DC TFLS Some advice please

Jeffmusicals

Hi,

I am 59 and have a both a DB and DC scheme. The DC scheme value is around £400k and I would like to take  25% tax free to pay off my mortgage. I’m still working earning a good 6 figure salary but I’d like to alleviate the pressure I feel supporting a monthly mortgage payment of £2250.(I only have around £10k in other savings). 

 I intend to retire in around 4-5 years time and would like to increase my DC contributions and my company share save scheme over those next 4 years. I also have a DB scheme which will pay around £20k a year and £100k lump sum at age 63. (Both my wife and I are entitled to full State pension but she only has a small pension of around £400 per month and is now retired aged 59. My questions are:-

1) Does this seem a sensible thing to do? I don’t have to but I do feel the pressure every months.

2) I’m pretty sure this wouldn’t trigger reduced allowance so I could continue to maximise my DCcontributions  over the next few years. I don’t want to draw any pension now

3) if the DC grows by, say, £100k over the next 4 years, would I be able to access a further £25k tax free (providing it doesn’t go over the £227k lifetime figure)

Appreciate any and all advice..

Thank you

Jeff

molerat

Once you take a tax free sum a corresponding 3 times that amount is crystallised and segregated, even if virtually, and is taxable along with any growth.  New contributions are accounted for separately and have 25% tax free available

QrizB

I think I'm going to say what molerat has already said, but in different words

Jeffmusicals said:

The DC scheme value is around £400k and I would like to take  25% tax free to pay off my mortgage.

The £400k is currently uncrystallised. Once you take £100k (25%) as a tax-free lump sum, the remaining £300k with be crystallised and taxable.

Jeffmusicals said:

2) I’m pretty sure this wouldn’t trigger reduced allowance so I could continue to maximise my DCcontributions  over the next few years. I don’t want to draw any pension now

Yes, provided you don't take any flexible benefits (like a withdrawal) from the crystallised funds, you'll retain your full Annual Allowance.

Jeffmusicals said:

3) if the DC grows by, say, £100k over the next 4 years, would I be able to access a further £25k tax free (providing it doesn’t go over the £227k lifetime figure)

Growth of the £300k crystallised funds will itself be taxable.

Your new contributions will initially be uncrystallised. You will be able to take 25% of those, and of any growth in those; when you do so, the remainder will become crystallised.

Jeffmusicals

Thank you, really appreciate the response. 

Ciprico

"Growth of the £300k crystallised funds will itself be taxable."

Is this true ? I thought it was taxable at marginal rate, which with a bit of planning could be below tax free allowance especially for early retire'ers, so not taxed....?

I recently put an HL Sipp into drawdown taking full 25% tax free.

The sipp now shows £0 and a newly  created account called "drawdown" contains the old sipp contents minus the 25% tfls.

I thought this would grow tax free until I withdraw it, at which point I then pay regular i/c tax...?

molerat

Just because something is "taxable" doesn't necessarily mean you will pay tax on it.  The tax free amount is not taxable under any circumstances, the remainder is liable to tax.

I thought this would grow tax free until I withdraw it, at which point I then pay regular i/c tax...?

Any pension amount is never taxable whilst it remains within the pension wrapper, once withdrawn it is exposed to tax as appropriate.

Dazed_and_C0nfused

Ciprico said:

"Growth of the £300k crystallised funds will itself be taxable."

Is this true ? I thought it was taxable at marginal rate, which with a bit of planning could be below tax free allowance especially for early retire'ers, so not taxed....?

I recently put an HL Sipp into drawdown taking full 25% tax free.

The sipp now shows £0 and a newly  created account called "drawdown" contains the old sipp contents minus the 25% tfls.

I thought this would grow tax free until I withdraw it, at which point I then pay regular i/c tax...?

Is still taxable though, when removed from the pension. 

The tax due on that taxable income will, as ever, depend on what other taxable income (and types of taxable income) you have in the tax year in question.

In your example all of the crystallised HL SIPP will be taxable income when taken from the pension wrapper.  There is no tax to pay whilst it remains within the pension.

Say your remaining 75% is worth £50k.  And that grows to £70k in 5 years time.  You then take the £70k out of the pension.  The whole £70k is taxable income.