Income tax on pension.

Mozza001

Hello all.

Playing with some numbers, i WAS considering taking some taxable money from my pension on top of the maximum tax free lump sum, 

I DO understand the implications of this, but i would rather not have any mortgage as im buying a property.

On a pension tax calculator on Fidelity, this works out as :

Cashing in £225,000 of which 125,000 would be tax free (pot of £500,000) yearly earnings of roughly £43k

£78,631 income tax to pay on withdrawal of £100,000 taxable money.

On an income tax calculator, salary inputted of £143,000 income tax to pay £50,553.

Im pretty sure there is some obvious explanation, but i thought anything i withdraw id classed as income, why is the tax so high?

Thanks.

Cobbler_tone

They are some difficult words to work around Mozza. Took me a while anyway.
I think your assumption on £143k is correct.

Now you are going to be grilled on why you need to cash that much in during the same tax year. 

I'd do some basic calculations around a mortgage and accessing it in a more tax efficient way. 

Mozza001

Cobbler_tone said:

They are some difficult words to work around Mozza. Took me a while anyway.
I think your assumption on £143k is correct.

Now you are going to be grilled on why you need to cash that much in during the same tax year. 

I'd do some basic calculations around a mortgage and accessing it in a more tax efficient way. 

IM not rushing to do this, just trying to work out how much Tax it would cash.

My reasoning is i dont want a mortgage over my head ideally, and whatever im not paying into a mortgage every month can go into an ISA or whatever to mitigate the tax hit a bit.

I realise this will horrify financially savvy people somewhat, but its just how my brain works.

Would it be any better doing it over 2 tax years?

DRS1

You are going to be losing the personal allowance (aka paying 60% tax) and the personal savings "allowance" which may not be relevant if you have not got any savings interest and you will be getting into 45% tax rates.

Mozza001

just got it straight in my head.

I WONT be taking this extra 100K

QrizB

Mozza001 said:

just got it straight in my head.
I WONT be taking this extra 100K

Probably for the best!

ader42

Your £50k figure seems correct.

For the purposes of clarity, am I right in thinking your question is:

“why does the fidelity calculator say there will be £78k income tax to pay on a £100k withdrawal?”

Can you provide a screenshot showing the calculation (obviously exclude any personal information) or a link to the calculator?

Could it be that you have entered an incorrect figure, as you would need to have around £205k taxable income to be liable for £78k income tax.

squirrelpie

Isn't the high tax down to the way the PAYE system works, expecting you to make a similar withdrawal every month? You'd have to reclaim the excess afterwards.

But as others have said, it sounds like a poor idea in the first place.

Mozza001

So i think, like i suspected, i was making a basic error in my calculations.

I wanted 100K AFTER tax, and was thinking tax should have been around 45k, IE 145K withdrawal would give me 100K cash.

But obviously, 100k would only get me about 55k after tax, so i would need to withdraw 80k or so to get the extra to make 100K AFTER tax.

So 100k after tax would cost me around 176K.