UFPLS or Drawdown

Moonwolf

I currently intend to use UFPLS for my regular spending, (whether I can take it monthly, quarterly on annually) but switch to drawdown if I have any incidents that would need me to draw down so much it would push me up a tax bracket. 

Say my DB and state pensions are £30k, I've taken £6k as UFPLS from my DC and I want another £30K for a new car, I can then make sure I draw enough tax free that I don't trigger higher rate tax and then pause UFPLS and trickle in the taxable amount over the year.

However, if it is easier to budget and technically simpler to take £1,500 lump sum at the start of the year and the remaining £4,500 at £375 a month I'll probably do that.

DFC1893

Thanks for all the replies. 
I think if I'm understanding it correctly then, that UFPLS is probably the way to go, one withdrawal a year (in March to mitigate emergency tax) and if my sums are correct then only taking £16760 a year would give me no tax bill, ie 16760 × 75% = 12570 (personal tax allowance) and the 16760 x 25% is my TFC. 
Only taking out 16760 per year is also less than my current level of divi income so my pot capital shouldn't erode much unless of course my investments continue to struggle as they have in the past year!

MK62

DFC1893 said:

Thanks for all the replies. 
I think if I'm understanding it correctly then, that UFPLS is probably the way to go, one withdrawal a year (in March to mitigate emergency tax) and if my sums are correct then only taking £16760 a year would give me no tax bill, ie 16760 × 75% = 12570 (personal tax allowance) and the 16760 x 25% is my TFC. 
Only taking out 16760 per year is also less than my current level of divi income so my pot capital shouldn't erode much unless of course my investments continue to struggle as they have in the past year!

Well, that's certainly a viable way forward, though it's much less than the £24k pa income you said you wanted in the original post.....

As for doing this only in March.......personally I wouldn't restrict myself to March just to avoid some tax which can be  claimed back quite easily anyway - they say within c4 weeks, but it seems to be running more like 6-8 weeks atm.....that said, you can switch assets to a short term cash fund any time through the tax year, and then make the actual drawdown from the cash fund in March.

A small potential caveat though........any delay from your pension provider could see your drawdown slip past Apr5th, and hence into a new tax year - some providers are much quicker than others.

Albermarle

A small potential caveat though........any delay from your pension provider could see your drawdown slip past Apr5th, and hence into a new tax year - some providers are much quicker than others.

Recently discussed in another thread. Apparently if the payment is in the first week of March, it will be classed as a February payment for tax purposes because of the way the 'payroll' works.

Apparently with some providers you can book the payment weeks ahead, so then there should not be any delays and drifting into the next month. In theory anyway.

DFC1893

MK62 said:

DFC1893 said:

Thanks for all the replies. 
I think if I'm understanding it correctly then, that UFPLS is probably the way to go, one withdrawal a year (in March to mitigate emergency tax) and if my sums are correct then only taking £16760 a year would give me no tax bill, ie 16760 × 75% = 12570 (personal tax allowance) and the 16760 x 25% is my TFC. 
Only taking out 16760 per year is also less than my current level of divi income so my pot capital shouldn't erode much unless of course my investments continue to struggle as they have in the past year!

Well, that's certainly a viable way forward, though it's much less than the £24k pa income you said you wanted in the original post.....

Yes, it is, but thankfully my wife's still working and I can use savings or cash in some premium bonds if I need to. Just seems optimal from a tax perspective to only take 16760 pa now I've understood things better. 10 years to SP seems a long way off and although I definitely need to start taking some income from next year I'm cognisant of trying to preserve my pot as much as possible given current market performance. A lot of my investment trusts are in the red but thankfully my biggest single investment in the portfolio is an ishares S&P 500 ETF which from 2013 is over 220% up so I'll probably cash in a bit of that if I need to realise cash over and above my divi income. 

Doctor_Who

DFC1893 said:

MK62 said:

DFC1893 said:

Thanks for all the replies. 
I think if I'm understanding it correctly then, that UFPLS is probably the way to go, one withdrawal a year (in March to mitigate emergency tax) and if my sums are correct then only taking £16760 a year would give me no tax bill, ie 16760 × 75% = 12570 (personal tax allowance) and the 16760 x 25% is my TFC. 
Only taking out 16760 per year is also less than my current level of divi income so my pot capital shouldn't erode much unless of course my investments continue to struggle as they have in the past year!

Well, that's certainly a viable way forward, though it's much less than the £24k pa income you said you wanted in the original post.....

Yes, it is, but thankfully my wife's still working and I can use savings or cash in some premium bonds if I need to. Just seems optimal from a tax perspective to only take 16760 pa now I've understood things better. 10 years to SP seems a long way off and although I definitely need to start taking some income from next year I'm cognisant of trying to preserve my pot as much as possible given current market performance. A lot of my investment trusts are in the red but thankfully my biggest single investment in the portfolio is an ishares S&P 500 ETF which from 2013 is over 220% up so I'll probably cash in a bit of that if I need to realise cash over and above my divi income. 

Just bear in mind the income tax situation for withdrawals once you hit SP age and also receive any other pensions (e.g. a BD pension). I had originally planned to only take out ~£16K per year from my SIPP to cover the ~10 years until DB/SP kicked in, hence paying no income tax on ~£160K of the SIPP. However, I realised that once the DB/SP kicks in I will become a 42% tax payer (Scotland income above ~£43K), hence any withdrawals from the SIPP will be taxed at 42% after SP age. So I have decided to take more than the ~£16K per year for the next ~10 years and pay income tax at 19/20/21% now vs 42% later!

