Use of 25% tax free allowance

Toby125C

Can I use the 25% tax free allowance to live on ? I have 3 x pots and could survive for around 4 x years if I can use the overall 25% TF, with my state pension and this would be tax free ! Am I correct ?

Marcon

Toby125C said:

Can I use the 25% tax free allowance to live on ? I have 3 x pots and could survive for around 4 x years if I can use the overall 25% TF, with my state pension and this would be tax free ! Am I correct ?

If you only take 25% (maximum) from each of your 3 DC pots, then yes, the cash is tax free. If your state pension (paid gross, but potentially taxable when taken in conjunction with other income) is below the personal allowance, it might be worth taking some (potentially) taxable cash to ensure you use your full personal allowance for each tax year.

Linton

Yes you can use your TFLS for whatever lawful purpose you want. There would be no tax.

However it would be inefficient not to use your spare tax allowance if you have no taxable income other than your SP.  So you could drawdown up to your tax allowance of taxable money tax free from your pension pot and put it in a savings account or in an S&S ISA.  In the latter case you could use the same or equivalent funds as in your pension.

Dazed_and_C0nfused

And don't forget that taking the 25% TFLS upfront means 100% of the remainder is taxable.

So if you have say £45k left after the TFLS and that grows to £60k then the whole £60k is taxable (when taken from the pension).

dealyboy

Tags: @Marcon, @Linton

... drawing down income in addition to the TFLS triggers the MPAA of course if not already triggered, efficient but potentially limiting.

Marcon

dealyboy said:

Tags: @Marcon, @Linton

... drawing down income in addition to the TFLS triggers the MPAA of course if not already triggered, efficient but potentially limiting.

Thanks for highlighting. I hadn't added the point because OP doesn't appear to have any earned income if they are going to living wholly on state pension/tax free cash from pensions (and of course the MPAA is set to rise to £10K following the recent budget), so would be limited to a gross contribution of £3,600.