Maximum tax free withdrawal

Lone_Tiger_Rider64

Hi all. New to the board as a poster and I'd like to ask what may seem a simple question but the answer may determine my future plans!

If for sake of argument I have a DC 'pot' with lets say £100k in what would be the most I can withdraw in one year to pay no tax? I'm UK based, 60 years old and let's assume no other income. Would I be right in thinking the amount would be roughly £16000, ie - £4000 would be my pensions 25% tax free allowance and £12000 keeps me within my personal tax allowance?

MTB1986

In one tax year, you could take the maximum 25% of the £100k as tax free cash and then take £12570 which is the personal allowance, so £25k + £12570 = £37570. Although some tax would no doubt be deducted at first from the £12570, you could claim this back from HMRC if you had no other income. 

Dazed_and_C0nfused

MTB1986 said:

In one tax year, you could take the maximum 25% of the £100k as tax free cash and then take £12570 which is the personal allowance, so £25k + £12570 = £37570. Although some tax would no doubt be deducted at first from the £12570, you could claim this back from HMRC if you had no other income. 

Agree with this, £37,570.

The potential downside to that is that not only will the remaining £62,430 all be taxable income when taken out of the pension but so will any increase from investment gains (or interest).

There will only be more tax free cash from any new contributions.

Lone_Tiger_Rider64

MTB1986 said:

In one tax year, you could take the maximum 25% of the £100k as tax free cash and then take £12570 which is the personal allowance, so £25k + £12570 = £37570. Although some tax would no doubt be deducted at first from the £12570, you could claim this back from HMRC if you had no other income. 

Thank you - or I assume I could take my £16k in year 1, leave the rest to hopefully grow and continue taking £16k each year until the pot is exhausted?

MTB1986

Lone_Tiger_Rider64 said:

MTB1986 said:

In one tax year, you could take the maximum 25% of the £100k as tax free cash and then take £12570 which is the personal allowance, so £25k + £12570 = £37570. Although some tax would no doubt be deducted at first from the £12570, you could claim this back from HMRC if you had no other income. 

Thank you - or I assume I could take my £16k in year 1, leave the rest to hopefully grow and continue taking £16k each year until the pot is exhausted?

Yes, this would be an alternative strategy where you could potentially get the whole pot out tax free, subject to you having no other income in each tax year. 

P933alilli

MTB1986 said:

Lone_Tiger_Rider64 said:

MTB1986 said:

In one tax year, you could take the maximum 25% of the £100k as tax free cash and then take £12570 which is the personal allowance, so £25k + £12570 = £37570. Although some tax would no doubt be deducted at first from the £12570, you could claim this back from HMRC if you had no other income. 

Thank you - or I assume I could take my £16k in year 1, leave the rest to hopefully grow and continue taking £16k each year until the pot is exhausted?

Yes, this would be an alternative strategy where you could potentially get the whole pot out tax free, subject to you having no other income in each tax year. 

Unless you also qualify for full state pension which is also taxed!

SmokeysTravels

Yes you would take £16760 per year made up of £4190 tax free cash and £12570 taxable at 0% (your personal allowance). I’m currently doing this and I’m sure there are plenty of others doing the same. Being a zero rate tax payer also opens up the starting savings interest allowance of £5000 which can added to the £1000 rate you also have. So if you have savings in bank accounts you can earn another £6000 in interest without paying tax. This is separate from any money in tax free environments such as isa and premium bonds.

Shimrod

P933alilli said:

MTB1986 said:

Lone_Tiger_Rider64 said:

MTB1986 said:

In one tax year, you could take the maximum 25% of the £100k as tax free cash and then take £12570 which is the personal allowance, so £25k + £12570 = £37570. Although some tax would no doubt be deducted at first from the £12570, you could claim this back from HMRC if you had no other income. 

Thank you - or I assume I could take my £16k in year 1, leave the rest to hopefully grow and continue taking £16k each year until the pot is exhausted?

Yes, this would be an alternative strategy where you could potentially get the whole pot out tax free, subject to you having no other income in each tax year. 

Unless you also qualify for full state pension which is also taxed!

The state pension could be deferred until the £100k has been exhausted.

Albermarle

Lone_Tiger_Rider64 said:

MTB1986 said:

In one tax year, you could take the maximum 25% of the £100k as tax free cash and then take £12570 which is the personal allowance, so £25k + £12570 = £37570. Although some tax would no doubt be deducted at first from the £12570, you could claim this back from HMRC if you had no other income. 

Thank you - or I assume I could take my £16k in year 1, leave the rest to hopefully grow and continue taking £16k each year until the pot is exhausted?

Yes that strategy is quite often mentioned in this forum. 

Brie

Check the T&Cs of the pension too.  I've just been doing the paperwork on mine and they state explicitely that the only tax free bit is 25% of what you take in that year.  So if you took £16k there would only be £4k non taxable.  The other £12k could be taxed but would be under your limit so you'd be ok.  

eskbanker

Brie said:

Check the T&Cs of the pension too.  I've just been doing the paperwork on mine and they state explicitely that the only tax free bit is 25% of what you take in that year.  So if you took £16k there would only be £4k non taxable.  The other £12k could be taxed but would be under your limit so you'd be ok.  

If OP's pension provider only supports UFPLS withdrawals then they could transfer to one that offers fully flexible drawdown options....