DFC1893

Doctor_Who said:

DFC1893 said:

MK62 said:

DFC1893 said:

Thanks for all the replies. 
I think if I'm understanding it correctly then, that UFPLS is probably the way to go, one withdrawal a year (in March to mitigate emergency tax) and if my sums are correct then only taking £16760 a year would give me no tax bill, ie 16760 × 75% = 12570 (personal tax allowance) and the 16760 x 25% is my TFC. 
Only taking out 16760 per year is also less than my current level of divi income so my pot capital shouldn't erode much unless of course my investments continue to struggle as they have in the past year!

Well, that's certainly a viable way forward, though it's much less than the £24k pa income you said you wanted in the original post.....

Yes, it is, but thankfully my wife's still working and I can use savings or cash in some premium bonds if I need to. Just seems optimal from a tax perspective to only take 16760 pa now I've understood things better. 10 years to SP seems a long way off and although I definitely need to start taking some income from next year I'm cognisant of trying to preserve my pot as much as possible given current market performance. A lot of my investment trusts are in the red but thankfully my biggest single investment in the portfolio is an ishares S&P 500 ETF which from 2013 is over 220% up so I'll probably cash in a bit of that if I need to realise cash over and above my divi income. 

Just bear in mind the income tax situation for withdrawals once you hit SP age and also receive any other pensions (e.g. a BD pension). I had originally planned to only take out ~£16K per year from my SIPP to cover the ~10 years until DB/SP kicked in, hence paying no income tax on ~£160K of the SIPP. However, I realised that once the DB/SP kicks in I will become a 42% tax payer (Scotland income above ~£43K), hence any withdrawals from the SIPP will be taxed at 42% after SP age. So I have decided to take more than the ~£16K per year for the next ~10 years and pay income tax at 19/20/21% now vs 42% later!

Thanks, yes thats a fair point indeed! 
I guess my biggest driver is just the worry of depleting the 630 pot too much early on but as you say, better paying a small amount at the lower tax rate. Could probably squirrel away anything I don't spend into my ISA.

Doctor_Who

DFC1893 said:

Doctor_Who said:

DFC1893 said:

MK62 said:

DFC1893 said:

Thanks for all the replies. 
I think if I'm understanding it correctly then, that UFPLS is probably the way to go, one withdrawal a year (in March to mitigate emergency tax) and if my sums are correct then only taking £16760 a year would give me no tax bill, ie 16760 × 75% = 12570 (personal tax allowance) and the 16760 x 25% is my TFC. 
Only taking out 16760 per year is also less than my current level of divi income so my pot capital shouldn't erode much unless of course my investments continue to struggle as they have in the past year!

Well, that's certainly a viable way forward, though it's much less than the £24k pa income you said you wanted in the original post.....

Yes, it is, but thankfully my wife's still working and I can use savings or cash in some premium bonds if I need to. Just seems optimal from a tax perspective to only take 16760 pa now I've understood things better. 10 years to SP seems a long way off and although I definitely need to start taking some income from next year I'm cognisant of trying to preserve my pot as much as possible given current market performance. A lot of my investment trusts are in the red but thankfully my biggest single investment in the portfolio is an ishares S&P 500 ETF which from 2013 is over 220% up so I'll probably cash in a bit of that if I need to realise cash over and above my divi income. 

Just bear in mind the income tax situation for withdrawals once you hit SP age and also receive any other pensions (e.g. a BD pension). I had originally planned to only take out ~£16K per year from my SIPP to cover the ~10 years until DB/SP kicked in, hence paying no income tax on ~£160K of the SIPP. However, I realised that once the DB/SP kicks in I will become a 42% tax payer (Scotland income above ~£43K), hence any withdrawals from the SIPP will be taxed at 42% after SP age. So I have decided to take more than the ~£16K per year for the next ~10 years and pay income tax at 19/20/21% now vs 42% later!

Thanks, yes thats a fair point indeed! 
I guess my biggest driver is just the worry of depleting the 630 pot too much early on but as you say, better paying a small amount at the lower tax rate. Could probably squirrel away anything I don't spend into my ISA.

To be fair, my situation is probably not that typical (20/40% tax payer whilst working and 42% taxpayer when I reach SP age, I never thought higher rate tax would apply to me after retirement!). Having a good DB pension from 65 and a reasonable SIPP gives me options (hence early retirement), but it does pay to look at your individual circumstances and how you can most tax efficiently withdraw from the SIPP. There's also IHT to consider.....just to add to the fun!

MK62

Albermarle said:

A small potential caveat though........any delay from your pension provider could see your drawdown slip past Apr5th, and hence into a new tax year - some providers are much quicker than others.

Recently discussed in another thread. Apparently if the payment is in the first week of March, it will be classed as a February payment for tax purposes because of the way the 'payroll' works.

Apparently with some providers you can book the payment weeks ahead, so then there should not be any delays and drifting into the next month. In theory anyway.

That's likely the case for regular payments on "payroll"........I'm less convinced about one off payments though......obviously the earlier in March you apply for such a payment, the less likely missing any cut-off dates becomes.

Albermarle

MK62 said:

Albermarle said:

A small potential caveat though........any delay from your pension provider could see your drawdown slip past Apr5th, and hence into a new tax year - some providers are much quicker than others.

Recently discussed in another thread. Apparently if the payment is in the first week of March, it will be classed as a February payment for tax purposes because of the way the 'payroll' works.

Apparently with some providers you can book the payment weeks ahead, so then there should not be any delays and drifting into the next month. In theory anyway.

That's likely the case for regular payments on "payroll"........I'm less convinced about one off payments though......obviously the earlier in March you apply for such a payment, the less likely missing any cut-off dates becomes.

.I'm less convinced about one off payments though.....

To be honest I have no direct experience. @dunstonh stated it in another thread, so I took it as gospel