UFPLS & October budget advice please

blomft

Hi All,
I just need advice on one question please. I have an old small pension pot (£11000) and I'm thinking of taking it all out before the potential removal of the 25% Tax free allowance in October.
I am 3 weeks away from State pension and I have TP of c£8000. I am also doing some PT work at present.
Going forward, I will now always be over my Tax allowance, so this year should be the optimal time to take this pot (as I'll only get 5 months State pension). Plus the fact that I may need the money soon if we move house.
I can't see any reason not to do this now, after all it's a small amount in the scheme of things, but it'll be too late once I pull the trigger. Am I missing something?
Many Thanks in advance

El_Torro

I very much doubt that the next Budget will scrap the 25% tax free lump sum you can take. If it does then I can't see it coming into force before the new tax year (6th of April 2025). 

Even so it probably doesn't make too much difference taking this money now rather than after the new tax year, since you will have more tax to pay from next year. You can even put the money in a Stocks & Shares ISA if you want, assuming you still have unused ISA allowance for this year. 

kempiejon

blomft said:

Hi All,
I just need advice on one question please. I have an old small pension pot (£11000) and I'm thinking of taking it all out before the potential removal of the 25% Tax free allowance in October.
I am 3 weeks away from State pension and I have TP of c£8000. I am also doing some PT work at present.
Going forward, I will now always be over my Tax allowance, so this year should be the optimal time to take this pot (as I'll only get 5 months State pension). Plus the fact that I may need the money soon if we move house.
I can't see any reason not to do this now, after all it's a small amount in the scheme of things, but it'll be too late once I pull the trigger. Am I missing something?
Many Thanks in advance

Was that one questions am I missing something?
I think you might be starting from a flawed premise - that anything will change in such a way you'll be better off acting today than next month.
However it appears to suit your plans, you can keep a handle on your tax liability and hold cash for a house deposit so why not?

Linton

WHat is "TP"?

I cannot see that you have missed anything. I believe the budget date is irrelevent as removal of the 25% TPLS  will discourage people from putting money into pensions which is certainly not government policy.  The pension companies in any case would need time to change their systems.

2 points:


1) Income tax is calculated on a monthly pro-rata basis so a one-off payment of £11000, £8250 taxable, will have some tax deducted.  Depending on your other income in the tax year it could be too high.  5 months SP and PT work will complicate the calculation so you will need to check your tax position at the end of the tax year when HMRC will refund any excess tax taken.

2) After drawing down any taxable money from a DC pension your annual allowance for pension contributions will be reduced to the MPAA vale of £10000.  But I guess that wont be an issue for you.

JoeCrystal

Nope, not going to happen. Where did you read that the government is planning to remove the lump sum tax free?

blomft

Thanks El_Torro, 
I agree that it's doubtful, however we didn't see the overnight removal of the Winter fuel payment coming either.
Thanks for the advice though, It confirms there's not much to lose either way. I was thinking of doing as you say with reinvesting, although I'm a newbie to Stocks & shares. 

blomft

Linton
thanks for response, TP = Teachers Pension.
Point 2: that's right, not planning on any future Pension contributions 
Point 1: concerned with what you say about being too high, Do you mean that the £11000 received in say, October, plus other income could push me into Higher tax bracket for that month only? (over the year I won't be earning that much). That might require me to take it out in two lump sums, no?

blomft

JoeCrystal
I know it's unlikely, But so was the Winter fuel payment.
Government haven't suggested it as far as I know, but pundits & commentators are bouncing it around. That's why I was wondering if I would lose much by cutting & running

kempiejon

blomft said:

JoeCrystal
I know it's unlikely, But so was the Winter fuel payment.
Government haven't suggested it as far as I know, but pundits & commentators are bouncing it around. That's why I was wondering if I would lose much by cutting & running

I think what one will lose by taking it today is the ability to have 25% from your pension tax free in the future.
If you do not need a lump sum or the income this year you keep that 25% for the future. Teachers pensions and state pensions will have used all the tax-free Personal Allowance If you leave your pension for 5 or 10 or whatever years and it increases in value and if in the future income tax is higher having 25% of your pension income tax free puts more money in your pocket long term.

dunstonh

I'm thinking of taking it all out before the potential removal of the 25% Tax free allowance in October.

There is no hint that the 25% TFC is going to be removed and Labour have said twice that it won't be.  Remember that TFC is already capped.  So, it wouldn't hit the higher net worth.  It will hit the small saver.   

I know it's unlikely, But so was the Winter fuel payment.

Not really.  All Labour manifestos since 2001 pledged to protect the benefit.  They made no such pledge in their manifesto this time.

Government haven't suggested it as far as I know, but pundits & commentators are bouncing it around. That's why I was wondering if I would lose much by cutting & running

It happens every time there is a budget and the media get it wrong most of the time.   Most of the information is based on think tanks pushing an agenda and not the Government.

blomft

Kempiejon
Yes I see the value in what you say, thanks