Money moved to drawdown - is investment growth of the 75% taxable portion, taxable? 10 February at 10:01AM edited 10 February at 11:41AM in Pensions, annuities & retirement planning 15 replies 1K views

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Expotter said:

Does it follow then, that if you only withdraw UFPLS amounts from your DC pension, any future growth will still be 25% tax free at the point of withdrawal?

Yes as you basically have only uncrystallised funds within the pension, the crystallised bit is fully withdrawn (the 25% tax free and the 75% taxable) with ufpls

However the LTA will stop you getting any more Tax free at some point. 

zagfles

GazzaBloom said:

Leads me to the conclusion that it's best to only crystallise what you need to, when you need to, and leave as much uncrystallised for as long as possible if it's invested, pending any LTA concerns.

Generally yes but for peripheral reasons such as inheritance, possible tax on unwrapped growth, possibly benefits etc. If you crystallise a portion and put the TFLS into an ISA invested in the same way as the pension, then it'll make no difference to your tax or liability for tax, but might make a difference if you die to whoever inherits, and might affect stuff like benefit eligibility.

If LTA issues or approaching 75 it can be better to crystallise.

squirrelpie

"If ... approaching 75 it can be better to crystallise."

Sorry, why is that, please? A pointer to a previous discussion would be fine.

zagfles

squirrelpie said:

"If ... approaching 75 it can be better to crystallise."

Sorry, why is that, please? A pointer to a previous discussion would be fine.

As it happens we had one a few days ago: https://forums.moneysavingexpert.com/discussion/6423483/sipp-drawdown-options-help

ader42

There is a LTA crystallization event at age 75.

Any uncrystallized part of a pot is automatically crystallzed at age 75 and there will be a LTA tax charge on anything above the LTA.

It can in some instances be better to crystallize the pot earlier and withdraw the funds paying 20% income tax and putting it into ISAs and investing it in the same investments that the pension used - to avoid the 25% LTA tax charge. This can avoid a LTA tax charge but will have the downside of being inside IHT unlike the pension. 

This is why some choose to crystallize the lot when their pot hits £1m.