Proportions of Tax Free and Non Tax Free Payments in Drawdown

thriftytracey

Good Morning

Could anyone advise about the below please?

I am a non tax payer.  My proportions are Tax Free 35% Non Tax Free 65%.  These proportions were recommended by my IFA.  I no longer have an IFA and manage my pension.  

I give my husband the Marriage Allowance.  

I think I am getting confused about tax!  As I get £825 a month from the non tax free allowance might HMRC reduce the proportion of tax free allowance he gets as I do get some income i.e. I get £9,900 per annum from the £12,570 personal allowance before tax, so not using just £2,670.  I am just concerned he will have to pay back some of the marriage allowance from several back years.  His last notice of coding had no deductions for underpayment and shows the marriage allowance.

Also, a second question.   I wondered whether these are the correct proportions for drawdown?  Should I take a bigger proportion from the tax free element?  I have £64,000 left of the TFLS amount.  I am 65 next month and will get my full state pension in March 2026 and will then become a tax payer.  I have taken one modest withdrawal from the TFLS but don't really envisage taking any more withdrawals.  Once I start getting the SP should I then change the proportions to pay less tax?

Thanks for your help in this.

Marcon

thriftytracey said:

Good Morning

Could anyone advise about the below please?

I am a non tax payer.  My proportions are Tax Free 35% Non Tax Free 65%.  These proportions were recommended by my IFA.  I no longer have an IFA and manage my pension.  

I give my husband the Marriage Allowance.  

I think I am getting confused about tax!  As I get £825 a month from the non tax free allowance might HMRC reduce the proportion of tax free allowance he gets as I do get some income i.e. I get £9,900 per annum from the £12,570 personal allowance before tax, so not using just £2,670.  I am just concerned he will have to pay back some of the marriage allowance from several back years.  His last notice of coding had no deductions for underpayment and shows the marriage allowance.

See https://www.gov.uk/marriage-allowance

thriftytracey said:

Also, a second question.   I wondered whether these are the correct proportions for drawdown?  Should I take a bigger proportion from the tax free element?  I have £64,000 left of the TFLS amount.  I am 65 next month and will get my full state pension in March 2026 and will then become a tax payer.  I have taken one modest withdrawal from the TFLS but don't really envisage taking any more withdrawals.  Once I start getting the SP should I then change the proportions to pay less tax?

Thanks for your help in this.

There is no 'correct' proportion. Without knowing why your former IFA recommended these proportions (and for how long it was suggested they should continue), it's impossible to know if they are and will remain best for your situation.

That said, it seems silly to waste any of your own personal allowance, so changing the proportion now to take more from the potentially 'taxable' part of your pension would make sense, especially as the Marriage Allowance won't be impacted and you won't actually pay tax on it if you don't exceed the personal allowance. It would also leave you more tax free cash to access once you start receiving your state pension and become a taxpayer.

zagfles

Your post doesn't make sense. What does "My proportions are Tax Free 35% Non Tax Free 65%" mean? Do you mean some is in an ISA and some in a SIPP? Normally you can only get 25% tax free from a SIPP, unless you have very historic protections.  Or are you taking about taxable income but within the personal allowance? 

Or are you talking about the % crystallised/non crystallised? 

zagfles

Marcon said:

thriftytracey said:

Good Morning

Could anyone advise about the below please?

I am a non tax payer.  My proportions are Tax Free 35% Non Tax Free 65%.  These proportions were recommended by my IFA.  I no longer have an IFA and manage my pension.  

I give my husband the Marriage Allowance.  

I think I am getting confused about tax!  As I get £825 a month from the non tax free allowance might HMRC reduce the proportion of tax free allowance he gets as I do get some income i.e. I get £9,900 per annum from the £12,570 personal allowance before tax, so not using just £2,670.  I am just concerned he will have to pay back some of the marriage allowance from several back years.  His last notice of coding had no deductions for underpayment and shows the marriage allowance.

See https://www.gov.uk/marriage-allowance

thriftytracey said:

Also, a second question.   I wondered whether these are the correct proportions for drawdown?  Should I take a bigger proportion from the tax free element?  I have £64,000 left of the TFLS amount.  I am 65 next month and will get my full state pension in March 2026 and will then become a tax payer.  I have taken one modest withdrawal from the TFLS but don't really envisage taking any more withdrawals.  Once I start getting the SP should I then change the proportions to pay less tax?

Thanks for your help in this.

There is no 'correct' proportion. Without knowing why your former IFA recommended these proportions (and for how long it was suggested they should continue), it's impossible to know if they are and will remain best for your situation.

