What to do with tax free lump sum

af1963

Yes, once the figures are larger, and it takes a while to drip feed them into an ISA, there's a chance of paying either CGT or dividend income tax or both.  With good timing, and the use of spouse's ISA allowances, you could get £120K into ISAs by next April.

As for how it's invested: if it's held in the SIPP with the intention of taking UFPLS in the near future, the amount being earmarked for short term withdrawal should probably be in mostly cash or bonds anyway - so anything moved outside the ISA could also go in bonds for tax free capital gains.  Or just in a savings account - with no taxable income above the personal allowance, there's potentially £6K of interest allowances / nil rates to be used, and that could absorb the interest on over £100K.

The other argument for taking the lump sum earlier ( whether in one big withdrawal or a series of gradual chunks to feed into ISAs) is that it guarantees that as much as possible of the TFC actually gets used, in the event of an early death.  You can postpone the paying of any income tax on the pension until all the TFC has been exhausted, and then you pay, at most, the same tax you'd have paid over several years of UFPLS.  If you're unfortunate and die early, you've withdrawn less than you'd have done with UFPLS, and if you're under 75, it is goes to your heirs tax free even if you've already taken the full 25%, while if you're over 75 they are no worse off.