Taking a Small Lump Sum Tax Free?

RolloTomasi68

I'm 56, retired and only get about £3k a year income from non-tax efficient savings.

I have a decent amount in Cash and S&S ISAs which I dip into.

My questions are about my SIPP, which I've been paying £240 a month in and have been getting £60 top-up added from many years (via HL).

1. If I take out a one-off lump sum of around £7K and am taxed at source can I claim that back as I'm still well within my PA?

2. Will taking out a small lump sum stop me from getting the £60 a month tax relief top up if I keep putting in £240 a month (which I believe I can claim until 75)?

Thanks.

MallyGirl

it depends how you take the lump sum. Is the balance big enough that your £7k is all from the 25% tax free part?
Drawing down will not affect you being able to contribute the £3600 gross per annum

Marcon

RolloTomasi68 said:

I'm 56, retired and only get about £3k a year income from non-tax efficient savings.

I have a decent amount in Cash and S&S ISAs which I dip into.

My questions are about my SIPP, which I've been paying £240 a month in and have been getting £60 top-up added from many years (via HL).

1. If I take out a one-off lump sum of around £7K and am taxed at source can I claim that back as I'm still well within my PA?

2. Will taking out a small lump sum stop me from getting the £60 a month tax relief top up if I keep putting in £240 a month (which I believe I can claim until 75)?

Thanks.

1. Yes. Presumably you want to take just 25% of that tax free so you can make use of (some of) the unused part of your PA?
2. No

RolloTomasi68

I have around £65k in the SIPP.

I just want to take £7k out to cover some costs instead of dipping into my ISAs again, but it's pointless doing this if I'm going to get taxed.
As stated I don't have much taxable income.

I was hoping I could just take out £7k every year or two and not get taxed until I get my state pension.

Sam_666

Savings dont generate income. Investments can generate income and gains. Sounds like you have £60k in cash isa.

1. Too vague question to give any meaninful answer
2.  Nope

xylophone

Why not book an appointment with Pension Wise to get some guidance on accessing your SIPP?

https://www.moneyhelper.org.uk/en/pensions-and-retirement/pension-wise

https://www.moneyhelper.org.uk/en/pensions-and-retirement/pension-wise/explore-your-pension-options


https://www.hl.co.uk/retirement/ufpls

https://www.hl.co.uk/retirement/drawdown

See also https://www.thisismoney.co.uk/money/pensions/article-13472205/Lump-sums-pensions-rules-STEVE-WEBB.html


Have you obtained a state pension forecast?

https://www.gov.uk/check-state-pension

MallyGirl

RolloTomasi68 said:

I have around £65k in the SIPP.

I just want to take £7k out to cover some costs instead of dipping into my ISAs again, but it's pointless doing this if I'm going to get taxed.
As stated I don't have much taxable income.

I was hoping I could just take out £7k every year or two and not get taxed until I get my state pension.

if this is your only income then you can take £7k out and pay no tax eventually but you might be taxed in the first instance and have to get that tax back.

With £65k in the SIPP then £16,250 of that is tax free. You could use a number of methods at this point (assuming minimal other income)

Option 1.
Year 1 - Crystallise £28k of the £65k and drawdown your £7k TFLS. Leave the crystallised £21k in there for the future, along with the remaining £37k uncrystallised
Year 2 - Crystallise £28k of the £37k and drawdown your £7k TFLS. Leave the crystallised £42k plus growth (£21k from this year plus last year's £21k plus growth) in there for the future, along with the remaining £9k uncrystallised
Year 3 - Crystallise the remaining £9k plus growth and take 25% tax free. The rest goes in the crystallised pot. Anything further you take, from the crystallised pot, will be taxable but you can calculate an amount that keeps you under the personal allowance - you may pay tax but you can get it back.
Year 4 onwards - Anything you take, from the crystallised pot, will be taxable but you can calculate an amount that keeps you under the personal allowance - you may pay tax but you can get it back.

Option 2.
Calculate how much headroom you have under the personal allowance after your other income. Say it is £9k then you can take out £12k of which £3k (25%) will be tax free and £9k (the remaining 75%) will be taxed at 0%.
This makes better use of your personal allowance.