before you have to pay tax on any savings interest and even with my lump sum of around 45,000 the interest on it will be about 2% if I'm lucky so maybe 900 pounds for the whole year. However I will not manage to keep it for a year as I have bills to pay and probably would pay off some of my mortgage anyway. So that's why I say tax on savings interest isn't an issue as the rules currently stand.

Are you saying that as a non-tax payer, until or unless I hit that threshold then the 1,000 interest tax break doesn't even begin to come into the equation?

Yes.

You have to have used your Personal Allowance before using the savings starter rate band (if available to you).

And you have to have used the savings starter rate band before you can use the savings nil rate band (aka Personal Savings Allowance).

So if your total taxable income is say £8,00, including £2,000 of interest then you will have no tax to pay.

Pat38493

Brie said:

Are you intending to work in the future??  (you are collecting JSA after all.....)

If so you may want to be careful about getting anything out of the DC scheme.  I'm still a bit confused by it all but I was told that putting my DC schemes into drawdown (which seemed to be the only option to collect them) would limit the amount of tax free pension contributions I could do in the future.  Ultimately for me it's not an issue as I won't be working enough to actually hit even the £4k limit.

As far as I know, you can take the 25% tax free cash out of the DC scheme without triggering the pension contribution limits - it’s only if you take any taxable money out of it that you trigger the limits on future pension contributions.