Using pension to pay off mortgage

Slievecroob

I have just retired due to ill health.
I am 55 in July  and have a small pension of £24000...I intend to use this to pay off my mortgage which will be around £15000.
Has anyone  done anything similar and knows about tax ?

molerat

If that is your full pension pot then 25%, £6K, will be tax free and the remaining £18K will be taxable, the amount of tax dependent on your income in the tax year.

Marcon

Slievecroob said:

I have just retired due to ill health.
I am 55 in July  and have a small pension of £24000...I intend to use this to pay off my mortgage which will be around £15000.
Has anyone  done anything similar and knows about tax ?

If you take 25% of the pot in the tax year 23/24, you'll have £18K left in the pot which is potentially taxable - there's no more tax free cash from the pot once you've taken the 25% tax free.

It isn't clear from your post how you will be funding your living expenses, but if you have any state benefits which are subject to tax, or income from private sources which would be taxable, it might make sense to withdraw part of the £18K to  'top up' your 23/24 to the level of your personal allowance, and then take the balance in the following one or two tax years to avoid, or at least minimise, any tax, assuming that's a viable option for you.

McKneff

If you take your pension out to
pay your mortgage out what are you going to live on in your retirement?

State pension only is going to see you poverty stricken

Gary1984

This might be better on the benefits board but will you be claiming housing benefit? Do you lose this if you own your property outright? 

To answer the original question, I would suggest that you avoid taking out so much pension in a single year that you'd need to pay tax on it.

snowlaser

McKneff said:

If you take your pension out to
pay your mortgage out what are you going to live on in your retirement?

State pension only is going to see you poverty stricken

I'm hoping that the OP has another, much bigger, pension to live on and is just saying "I also have a small pension pot I want to use to pay off my mortgage"...?

rubyhettybetty

We are drawing down husband's pension to pay down mortgage but the circumstances are very different. Are you tied into a fixed rate, are there any penalties for repayment? Would you be entitled to any assistance from benefits with your mortgage costs? Your pension pot, even though you can access it at 55 is not classed as capital for benefits purposes at your age, I don't think. 
As others have said, you can draw down 25% of it tax free. Then that money *would* be classed as Capital. You might want to sit on the rest until your income steadies as you don't want to pay tax on it unnecessarily.

Scot_39

Slievecroob said:

I have just retired due to ill health.
I am 55 in July  and have a small pension of £24000...I intend to use this to pay off my mortgage which will be around £15000.
Has anyone  done anything similar and knows about tax ?

Before rushing into this - be wary of any future benefits implications.  If lift or not.

But may be best to split that pension over 2 tax years as only 6k tax free - 18k taxable greater than pa of £12570 - that assuming no other significant taxable income - to avoid paying tax on it if decide to go ahead.