Do I have to pay Capital Gains Tax on pension that is in partial drawdown?

scoobyjones1

My wife and I are starting to think about pension drawdown in 3 or 4 years. We both have SIPPs.
My question is, say I go into partial drawdown....let's say I take out 100k from my SIPP into a drawdown pot...25k of that will be tax free cash and can go straight into my bank account. With the other 75k, that will then be taxable as and when I use that but for a while I would like to leave that 75k invested in a few shares, say Apple, Microsoft or whatever. Now this is outside of the SIPP but in a holding pot, would any gains be liable for Capital Gains Tax, or is it exempt because it is still technically in my pension?
Thanks for anyone that knows... or is in this position.

El_Torro

When you take money out of a SIPP you take it as cash, you can't keep it invested. There's nothing stopping you using that cash to then buy shares. Any growth that the investment then makes is taxable, assuming you keep it in a General Investment Account (i.e. not an ISA). So you would only be taxed on any future growth, not on any growth that occurred while the money was in your SIPP. 

I'm not sure why anyone would want to take money out of a SIPP and then invest it in an unwrapped account. 

MallyGirl

The drawdown pot stays within the pension, invested as you choose, until you make withdrawals. Those withdrawals will be liable to income tax at your rate. Capital gains doesn't come into it.

SVaz

The ‘drawdown pot’ is still within your Sipp,  you can keep it invested.  It simply becomes Crystallised,  you only need to sell enough investments to cover the tax free cash and you don’t need to crystallise it all in one go, if you only wanted ‘£10k tax free cash, you only need to crystallise £40k. 

TadleyBaggie

Capital gains never comes into play with pensions, any monies taken out of it is treated as income and taxed appropriately. 

scoobyjones1

MallyGirl said:

The drawdown pot stays within the pension, invested as you choose, until you make withdrawals. Those withdrawals will be liable to income tax at your rate. Capital gains doesn't come into it.

Thanks, that was what I was hoping. We don't want to take the full, tax free lump sum all in one go. We will probably take some out each year and let the rest grow, hopefully.

Dazed_and_C0nfused

scoobyjones1 said:

MallyGirl said:

The drawdown pot stays within the pension, invested as you choose, until you make withdrawals. Those withdrawals will be liable to income tax at your rate. Capital gains doesn't come into it.

Thanks, that was what I was hoping. We don't want to take the full, tax free lump sum all in one go. We will probably take some out each year and let the rest grow, hopefully.

Don't forget once you crystallise an amount by taking a TFLS the remaining portion plus any investment growth, is always taxable income when you take it out of the pension.

For example say you crystallise £50k by taking £12.5k TFLS and the remaining £37.5k is left in the pension and grows back to £45k.  The whole £45k is taxable when eventually taken out of the pension.

jamesd

Flexi-access Drawdown is the formal terminology for where the 75% ends up. HL label it as "SIPP Drawdown".

ukdw

You could put most of the £25k  tax free lump sum you intend to invest in an ISA if you have and available allowance - as this would avoid CGT, etc,

scoobyjones1

ukdw said:

You could put most of the £25k  tax free lump sum you intend to invest in an ISA if you have and available allowance - as this would avoid CGT, etc,

Thanks, yes, we have ISAs. Shame they still have not increased the ISA allowance! You have to be so careful now with any gains, as the allowance will be only 3K next year. Dividends and savings interest potentially being taxed comes into it as well, with interest rates being higher and thresholds lower in real terms. Seems silly to me as more people will lock money away in SIPPs and ISAs rather than spend it, when the economy needs growth badly at the moment. 

Qyburn

scoobyjones1 said:

Seems silly to me as more people will lock money away in SIPPs and ISAs rather than spend it, when the economy needs growth badly at the moment. 

Right or wrong that's exactly the reason for interest rises, the theory being that increased spending drives inflation. Although strictly money is ISAs isnt locked away.