Tax avoidance

kevhky1968

I've decided I'm going to  draw down my pot  and ideally would like to be zero tax on the income if its possible.

Currently I'm working and I understand I will have to pay tax on the draw down  BUT if I were to hold on to the draw down and start taking it when I finish work and in a new tax year the income from the pension I receive will be under 10k so is this tax free as it will be under my personal allowance, ir are you taxed on income from pensions no matter what.

Thanks for reading and help

Dazed_and_C0nfused

kevhky1968 said:

I've decided I'm going to  draw down my pot  and ideally would like to be zero tax on the income if its possible.

Currently I'm working and I understand I will have to pay tax on the draw down  BUT if I were to hold on to the draw down and start taking it when I finish work and in a new tax year the income from the pension I receive will be under 10k so is this tax free as it will be under my personal allowance, ir are you taxed on income from pensions no matter what.

Thanks for reading and help

Assuming this is a DC pension then the 75% that is taxable is just taxable income like taxable earnings are.

So if you have (taxable) pension income of £10,000 and no other income then you won't have any tax to pay on it.

If you have (taxable) earnings of £10,000 and taxable pension of £10,000 then you will pay tax on the element above your Personal Allowance (of either £11,310 or £12,570).

Marcon

kevhky1968 said:

I've decided I'm going to  draw down my pot  and ideally would like to be zero tax on the income if its possible.

Currently I'm working and I understand I will have to pay tax on the draw down  BUT if I were to hold on to the draw down and start taking it when I finish work and in a new tax year the income from the pension I receive will be under 10k so is this tax free as it will be under my personal allowance, ir are you taxed on income from pensions no matter what.

Thanks for reading and help

To add to the above helpful answers...don't forget that once you start to draw you state pension, that is (potentially) taxable income, so would be added to any amount you draw down from your private pension. You don't say how old you are, but if you are nearing SPA it might be something to factor in.

kevhky1968

"So if you have (taxable) pension income of £10,000 and no other income then you won't have any tax to pay on it"

That's the plan I won't have any other income only the 10k per annum draw down so your saying I won't pay tax on it ?

I'm 55 in December 23, I intend to drawdown until age 67 when my state pension will then kick in.

I also have 2 other pensions which I ain't planning on touching yet and also have quite a substantial amount in savings

Thanks

Dazed_and_C0nfused

kevhky1968 said:

"So if you have (taxable) pension income of £10,000 and no other income then you won't have any tax to pay on it"

That's the plan I won't have any other income only the 10k per annum draw down so your saying I won't pay tax on it ?

I'm 55 in December 23, I intend to drawdown until age 67 when my state pension will then kick in.

I also have 2 other pensions which I ain't planning on touching yet and also have quite a substantial amount in savings

Thanks

You might pay tax on the first payment but ultimately if you aren't liable then HMRC will automatically refund any tax overpaid when they review things after the end of the tax year.

Don't forget it's the whole tax year that counts so in 2023-24 you might have some earnings to factor in?

kevhky1968

Dazed_and_C0nfused said:

kevhky1968 said:

"So if you have (taxable) pension income of £10,000 and no other income then you won't have any tax to pay on it"

That's the plan I won't have any other income only the 10k per annum draw down so your saying I won't pay tax on it ?

I'm 55 in December 23, I intend to drawdown until age 67 when my state pension will then kick in.

I also have 2 other pensions which I ain't planning on touching yet and also have quite a substantial amount in savings

Thanks

Don't forget it's the whole tax year that counts so in 2023-24 you might have some earnings to factor in?

Yeah I get that regards to the whole tax year, so basically I'll take the 25% tax free lump and leave the drawdown until I leave work and start a new tax year then start the drawdown whereas if I start the drawdown now I'll pay tax as I'm still employed.

Albermarle

kevhky1968 said:

Dazed_and_C0nfused said:

kevhky1968 said:

"So if you have (taxable) pension income of £10,000 and no other income then you won't have any tax to pay on it"

That's the plan I won't have any other income only the 10k per annum draw down so your saying I won't pay tax on it ?

I'm 55 in December 23, I intend to drawdown until age 67 when my state pension will then kick in.

I also have 2 other pensions which I ain't planning on touching yet and also have quite a substantial amount in savings

Thanks

Don't forget it's the whole tax year that counts so in 2023-24 you might have some earnings to factor in?

Yeah I get that regards to the whole tax year, so basically I'll take the 25% tax free lump and leave the drawdown until I leave work and start a new tax year then start the drawdown whereas if I start the drawdown now I'll pay tax as I'm still employed.

You should think of pension income just the same as employment income. It is handled by the PAYE system just the same.
Regarding taking the 25% tax free, it is normally recommended to only take this if you really need it for something specific. Otherwise it is usually better just to leave it in the pension until later.

kevhky1968

Albermarle said:

kevhky1968 said:

Dazed_and_C0nfused said:

kevhky1968 said:

"So if you have (taxable) pension income of £10,000 and no other income then you won't have any tax to pay on it"

That's the plan I won't have any other income only the 10k per annum draw down so your saying I won't pay tax on it ?

I'm 55 in December 23, I intend to drawdown until age 67 when my state pension will then kick in.

I also have 2 other pensions which I ain't planning on touching yet and also have quite a substantial amount in savings

Thanks

Don't forget it's the whole tax year that counts so in 2023-24 you might have some earnings to factor in?

Yeah I get that regards to the whole tax year, so basically I'll take the 25% tax free lump and leave the drawdown until I leave work and start a new tax year then start the drawdown whereas if I start the drawdown now I'll pay tax as I'm still employed.

"Regarding taking the 25% tax free, it is normally recommended to only take this if you really need it for something specific. Otherwise it is usually better just to leave it in the pension until later."

Why is it reccomended to leave if not required ?
I intend taking it and putting it into a 2 year fixed 5% ISA

QrizB

kevhky1968 said:

Why is it reccomended to leave if not required ?
I intend taking it and putting it into a 2 year fixed 5% ISA

Because it's likely to do better than 5% inside your pension (depending of course on how you have invested it).

kevhky1968

QrizB said:

kevhky1968 said:

Why is it reccomended to leave if not required ?
I intend taking it and putting it into a 2 year fixed 5% ISA

Because it's likely to do better than 5% inside your pension (depending of course on how you have invested it).

Investments currently are on a rolleracoaster at lesst I'd be guaranteed 5% seems a wise move to me

Dazed_and_C0nfused

kevhky1968 said:

QrizB said:

kevhky1968 said:

Why is it reccomended to leave if not required ?
I intend taking it and putting it into a 2 year fixed 5% ISA

Because it's likely to do better than 5% inside your pension (depending of course on how you have invested it).

Investments currently are on a rolleracoaster at lesst I'd be guaranteed 5% seems a wise move to me

Don't forget when you take the 25% TFLS up front you crystallise the rest of your pot so 100% of that crystallised fund is taxable when taken out of the pension.