No remaining pension Lump Sum Allowance

SpaceJunk

What happens when Lump Sum allowance has been fully used? I'm guessing that anything remaining in SIPP can be moved to drawdown without taking any lump sum, and without incurring any tax liability at the time. Just income tax as normal when taking cash out. Am I correct? 

Marcon

SpaceJunk said:

What happens when Lump Sum allowance has been fully used? I'm guessing that anything remaining in SIPP can be moved to drawdown without taking any lump sum, and without incurring any tax liability at the time. Just income tax as normal when taking cash out. Am I correct? 

Depending on your SIPP provider (eg HL will 'split' bigger pots), it may be possible to squeeze a bit more tax free cash out of the system. You can have up to 3 'small pots' (each of no more than £10K at the point you withdraw the whole amount from the 'pot') and 25% of each will be tax free - and won't trigger the Money Purchase Annual Allowance if that's a consideration.

gm0

Apart from small pots shenanigans as described above which have always been outside the LTA/LSA system.

Creating them artificially by slicing is a legal exploit of the rules originally intended to help ease admin of very small pensions.  It's not wrong. But it's not why its there.

But yes.  AFAIK - No further TFC above full LSA limit remains true.  (As was the case prior with LTA - no TFC above the line).  So moving funds above the line into drawdown doesn't trigger anythng much. 

Happily the 25% penalty applied at first crystallisation for income above the line has now disappeared (for the moment)

gm0

Normally it is the taking of the first income from crystallised pot beyond TFC that is the event trigger for MPAA reduction (for those in early retirement still saving that care). Not the TFC or the cyrstallisation and marking for income itself. 

So it is possible to exhaust LSA for TFC having taken 0 income and with MPAA intact.  25% of the full LSA. The 75% marked for income and sat there invested.

I don't know I am afraid if there is a special rule slipped in recently.  But if the normal "taking income" event trigger still applies then the marking for income above the LSA line would be no different in terms of MPAA.

Income Tax position for SA is normal. Income tax on drawdown income as per. 
Revised IHT rules now incoming from last budget etc.

SpaceJunk

Marcon said:

SpaceJunk said:

What happens when Lump Sum allowance has been fully used? I'm guessing that anything remaining in SIPP can be moved to drawdown without taking any lump sum, and without incurring any tax liability at the time. Just income tax as normal when taking cash out. Am I correct? 

Depending on your SIPP provider (eg HL will 'split' bigger pots), it may be possible to squeeze a bit more tax free cash out of the system. You can have up to 3 'small pots' (each of no more than £10K at the point you withdraw the whole amount from the 'pot') and 25% of each will be tax free - and won't trigger the Money Purchase Annual Allowance if that's a consideration.

Thank you. That's interesting! I can think of two potential problems. The first being that 100% of lump sum allowance has already been used. The second is that Fixed Protection is involved, and FP came with conditions attached that prevented Money Purchase being used. It doesn't sound like you are suggesting MP, but anything that might invalidate the FP would need to be carefully looked into. 

Marcon

SpaceJunk said:

Marcon said:

SpaceJunk said:

What happens when Lump Sum allowance has been fully used? I'm guessing that anything remaining in SIPP can be moved to drawdown without taking any lump sum, and without incurring any tax liability at the time. Just income tax as normal when taking cash out. Am I correct? 

Depending on your SIPP provider (eg HL will 'split' bigger pots), it may be possible to squeeze a bit more tax free cash out of the system. You can have up to 3 'small pots' (each of no more than £10K at the point you withdraw the whole amount from the 'pot') and 25% of each will be tax free - and won't trigger the Money Purchase Annual Allowance if that's a consideration.

Thank you. That's interesting! I can think of two potential problems. The first being that 100% of lump sum allowance has already been used. The second is that Fixed Protection is involved, and FP came with conditions attached that prevented Money Purchase being used. It doesn't sound like you are suggesting MP, but anything that might invalidate the FP would need to be carefully looked into. 

The 'small pots' regime adds 0% to the LSA, so it doesn't matter if you've already used 100% of the LSA.

Completely agree that you need to be careful not to invalidate any protections you have, always assuming that they are still helpful (some are, some aren't) now the LTA has been abolished.

SpaceJunk

gm0 said:

But yes.  AFAIK - No further TFC above full LSA limit remains true.  (As was the case prior with LTA - no TFC above the line).  So moving funds above the line into drawdown doesn't trigger anythng much. 

Happily the 25% penalty applied at first crystallisation for income above the line has now disappeared (for the moment)

Thanks for your help. Yes, that's what I was getting at, under the old rules there would have been a penalty when the excess was crystallised. But as far as I can work out, there isn't one anymore. So no reason to be keeping the excess in a different pot. (I am slightly confused about the pots, as one is untouched SIPP pot, and one is 75% after TFC drawdown pot.....but now I'm wondering if they are no different from each other! However as long as I can combine them and not trigger a penalty/tax, that's enough for my confused brain atm. I completely understood the situation 10 years ago, but that was before they simplified it