Tax when using part of SIPP to buy an annuity

If I retired and took £200k of my SIPP into drawdown or as an UFPLS, my understanding is that 25% (£50k) would be tax-free cash and the remaining 75% (£150k) would be taxed at my marginal rate; as I access the drawdown account, or immediately for UFPLS.

But if I wanted to use the £200k to buy an annuity (or the £150k to be more accurate, as I'd presume it would be best to keep the TFC £50k rather than use it to buy taxable income), is the 75% taxed first and the after-tax amount used to buy the annuity, or is the full 75% used and then I pay tax on the income the product provides? I presume the latter, else there'd be double tax, but thought I'd check.

Thank you.

Comments

  • GrumpyDil
    GrumpyDil Posts: 1,992 Forumite
    Seventh Anniversary 1,000 Posts Name Dropper Combo Breaker
    Taking an annuity is a different process from drawdown or UFPLS so no the money used to buy the annuity is not taxed

    So, in your example you could take 50000 as TFC and the money available for annuity purchase would be 1500000.

  • ali_bear
    ali_bear Posts: 264 Forumite
    Third Anniversary 100 Posts Photogenic Name Dropper

     is the full 75% used and then I pay tax on the income the product provides? I presume the latter, 

    That is correct. 
    A little FIRE lights the cigar
  • squirrelpie
    squirrelpie Posts: 1,333 Forumite
    Eighth Anniversary 1,000 Posts Name Dropper
    GrumpyDil said:
    So, in your example you could take 50000 as TFC and the money available for annuity purchase would be 1500000.
    Err, I think you meant £150,000 would be left rather than £1,500,000! :disappointed:
    Always worth proofreading. Commas help. :D
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