Annuity... how much of it is taxable?

TMSG

(If this is better placed in the Tax board, please move! Thanks.)
I am thinking of buying an annuity but not from money coming out of a pension pot but money saved over the years (when I was self-employed). So this is my own money, taxes paid etc etc.
I've tried to find out how the tax position is with regard to the payments I then receive but this is a jungle. There's lots about annuities bought with pension money but I've been unable to find anything concrete if the money's coming from another source.
So, say I've got £200k and buy an annuity that'll pay £8k (not real figures), will the whole of the £8k count as taxable income? IOW if my personal allowance and savings rate etc are already used up, will I have to pay income tax on those £8k? Hard to imagine because a good chunk of the money is from my own savings but the little I've read seems to imply that's the case?!

Dazed_and_C0nfused

Might be worth a read

https://www.mandg.com/pru/adviser/en-gb/insights-events/insights-library/purchase-life-annuity

zagfles

A non pension annuity is known as a "purchased life annuity". You don't get taxed on the capital element. Google "purchased life annuity taxation", lots of helpful articles.

TMSG

Many thanks for the link and pointers. On the positive side, I've learned that the capital element will not be taxed (which I find logical, but past experience with HMRC has not always ended up with me finding things logical... might be me though :-/ ).

On the negative side I am not sure that the stuff I've read goes into so much concrete detail as to how much I will actually have to pay, ie some real-life examples to give me an idea or figures that would allow me to calculate what's up. So it makes it a bit harder to plan things, ie with respect to allowances.

It seems the provider does a calculation as to how much of the payment is capital and how much is interest, so far so good. I then have to tell HMRC in my tax return about the interest? Or is there some automatic transfer of the amount concerned?

Again thanks for helping out!

xylophone

https://www.mandg.com/pru/adviser/en-gb/insights-events/insights-library/purchase-life-annuity

https://www.sharingpensions.co.uk/pension_annuity9.htm may be of interest as apparently very recently updated/reviewed.

Pipthecat

IOW if my personal allowance and savings rate etc are already used up

Just wondering if you are currently working and have the option of moving your savings (as allowed) into a pension to benefit from tax relief ahead of purchasing the annuity?

dunstonh

Pipthecat said:

IOW if my personal allowance and savings rate etc are already used up

Just wondering if you are currently working and have the option of moving your savings (as allowed) into a pension to benefit from tax relief ahead of purchasing the annuity?

Yes. Indeed, there were products available in the past for that very purpose.  Immediate vesting personal pension plans. IVPPPs just combined the two products together and turned it around in 24 hours.     I dont believe there are any IVPPPs around any more but you would just set the pension up and then arrange the open market option the next day  (or if you DIY, then about 8 weeks later)

zagfles

dunstonh said:

Pipthecat said:

IOW if my personal allowance and savings rate etc are already used up

Just wondering if you are currently working and have the option of moving your savings (as allowed) into a pension to benefit from tax relief ahead of purchasing the annuity?

Yes. Indeed, there were products available in the past for that very purpose.  Immediate vesting personal pension plans. IVPPPs just combined the two products together and turned it around in 24 hours.     I dont believe there are any IVPPPs around any more but you would just set the pension up and then arrange the open market option the next day  (or if you DIY, then about 8 weeks later)

 

Or just buy the annuity from the pension. Usually get better rates for pension annuities than PLAs don't you? Might mean having to purchase 2 annuities as the amount OP could get into a pension would be limited by earnings and the AA but that shouldn't cost more if charges are a %.

TMSG

Sorry for the delay and thanks @xylophone for the links... I had already read the first page but not the second... very informative and indeed has some "real" numbers.
As to moving (part of my) savings into a pension pot, I will look into this and try to decide whether that's worthwhile.
Thanks to all, very helpful.