Use all personal allowance to save tax later?

SVaz

My Wife has £4260 of PA spare annually for 2024-25,  25-26 and 26-27,  after that she will have £11230 until 2032. 

She thinks it’s a good idea to withdraw the ‘spare’ into her ISA ( she has plenty of allowance left)   so she can get a good wedge of cash out tax free before she gets her full State pension in 8 years? 

Just check my maths,  she has £5k in her drawdown pot already, so could take £4260 of that now. 

Then after April 5, £800 remaining taxable + UFPLS of £ 4500? 

For April 2026 & 27, UFPLS of £5600 ? 

Then UFPLS of £ 14000 in 2028 - 2032
 (  plus the rise in PA, assuming it will rise of course). 

That will pretty much empty her Sipp so I guess she needs to sell her equity and mixed asset funds over the next 2-3 years,  she already has £15kish in STMM that will cover things until 2028. 

Is there a downside to her doing this?  

squirrelpie

SVaz said:

My Wife has £4260 of PA spare annually for 2024-25,  25-26 and 26-27,  after that she will have £11230 until 2032. 

She thinks it’s a good idea to withdraw the ‘spare’ into her ISA ( she has plenty of allowance left)   so she can get a good wedge of cash out tax free before she gets her full State pension in 8 years? 

Just check my maths,  she has £5k in her drawdown pot already, so could take £4260 of that now. 

Then after April 5, £800 remaining taxable + UFPLS of £ 4500? 

For April 2026 & 27, UFPLS of £5600 ? 

Then UFPLS of £ 14000 in 2028 - 2032
 (  plus the rise in PA, assuming it will rise of course). 

That will pretty much empty her Sipp so I guess she needs to sell her equity and mixed asset funds over the next 2-3 years,  she already has £15kish in STMM that will cover things until 2028. 

Is there a downside to her doing this?  

Sorry, but if she will have an annual allowance of £11230 (and why that number?) why are you suggesting withdrawing £4500 or £5600?

The obvious downside is that if she withdraws even a single penny of taxable cash from her SIPP, she will restrict how much she can pay into her pensions going forwards. Is she still contributing to a pension?

SVaz

Her tax code is 696 through me employing her and 427 through her Sipp,  she has taken both tax free cash and income in past years.  

She gifts me £1250 married allowance.  Hence she has £11230 PA. 

She is contributing £6900 a year to her Sipp until late 2027, the max she is allowed,  I will stop working/ stop employing her in October 2027.  Then she will contribute £3600. 

She has £4270 Spare allowance for this tax year and the next 2.  That’s how I came to the UFPLS figures for those years.  The £5k in her drawdown pot is fully taxable. 

Dazed_and_C0nfused

Her PA isn't £11,230 and remember the tax year she stops work will be much reduced earnings. The £3,600 limit might even be relevant for that tax year (depending on exactly when she stops working).

SVaz

She will earn £580 x 8 in 2027, so £4640,  she’ll have to reduce her contributions to around £380 a month gross then. 

her PAYE tax code is 696T , according to her personal tax account.
I pay her £6960.  
her Sipp tax code is 427N , she’s taken no income this year. 
that does make £11230 
  

Shouldn’t it be £12570 - £1260 married allowance , so £11310 in total ?  

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Sarahspangles

I haven’t checked your workings but that sounds like a plan. I retire shortly and have adjusted my plans slightly because OH is currently paying significant amounts of tax on some of his savings interest. As a result I’m going to take a pension from my SIPP up to my personal allowance (plus 25% tax free) and then take advantage of the starter savings band to save OH paying £1k tax on £5k of his interest. We’ve simply shifted some savings into a joint account. After two years the first of my DB pensions commences and I will shift to ‘emptying’ my SIPP into ISAs.

SVaz

We can’t see a downside. 

  I would inherit her ISA tax free at whatever age but if she dies after 75, I would be taxed on any sipp income as I understand it. 

Dazed_and_C0nfused

SVaz said:

She will earn £580 x 8 in 2027, so £4640,  she’ll have to reduce her contributions to around £380 a month gross then. 

her PAYE tax code is 696T , according to her personal tax account.
I pay her £6960.  
her Sipp tax code is 427N , she’s taken no income this year. 
that does make £11230 
  

Shouldn’t it be £12570 - £1260 married allowance , so £11310 in total ?  

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You seem to be mixing up her tax code allowances and her Personal Allowance.

Her Personal Allowance would be £11,310.  Her tax code allowances are ~£11,230.

This could be because she has some untaxed interest using the remaining allowances.

SVaz

£72 untaxed interest apparently.  Didn’t realise it changed your tax code.  
In next year’s summary it says £417 so her tax free allowance says £10893.  

She could still earn and withdraw £11300 in total without Tax though, yes?

Dazed_and_C0nfused

SVaz said:

£72 untaxed interest apparently.  Didn’t realise it changed your tax code.  
In next year’s summary it says £417 so her tax free allowance says £10893.  

She could still earn and withdraw £11300 in total without Tax though, yes?

Yes. 

The first £10 of untaxed interest would use her remaining Personal Allowance and then the next £6,000 would all be taxed at 0%.

The £417 is completely irrelevant though.  It's the actual interest she will receive that matters.  But unless that massively increases (or her non savings non dividend income increases) she wouldn't pay tax on it.

Triumph13

SVaz said:

That will pretty much empty her Sipp so I guess she needs to sell her equity and mixed asset funds over the next 2-3 years,  she already has £15kish in STMM that will cover things until 2028. 

There is no particular reason why the timing of drawing money from the SIPP should have anything much to do with her asset allocation.  If equity and mixed asset funds are what she wants to be holding, then, assuming you have the spare cash outside the pension, she can just buy in her ISA the same investments she sells in her SIPP and on the same day.