Using up tax allowance

jcb208

I'm getting confused can some one please tell me If I am correct or wrong. I have retired now aged 62 and my only taxed income this year was £6000 in interest from savings and £1000 from dividends. I worked it out I could take £12570 from my personal pension.(no tax free lump sum will be taken or withdrawals yet ) and claim back the tax paid

Dazed_and_C0nfused

Correct.

If your only income in the current tax year is £12,570 pension, £6,000 interest and £1,000 dividends then no tax will be payable.

The above assumes you haven't made any Gift Aid donations or applied for Marriage Allowance.

There is no need to claim anything back either, HMRC will automatically refund any overpaid tax later this summer.

NoMore

You can't take £12570 from a DC Pension without taking some tax free cash unless you already have some crystallised funds in drawdown. Well you can but it would be pointless as you would lose any chance to get the tax free cash associated with the withdrawal in the future.

Much better to take £16760 as UFPLS from the pension, so 12570 taxable and 4190 tax free, this would give you even more income at no tax paid.

doodlector

I'm a bit confused in this area but wouldn't taking more than £12570 in income then reduce the starting savings rate allowance and therefore you would end up paying tax on the some of the £6000 savings which would otherwise have been tax free? 

doodlector

Also, why was your £6000 in interest from savings taxed in the first place?  I thought banks didn't tax savings anymore so there shouldn't be any need to claim anything back?

molerat

I'm a bit confused in this area but wouldn't taking more than £12570 in income then reduce the starting savings rate allowance and therefore you would end up paying tax on the some of the £6000 savings which would otherwise have been tax free? 

No because the £12570 is the 75% taxable element, the extra would be the 25% tax free so has no effect on anything else.

Also, why was your £6000 in interest from savings taxed in the first place?

It isn't taxed at source but is taxable.

The tax needing reclaiming is what would be deducted from the pension by the provider.

NoMore

doodlector said:

I'm a bit confused in this area but wouldn't taking more than £12570 in income then reduce the starting savings rate allowance and therefore you would end up paying tax on the some of the £6000 savings which would otherwise have been tax free? 

If this is in response to me, the extra above the 12570 I talk about is the 25% tax free cash from a pension, this has no affect on your overall taxable income or saving allowances.

Notepad_Phil

Dazed_and_C0nfused said:

Correct.

If your only income in the current tax year is £12,570 pension, £6,000 interest and £1,000 dividends then no tax will be payable.

The above assumes you haven't made any Gift Aid donations or applied for Marriage Allowance.

There is no need to claim anything back either, HMRC will automatically refund any overpaid tax later this summer.

Excuse me for borrowing this thread, but if Marriage Allowance had been applied, then for the person giving up their personal allowance then I assume as long as you keep the taxable pension to the 11k or so that it allows, then an additional £6000 interest and £1000 dividend would still result in no tax being payable.

molerat

Notepad_Phil said:

Dazed_and_C0nfused said:

Correct.

If your only income in the current tax year is £12,570 pension, £6,000 interest and £1,000 dividends then no tax will be payable.

The above assumes you haven't made any Gift Aid donations or applied for Marriage Allowance.

There is no need to claim anything back either, HMRC will automatically refund any overpaid tax later this summer.

Excuse me for borrowing this thread, but if Marriage Allowance had been applied for then I assume as long as you keep the taxable pension to the 11k or so that it allows, then the £6000 interest and £1000 dividend would still result in no tax being payable.

Correct, claiming MA just reduces the personal allowance to £11310 as the base line for calculations.

Albermarle

NoMore said:

You can't take £12570 from a DC Pension without taking some tax free cash unless you already have some crystallised funds in drawdown. Well you can but it would be pointless as you would lose any chance to get the tax free cash associated with the withdrawal in the future.

Much better to take £16760 as UFPLS from the pension, so 12570 taxable and 4190 tax free, this would give you even more income at no tax paid.

As above.
If you are confused about how to drawdown your DC pension, then would be good to have a chat with the free Govt service. PensionWise.
Probably when you first contact your pension provider about withdrawing money they will ask if you have spoken to PensionWise anyway.
Pension Wise: free pension guidance | MoneyHelper

jcb208

Thanks I worded that wrong the savings or dividends were not taxed at source and I have not taken any amount from my pension yet.I will be using drawdown with 25% of any amount tax free