Withdrawing from a SIPP after retirement as a non-taxpayer

SVaz

Yes.  My wife has £4200 spare personal allowance and is drawing from her Sipp to take advantage. She has crystallised £5600, she already has the tax free cash and is waiting till April to draw £350 a month which will keep her within her £11300 tax allowance.  

She will do this for the next two years. 

She is currently contributing 80% of her wages to the Sipp and will continue with £3600 in and out once no longer employed. 

BigGirlPants

That is really interesting. 

With £4,200 tax allowance spare, why would she not be drawing out 4,200 x 1.25 ie £5,250 rather than £5,600?

Would she not pay tax on the difference between these two figures as she would be above her personal allowance, or am I misunderstanding it somehow?

molerat

BigGirlPants said:

That is really interesting. 

With £4,200 tax allowance spare, why would she not be drawing out 4,200 x 1.25 ie £5,250 rather than £5,600?

Would she not pay tax on the difference between these two figures as she would be above her personal allowance, or am I misunderstanding it somehow?

You've got your sums back to front, it's £4200 x 1.333, £5600 x .75

BigGirlPants

Is the reason to take it monthly rather than as a lump sum, so her tax code doesn't change as it may look like she is going to go over her pa? Thank you so much for your answers

SVaz

If she took it as a lump sum then she would be taxed and have to claim it back.

She’s taking £4200 from her drawdown account this month and will pay £68 in tax that will need claiming back, she could have waited till March but wanted to be sure of getting the money out in this tax year. 

Her tax code is split between her Sipp and her employer ( me)  I pay her £6960 so she gets NI credits but pays no NI. 

She’s trying to get all her Sipp money out tax free by 2032 and into ISAs, so that her income won’t be taxed once she gets State pension. 

BigGirlPants

If she left some of her money in her private pension, so she became a taxpayer when she received her state pension, could it still not possibly be worthwhile? 

She would have received the extra 20% when paying it into her pension, (even if that's from the money she has drawn down in the same year from her pension), plus she would get 25% tax free drawing down eventually as a taxpayer.

If the funds from the ISA and the pension were managed by the same company would she not earn more from the pension even after tax?

Thank you so much for explaining. It is really interesting how the system works. I'm learning more and more about it all the time.

Albermarle

BigGirlPants said:

I was reading this thread with interest and I hope you don't mind me asking a question regarding it.

Secret2ndAccount said:

Your wife's income is 8k, so you planned to withdraw 4.5k from Vanguard SIPP?  Instead, draw £6k. The first 25% (£1.5k) is tax free. The other 4.5k is taxable. Your wife receives £14k, but pays no tax

I was reading this thread with interest that I hope you don't mind me asking a question regarding the quote above.

My question is-

Because the four and a half thousand in the quote above is taxable, but his wife is below her personal allowance for tax, she would pay no tax on the taxable proportion of the withdrawal in this instance? Do I understand it correctly?

Therefore somebody with no income, who is below state pension age, could withdraw their personal allowance plus 25%, from their pension and still pay no tax?

Thank you

That is discussed regularly on the forum. One way is to take a UFPLS payment from the pension. This is exactly 25% tax free and 75% taxable.
So £4,190 tax fee and £12,570 taxable = £16,760 and no tax to pay, if you have no other taxable income.

Sarahspangles

BigGirlPants said:

Is the reason to take it monthly rather than as a lump sum, so her tax code doesn't change as it may look like she is going to go over her pa? Thank you so much for your answers

I’m retiring shortly. I will take a small UFPLS payment from my SIPP around my next birthday, this won’t be large enough to be taxed but will trigger HMRC to issue a tax code. Then I will take a final payment in March to make up my pension lump sum to £12,760 plus 25% = £16,760. I will also have the starter savings rate and personal savings allowance (£5,000 + £1,000).

I will actually be living on savings and replenish these with the pension lump sums, the only significance of taking one on my birthday is that it’s nice to get things on your birthday.