That said, it seems silly to waste any of your own personal allowance, so changing the proportion now to take more from the potentially 'taxable' part of your pension would make sense, especially as the Marriage Allowance won't be impacted and you won't actually pay tax on it if you don't exceed the personal allowance. It would also leave you more tax free cash to access once you start receiving your state pension and become a taxpayer.

Since when can you take taxable income from a pension without also taking (or forfeiting) tax free cash? Have the rules been changed and I've not noticed? 

thriftytracey

zagfles said:

Your post doesn't make sense. What does "My proportions are Tax Free 35% Non Tax Free 65%" mean? Do you mean some is in an ISA and some in a SIPP? Normally you can only get 25% tax free from a SIPP, unless you have very historic protections.  Or are you taking about taxable income but within the personal allowance? 

Or are you talking about the % crystallised/non crystallised? 

Sorry if this was not clear.  These proportions are entirely from my pension drawdown pension with Royal London (a regular amount each month).  Not a SIPP or ISA.

Marcon

zagfles said:

Marcon said:

thriftytracey said:

Good Morning

Could anyone advise about the below please?

I am a non tax payer.  My proportions are Tax Free 35% Non Tax Free 65%.  These proportions were recommended by my IFA.  I no longer have an IFA and manage my pension.  

I give my husband the Marriage Allowance.  

I think I am getting confused about tax!  As I get £825 a month from the non tax free allowance might HMRC reduce the proportion of tax free allowance he gets as I do get some income i.e. I get £9,900 per annum from the £12,570 personal allowance before tax, so not using just £2,670.  I am just concerned he will have to pay back some of the marriage allowance from several back years.  His last notice of coding had no deductions for underpayment and shows the marriage allowance.

See https://www.gov.uk/marriage-allowance

thriftytracey said:

Also, a second question.   I wondered whether these are the correct proportions for drawdown?  Should I take a bigger proportion from the tax free element?  I have £64,000 left of the TFLS amount.  I am 65 next month and will get my full state pension in March 2026 and will then become a tax payer.  I have taken one modest withdrawal from the TFLS but don't really envisage taking any more withdrawals.  Once I start getting the SP should I then change the proportions to pay less tax?

Thanks for your help in this.

There is no 'correct' proportion. Without knowing why your former IFA recommended these proportions (and for how long it was suggested they should continue), it's impossible to know if they are and will remain best for your situation.

That said, it seems silly to waste any of your own personal allowance, so changing the proportion now to take more from the potentially 'taxable' part of your pension would make sense, especially as the Marriage Allowance won't be impacted and you won't actually pay tax on it if you don't exceed the personal allowance. It would also leave you more tax free cash to access once you start receiving your state pension and become a taxpayer.

Since when can you take taxable income from a pension without also taking (or forfeiting) tax free cash? Have the rules been changed and I've not noticed? 

If OP has already taken 35% tax free cash and 65% 'taxable', that means they have both crystallised and uncrystallised funds to draw from in future, which gives them the flexibility to change the proportions.

zagfles said:

Your post doesn't make sense. What does "My proportions are Tax Free 35% Non Tax Free 65%" mean? Do you mean some is in an ISA and some in a SIPP? Normally you can only get 25% tax free from a SIPP, unless you have very historic protections.  Or are you taking about taxable income but within the personal allowance? 

Or are you talking about the % crystallised/non crystallised? 

I think you'll find that's exactly what OP is talking about.

zagfles

thriftytracey said:

zagfles said:

Your post doesn't make sense. What does "My proportions are Tax Free 35% Non Tax Free 65%" mean? Do you mean some is in an ISA and some in a SIPP? Normally you can only get 25% tax free from a SIPP, unless you have very historic protections.  Or are you taking about taxable income but within the personal allowance? 

Or are you talking about the % crystallised/non crystallised? 

Sorry if this was not clear.  These proportions are entirely from my pension drawdown pension with Royal London (a regular amount each month).  Not a SIPP or ISA.

So you're drawing 35% tax free and 65% taxable? Does that mean you're taking a combination of UFPLS and crystallising a small amount and taking just take the TFLS? So for every £100 you draw you take a £86.67 UFPLS (of which £21.67 is tax free and £65 is taxable) and crystallise £53.32 taking £13.33 TFLS leaving £40 in drawdown? So as you draw you're gradually crystallising some of your remaining pension? Sounds a complicated setup but maybe RL automate it so you don't see the inner workings and what's actually happening. 

It does seem madness not to use up your PA or at least 90% of it if you transfer 10% to your husband. If you did exceed 90% of the PA the worst that will happen is you'll pay tax on the excess, they won't cancel the MA transfer unless you ask them to, so eg if you tax code is 1131N as it probably is, and your taxable income is £12,000, you'll pay tax on £681, however your husband will save tax on £1260 so you'll be better off overall. Assuming he doesn't go into the higher rate band as he won't then be eligible.