£100,000 Pot taken as drawdown.

DE_612183

I've got a £100k put that I'm looking to use to cover a 6 year period between now and when the SP kicks in and I release other funds.

What I want to do is take one sixth of the £25k TFLS each year and one sixth of the £75k taxable each year.

How does this work in reality?

Do I take £16,600 at the start of each financial year, get taxed @ 20%, then claim back the £833 ( tax on £4167 from HMRC ).

OR does the £16,600 all come out of the TFLS until such time as everything left in the pot is crystallised and therefore subject to tax? 

Marcon

DE_612183 said:

I've got a £100k put that I'm looking to use to cover a 6 year period between now and when the SP kicks in and I release other funds.

What I want to do is take one sixth of the £25k TFLS each year and one sixth of the £75k taxable each year.

How does this work in reality?

Do I take £16,600 at the start of each financial year, get taxed @ 20%, then claim back the £833 ( tax on £4167 from HMRC ).

OR does the £16,600 all come out of the TFLS until such time as everything left in the pot is crystallised and therefore subject to tax? 

Most of the main SIPP providers have good explanations of how drawdown works in practice eg https://www.hl.co.uk/retirement/drawdown/how-it-works and https://www.ajbell.co.uk/retirement/sipp-drawdown and there are plenty of other sites giving this information eg https://www.onlinemoneyadvisor.co.uk/pensions/pension-drawdown/sipp-income-drawdown/

Have you looked at your provider's website?

SVaz

You would have to choose between UFPLS withdrawals where the rest of the pot remains uncrystallised OR you could crystallise the lot and take the full £25k tax free up front then do monthly drawdown OR you could crystallise 1/6 each year and take it that way. 

Given that it’s only 6 years and you plan to drain the pot, I’m not sure that UFPLS is advantageous. 

SVaz

Just realised that by taking the full tfls and using monthly drawdown, you won’t pay any tax as it will be £12500 a year.   If you keep the bulk in a short term money market fund you’ll get more interest than keeping it in cash too. 

DE_612183

SVaz said:

Just realised that by taking the full tfls and using monthly drawdown, you won’t pay any tax as it will be £12500 a year.   If you keep the bulk in a short term money market fund you’ll get more interest than keeping it in cash too. 

Thanks for that - but I have other income so the tax benefit would be that great

incus432

DE_612183 said:

I've got a £100k put that I'm looking to use to cover a 6 year period between now and when the SP kicks in and I release other funds.

What I want to do is take one sixth of the £25k TFLS each year and one sixth of the £75k taxable each year.

Have you considered getting a quote for a fixed term annuity instead of drawdown? Rates are very good atm. You would take the TFLS then buy the annuity with the rest. I did this very recently to bridge a gap to SP, and the overall income payout (with a full term guarantee) was better than a gilt ladder would provide.

The MoneyHelper site gives you figures for various options without having to give your personal info. https://comparison.moneyhelper.org.uk/en/tools/annuities

I then went to Retirement Line who achieved considerably better quotes.

Of course drawdown would do better if your investments contiinue to rise rapidly, but certainty of income and not worrying about a crash matter too

Bravepants

incus432 said:

DE_612183 said:

I've got a £100k put that I'm looking to use to cover a 6 year period between now and when the SP kicks in and I release other funds.

What I want to do is take one sixth of the £25k TFLS each year and one sixth of the £75k taxable each year.

Have you considered getting a quote for a fixed term annuity instead of drawdown? Rates are very good atm. You would take the TFLS then buy the annuity with the rest. I did this very recently to bridge a gap to SP, and the overall income payout (with a full term guarantee) was better than a gilt ladder would provide.

The MoneyHelper site gives you figures for various options without having to give your personal info. https://comparison.moneyhelper.org.uk/en/tools/annuities

I then went to Retirement Line who achieved considerably better quotes.

Of course drawdown would do better if your investments contiinue to rise rapidly, but certainty of income and not worrying about a crash matter too

The OP's not going to find annuity that pays 16%+ a year income.

incus432

Bravepants said:

The OP's not going to find annuity that pays 16%+ a year income.

We are talking about a fixed term annuity. Most of the income is return of the principal sum so a FT annuity pays out well over the sum invested over the term.  

Quick check on Money Helper shows £75000 (after the £25k TFLS) buys £16500 pa for 5* years with Canada Life (depending on postcode, guarantee period, etc). The 25k lump sum could be used as income at another 5k pa (plus interest)

* site does not let me choose 6yr term but a broker would

FIREDreamer

incus432 said:

Bravepants said:

The OP's not going to find annuity that pays 16%+ a year income.

We are talking about a fixed term annuity. These pay out well over the sum invested over the term. 

Quick check on Money Helper shows £75000 (after the £25k TFLS) buys £16500 pa for 5* years with Canada Life (depending on postcode, guarantee period, etc). The 25k lump sum could be used as income at another 5k pa (plus interest)

* site does not let me choose 6yr term but a broker would

How do you proceed to buy the annuity from money helper?

incus432

How do you proceed to buy the annuity from money helper?

You don't - they just give illustrative quotes. You have to buy through an IFA, a broker, or direct (not all let you do this). The IFA is said to be the cheapest route (they charge you a direct fee of ?1% but then you should get a better annuity rate) - if you can find one who will do it Execution only.  I used Retirement Line, a large experienced broker, whpo achioeved significantly better reates than the MH quote and were excellent and  efficient. They were paid about 1.5% commission by L&G.  Best to shop around

https://www.retirementline.co.uk/

DE_612183

incus432 said:

DE_612183 said:

I've got a £100k put that I'm looking to use to cover a 6 year period between now and when the SP kicks in and I release other funds.

What I want to do is take one sixth of the £25k TFLS each year and one sixth of the £75k taxable each year.

Have you considered getting a quote for a fixed term annuity instead of drawdown? Rates are very good atm. You would take the TFLS then buy the annuity with the rest. I did this very recently to bridge a gap to SP, and the overall income payout (with a full term guarantee) was better than a gilt ladder would provide.

The MoneyHelper site gives you figures for various options without having to give your personal info. https://comparison.moneyhelper.org.uk/en/tools/annuities

I then went to Retirement Line who achieved considerably better quotes.

Of course drawdown would do better if your investments contiinue to rise rapidly, but certainty of income and not worrying about a crash matter too

Thanks - I did not know you could do a fixed term annuity - I just presumed they were "pay x until you die"