Tax efficiency ways of taking £32k of pension and dividends incomes for FY 2023-2024

planforfuture

I am retiring in Apr/May 2023 and am planning of taking retirement income solely from SIPP pension (UFPLS/drawdown), dividends (from SIPP and non-ISA shares) and selling of non-ISA shares (i.e. capital gain).

Wrt pension, I am considering of taking annual pension of £16,760 to maximize on tax relief (i.e. £12,750 from personal allowance + £4,190 25% tax free). In addition, the non-ISA shares that I will be selling will not exceed the annual £6,000 CGT exemption allowance.

I am expecting to receive around £10,000 from dividends.

Since personal income will be taxed after the personal allowance at 20% of basic rate band but dividends are taxed at 8.75%. Hence, will it be more tax efficient to take out pension (as above) and then pay tax on dividends which is 8.75% of (£10,000-£1,000) i.e. £787.5 ?

So £16,760 (from pension) + £10,000 (from dividends) = £26,760, the tax I will be paying for 2023-24 = £787.5?

Or are there any other more tax efficient ways to take incomes as per my situation.

Dazed_and_C0nfused

That was a quick change of plan!!

https://forums.moneysavingexpert.com/discussion/6404603/retirement-income-solely-from-dividends-and-capital-gains#latest

planforfuture

Dazed_and_C0nfused said:

That was a quick change of plan!!

https://forums.moneysavingexpert.com/discussion/6404603/retirement-income-solely-from-dividends-and-capital-gains#latest

Yes, just reconsidering my other options for the most tax efficient way . Is this also doable?

Dazed_and_C0nfused

planforfuture said:

Dazed_and_C0nfused said:

That was a quick change of plan!!

https://forums.moneysavingexpert.com/discussion/6404603/retirement-income-solely-from-dividends-and-capital-gains#latest

Yes, just reconsidering my other options for the most tax efficient way . Is this also doable?

Yes although maybe not quite how you envisage, albeit may not alter the end outcome for you.

£16,760 under UFPLS will use all of your Personal Allowance.

£10,000 in dividends will use £10,000 of your basic rate band.
£1,000 taxed at 0%
£9,000 taxed at 8.75%

As you will have used £10,000 of the basic rate band any Capital Gains could hit the CGT higher rate sooner.

But if you only plan on taking small gains over the CGT exemption it may not be a factor for you.

planforfuture

Thanks.

So the anticipated combined total income of £32750  (£16750+£10000+£6000) is below the basic rate band of £37700 (for FY 23-24), the CGT payable for the £6000 gained (by selling non ISA shares) will be £0  (i.e. use up the maximum CGT allowance)? As illustrated here https://www.gov.uk/capital-gains-tax/rates

Hence, to achieve income of £32750 using the above methods, the total payable tax will be £787.5?? 

And i still have £4950 to utilise if needed (taxable at 10%) before reaching the top of basic rate band of £37700. How tax efficient is it?

Dazed_and_C0nfused

planforfuture said:

Thanks.

So the anticipated combined total income of £32750  (£16750+£10000+£6000) is below the basic rate band of £37700 (for FY 23-24), the CGT payable for the £6000 gained (by selling non ISA shares) will be £0  (i.e. use up the maximum CGT allowance)? As illustrated here https://www.gov.uk/capital-gains-tax/rates

Hence, to achieve income of £32750 using the above methods, the total payable tax will be £787.5?? 

How tax efficient is it?

Well firstly I don't think you should really be including the TFLS as that is irrelevant.

You could get £100k tax free by taking money out of an ISA.

But if we stick to taxable income your £16,760 (don't know why you've changed it to £16,750?) is really just £12,570.

Plus £10,000 and £6000 = £28,570.

With tax to pay of £787.50

But you could get £28,570 taxable income/gains for just £262.50 tax if you could generate some interest instead of so much dividend income.

planforfuture

Thanks for the reply.  Yes, it's typing error, I did mean £16,760.

The anticipated dividend are derived from my current investment e.g. SIPP and non-ISA shares.

Please explain  TFLS?

Dazed_and_C0nfused

Tax free lump sum, the 25% part of each UFPLS payment.

Dividends within a SIPP aren't taxable so you can ignore them as well.

But to get them out of the SIPP would involve taking additional pension income, which would be taxable (potentially less 25% TFLS).

planforfuture

Thanks. Much appreciated for your information. Since I was very confused with the new Autumn budget statement and I am on a stiff learning curve.

I am very grateful for your help.