SIPP Withdrawal To Reduce Tax

Qyburn

Julezy101 said:
  

Rough figures I've worked out, if I take the full 25% out and then withdraw up to my PA it will leave me with around 70k left at SPA (ignore growth). If I do the UFPLS route it will leave me around 110k. So at SPA I'll be paying 20% tax - on the 70k it'll be 14k - on the 110k it'll be 22k. This would mean an extra 8k tax in total on the UFPLS route once the SIPP is emptied. 

Your £110k will include 25% tax free. It should work the same, yet your figures don't so I suspect you're not comparing like for like.  What's your starting amount? 

Julezy101

Qyburn said:

Julezy101 said:
  

Rough figures I've worked out, if I take the full 25% out and then withdraw up to my PA it will leave me with around 70k left at SPA (ignore growth). If I do the UFPLS route it will leave me around 110k. So at SPA I'll be paying 20% tax - on the 70k it'll be 14k - on the 110k it'll be 22k. This would mean an extra 8k tax in total on the UFPLS route once the SIPP is emptied. 

Your £110k will include 25% tax free. It should work the same, yet your figures don't so I suspect you're not comparing like for like.  What's your starting amount? 

Current Age: 55
Retiring at 56
SIPP at 56 approx 220k
DB Pension @60 around 6.5k

1. Take the full 25% up front. 55k leaves 165k. Age 56-60 withdraw 12.5k x 4 = 50k leaves 115k. Age 60-67 withdraw 6k x 7 = 42k leaves 73k at age 67

2. UFPLS, Age 56-60 withdraw 16.6k x 4 = 66.4k leaves 153.6k. Age 60-67 withdraw 6k x 7 = 42k leaves 111.6k at age 67. 

*** with option 2 can I take more out than 6k a year for ages 60-67 and remain within my PA? 

At 67 the state pension and my DB pension will use up all my PA so any further withdrawals from my SIPP will be taxable (even if 25% would be tax free with the UFPLS option)

NoMore

Just like you can take 16k (12k taxable and 4k tax free) out under UFPLS and remain under your personal allowance, with option 2 you can take out 8k (6k taxable + 2k tax free) + your DB pension and still remain under your personal allowance. Figures rounded for convenience.

There's also the option of Flexi access drawdown, where you could only take tax free money from the SIPP in chunks, might work to maintain your income and pay less tax once SP in payment, although you will run out of Tax free cash at some point.

Also don't let the tax tail wag the dog, if you need more money to maintain your desired lifestyle then having to pay some tax to do that is not necessarily a bad thing.

nicknameless

Julezy101 said:

Qyburn said:

Julezy101 said:
  

Rough figures I've worked out, if I take the full 25% out and then withdraw up to my PA it will leave me with around 70k left at SPA (ignore growth). If I do the UFPLS route it will leave me around 110k. So at SPA I'll be paying 20% tax - on the 70k it'll be 14k - on the 110k it'll be 22k. This would mean an extra 8k tax in total on the UFPLS route once the SIPP is emptied. 

Your £110k will include 25% tax free. It should work the same, yet your figures don't so I suspect you're not comparing like for like.  What's your starting amount? 

Current Age: 55
Retiring at 56
SIPP at 56 approx 220k
DB Pension @60 around 6.5k

1. Take the full 25% up front. 55k leaves 165k. Age 56-60 withdraw 12.5k x 4 = 50k leaves 115k. Age 60-67 withdraw 6k x 7 = 42k leaves 73k at age 67

2. UFPLS, Age 56-60 withdraw 16.6k x 4 = 66.4k leaves 153.6k. Age 60-67 withdraw 6k x 7 = 42k leaves 111.6k at age 67. 

*** with option 2 can I take more out than 6k a year for ages 60-67 and remain within my PA? 

At 67 the state pension and my DB pension will use up all my PA so any further withdrawals from my SIPP will be taxable (even if 25% would be tax free with the UFPLS option)

Yes 8K if i'm not mistaken - 25% of that is tax free i.e. 6K taxable.  25% of all of the £111.6k is tax free - you were not comparing like with like.

Julezy101

Thanks for all the replies

Having re-done my figures based on the now 97.6k left  (of which 25% is tax free) there is very little difference now between the 2 options. It will come down to whether I want or need a big chunk of tax free cash at the start of retirement or drip feed it out.