25% tax free once only on pensions?

molerat

chichelle32 said:

I am no longer working and am aiming to clear my mortgage. is it possible to withdraw 25% of my pension tax-free AND the £12,570 tax-free allowance in one hit?

Yes you can but whether the provider will be able to do it in one transaction is another matter.  You would be taxed on the taxable amount and have to reclaim it due to the way the PAYE system works.

Albermarle

chichelle32 said:

I am no longer working and am aiming to clear my mortgage. is it possible to withdraw 25% of my pension tax-free AND the £12,570 tax-free allowance in one hit?

Yes it should be, but if you have an older pension, it may lack in some withdrawal options.
So you need to check with them first, although if you name them on here, someone can probably tell you.

TELLIT01

I've just discovered this topic and it's good news.  I had assumed that you could take 25% of the pot at the time it is taken, and that was it.  I hadn't appreciated that 25% of any further growth in the remaining pot could also be taken tax free at later dates.

molerat

TELLIT01 said:

I've just discovered this topic and it's good news.  I had assumed that you could take 25% of the pot at the time it is taken, and that was it.  I hadn't appreciated that 25% of any further growth in the remaining pot could also be taken tax free at later dates.

If you take the full 25% tax free in one go there is no further tax free available, all growth on the remaining 75% is taxable.  If you take a smaller 25%/75% withdrawal then the remainder, including growth, remains at 25% tax free.

Marcon

TELLIT01 said:

I've just discovered this topic and it's good news.  I had assumed that you could take 25% of the pot at the time it is taken, and that was it.  I hadn't appreciated that 25% of any further growth in the remaining pot could also be taken tax free at later dates.

If you take 25% of your pot in one go, that is it for tax free cash from that particular pot. You could only take further tax free cash from that pot if you make further contributions to it. Good explanation already given earlier in this thread, so not sure where the confusion has arisen:

LHW99 said:

tichtich said:

Another way to look at it...

You are entitled to tax free withdrawals totalling 25% of whatever money accrues in your pot (whether it accrues from contributions or investment returns). That 25% tax free entitlement can be split into as many separate withdrawals as you like. So no, making a small withdrawal does not scupper you in any way.

But only from the uncrystallised part.

If (as in the eg above) for example:

So if you have a £200k pot and withdraw £15K tax free £45K will move into the crystallised pot

there is no further 25% of that £45k, no matter how much additional growth it accumulates.

Mr_Benn

Think of your Private Pension as having 2 pots  (they use the terms Uncrystalized and Crystalized).  If it helps, think Untouched and Touched !  For my example, assume you are working pay the normal rate of tax (20%).

When you first withdraw some money from your Pension, it takes it out of the Uncrysatlized pot. 

25% of the amount you withdraw is tax free, the remaining 75% is taxed at your normal tax rate you pay on your wages (eg 20%)

.

You then have two main options , you can either pay the full amount of your withdrawal to your bank, OR just pay the tax free 25% to your bank, and the remaining 75% goes into your Crystalized pot. You can then withdraw that 75% from your Crystalized pot at any time, BUT all of it including any profits you make on that 75% are all taxable when you withdraw it.

I hope that helps.  If Im wrong please correct me, as it took me a bit of time to get my head round it.

Triumph13

chichelle32 said:

I am no longer working and am aiming to clear my mortgage. is it possible to withdraw 25% of my pension tax-free AND the £12,570 tax-free allowance in one hit?

You may be lucky, but I'm guessing it will be more likely that the provider will have to process it as two separate transactions.  That would either be a) Crystallise the whole pot taking the TFLS. then draw £12,570 from the crystallised funds, or b) take an UFPLS of £16,760 then crystallise what's left taking the TFLS.  Both methods achieve what you want, but their may be a difference in the fees charged and/or the time taken.

This assumes your provider offers the full range of drawdown options. If it's an older scheme you may need to transfer first.

Marcon

chichelle32 said:

I am no longer working and am aiming to clear my mortgage. is it possible to withdraw 25% of my pension tax-free AND the £12,570 tax-free allowance in one hit?

Yes, if your provider offers that facility. 

You need to ask to take the whole 25% tax free cash + a further £12,570, making it clear that's what you are requesting (hence the reference to 'if your provider offers...'). Be aware that an emergency tax code will be used for the £12,570 and as we are at the start of a tax year, that'll be quite a chunk - but you can reclaim without waiting until the end of the tax year: https://www.gov.uk/guidance/claim-back-tax-on-a-flexibly-accessed-pension-overpayment-p55

Freddythefearlessfish

Thanks everyone.  

A new and vaguely connected question.  If you have two pension pots, can you withdraw more than 25% of the one pot tax free provided the total withdrawn is less than 25% of the total?

Reason for asking this question is:
I have one cash pot and one (fraction of) final salary pot, I have no real idea which will be be worth the most in the end, but lets just do the calculation relatively simply and suppose that the the cash pot has £50,000 in it and the final salary pot will pay a salary of £50,000 per year.

The logical way to take 25% would be to take £12,500 from the cash pot and x from the final salary pot, where the overall result is that thereafter the annual return from the final salary pot is £37,500 per year.

But I was wondering whether potentially instead I might be able to simplify things for me and take the full £50,000 cash pot tax free, and thereafter have only one pension ie pay tax on the £50,000 final salary income per year.

Freddythefearlessfish

Oh bother, now I've just thought of another question.  Sorry folks.

Is there any difference to my uncrystalised and crystalised pots after I die?

Eg would my wife have to pay more tax to get the crystalised pot?


Once again in warped head considering what happens if at retirement I have no immediate need of a lump sum and considering the implications of taking the 25% tax free sum and immediately reinvesting it in the pension (while I'm still earning) to gain a further 25% benefit.