Taxable Income -- Personal Pension & Savings Income for 2024-2025

PowerSavingMode

If Person A has no paid employment, no state pension and doesn't claim any benefits, and this tax year — 2024-2025 — they take a 'income payment' of £2,500, plus a one-off sum of £11,000 via UFPLS (which *includes* a tax-free amount of £2,750)...

1) How much more can Person A withdraw from the private pension for this tax year, taking into account the personal tax allowance of £12,570 before being liable for tax?

2) And how much can Person A earn in interest in a savings account before having to pay income tax, please?

The HMRC pages seem to discombobulate rather than clarify!

eskbanker

Assuming the pension withdrawals are calibrated to use the personal tax allowance exactly, then up to £6K of savings interest can be earned without paying tax.

In terms of the taxation of the pension income, the UFPLS situation is clear (£8,250 of taxable income) but the 'income payment' isn't, i.e. is this from fully taxable crystallised money, or from a tax-free element, or something else?

PowerSavingMode

eskbanker said:

Assuming the pension withdrawals are calibrated to use the personal tax allowance exactly, then up to £6K of savings interest can be earned without paying tax.

Thank you, that's really helpful. So, I'm assuming a further UPLS payment of £1,000 (25% of which would be tax-free income), would be okay...

eskbanker said:

In terms of the taxation of the pension income, the UFPLS situation is clear (£8,250 of taxable income) but the 'income payment' isn't, i.e. is this from fully taxable crystallised money, or from a tax-free element, or something else?

Yes, the income payment of £2,500 is from a crystallised pot.

Dazed_and_C0nfused

PowerSavingMode said:

eskbanker said:

Assuming the pension withdrawals are calibrated to use the personal tax allowance exactly, then up to £6K of savings interest can be earned without paying tax.

Thank you, that's really helpful. So, I'm assuming a further UPLS payment of £1,000 (25% of which would be tax-free income), would be okay...

eskbanker said:

In terms of the taxation of the pension income, the UFPLS situation is clear (£8,250 of taxable income) but the 'income payment' isn't, i.e. is this from fully taxable crystallised money, or from a tax-free element, or something else?

Yes, the income payment of £2,500 is from a crystallised pot.

If you take £750 of additional taxable pension income, above your Personal Allowance, then the amount of interest you can have which would be taxed at 0% drops to £5,250.

You might find life easier if you just focus on the taxable amounts and ignore non taxable income like a TFLS.

Secret2ndAccount

I assume A has a personal allowance of £12,570?
Add £6,000    That's £18,570
Subtract their TAXABLE earnings. That looks like £2,500 + £8,250
18750 - 8250 - 2500 = 8000
So they can receive £8,000 in interest before paying tax
If they take another £1,000 in pension, I assume that's £750 taxable, so they can now earn £7,250 in interest before paying tax.
8250 + 2500 + 750 = 11500  That is less than 12,570 so they won't pay tax on the pension either.

PowerSavingMode

Secret2ndAccount said:

I assume A has a personal allowance of £12,570?
Add £6,000    That's £18,570
Subtract their TAXABLE earnings. That looks like £2,500 + £8,250
18750 - 8250 - 2500 = 8000
So they can receive £8,000 in interest before paying tax
If they take another £1,000 in pension, I assume that's £750 taxable, so they can now earn £7,250 in interest before paying tax.
8250 + 2500 + 750 = 11500  That is less than 12,570 so they won't pay tax on the pension either.

Thank you for this; it really does help clarify it for me.

So (if the penny really has dropped!), A can take a further £1,425 UFPLS payment from their SIPP and STILL not be liable to income tax, even if they were lucky enough to be in a position to earn £6,181.25 in interest? Have I finally got it?

(18750 - 8250 - 2500 - 750 - 1068.75 = 6181.25)

Secret2ndAccount

Very sorry. Bit of dyslexia there. I flipped two digits

You have correctly calculated an amount of income which keeps you just below the 12,570 tax threshold, but the interest is actually only
18570 - 8250 - 2500 - 750 - 1068.75 = 6001.25

Sorry for the confusion, but yes, you have it right.

PowerSavingMode

Secret2ndAccount said:

Very sorry. Bit of dyslexia there. I flipped two digits

You have correctly calculated an amount of income which keeps you just below the 12,570 tax threshold, but the interest is actually only
18570 - 8250 - 2500 - 750 - 1068.75 = 6001.25

Sorry for the confusion, but yes, you have it right.

Fantastic. Thank you, and to each and every one of you who helped this frazzled brain!