Royal London Pension Portfolio with Income Release / Flexi-Access Draw Down.

Misteeq

Hi,

My partner has just moved 2 of his pensions into a Royal London Pension Portfolio with Income Release/Flexi-Access Draw Down pension.

He is planning to take his 25% tax free allowance next month.

If he chooses to take another cash lump sum in 2025 (for example) would he pay tax on this amount? 

I'm assuming after the initial 25% tax free allowance has been paid to him, any further cash lump sums that he wishes to draw down will be taxable?

Many thanks.

Dazed_and_C0nfused

Misteeq said:

Hi,

My partner has just moved 2 of his pensions into a Royal London Pension Portfolio with Income Release/Flexi-Access Draw Down pension.

He is planning to take his 25% tax free allowance next month.

If he chooses to take another cash lump sum in 2025 (for example) would he pay tax on this amount? 

I'm assuming after the initial 25% tax free allowance has been paid to him, any further cash lump sums that he wishes to draw down will be taxable?

Many thanks.

Yes, even any increase in the remaining 75%, say from investment growth, is taxable when money is taken out of the pension.

The amount of tax due will depend on what other taxable income he has.

Is there a particular reason he is taking the 25% TFLS upfront and not as part of each withdrawal?

Misteeq

Dazed_and_C0nfused said:

Misteeq said:

Hi,

My partner has just moved 2 of his pensions into a Royal London Pension Portfolio with Income Release/Flexi-Access Draw Down pension.

He is planning to take his 25% tax free allowance next month.

If he chooses to take another cash lump sum in 2025 (for example) would he pay tax on this amount? 

I'm assuming after the initial 25% tax free allowance has been paid to him, any further cash lump sums that he wishes to draw down will be taxable?

Many thanks.

Yes, even any increase in the remaining 75%, say from investment growth, is taxable when money is taken out of the pension.

The amount of tax due will depend on what other taxable income he has.

Is there a particular reason he is taking the 25% TFLS upfront and not as part of each withdrawal?

Thank you

eric4395

How does this work ie you have £500,000, in your DC  pension funds you take your tax free amount £125,000 either in a lump sum or in smaller installments over a few years.


You then take another £50,000 in a lump sum when does it get taxed .
Is it taken straight away so you wouldn't actually  get £50,000 as it would be taxed straight away or is it  at  the end of the financial year it's taxed 

Also another scenario if you only took 100,000 tax free out your pension and still had 25,000 to take  then your pension increases due to the investment funds doing well , how much would you then be entitled to take tax free? 

Dazed_and_C0nfused

eric4395 said:

How does this work ie you have £500,000, in your DC  pension funds you take your tax free amount £125,000 either in a lump sum or in smaller installments over a few years.

You then take another £50,000 in a lump sum when does it get taxed .
Is it taken straight away so you wouldn't actually  get £50,000 as it would be taxed straight away or is it  at  the end of the financial year it's taxed 

Also another scenario if you only took 100,000 tax free out your pension and still had 25,000 to take  then your pension increases due to the investment funds doing well , how much would you then be entitled to take tax free? 

Each time you take a TFLS you crystallise part of your pension.  And that is always taxable when taken out of the pension.  The remaining part is uncrystallised and you can, subject to the upper limit of ~£268k for tax free cash, take 25% tax free each time you take more money out.

For example £500k pot and you take £100K TFLS leaves you with £300k crystallised and any of that is taxable when taken out, including any investment growth.

The remaining £100k will allow a further 25% TFLS (subject to the upper limit).  If the £100k grows to say £140k then the TFLS that can be taken is £35k (subject to the upper limit).

In your example the £50k will be provisionally taxed by the pension company, often using tax code 1257L.  You might have extra tax to pay later or be due a refund of some of the tax deducted, it all depends on what other taxable income you have in that tax year.