Tax on 25% of pension pot.

Standishdale

I'm confused. If I take £10,000 out of a SIPP pension of £75,000, do I get the £10,000 tax free or just the first 25% of it tax free? Ie. £10,000 - 25% - £2,500 tax free and pay tax on the remaining £7,500?

Linton

Your title needs changing!

If you want £10K from a pension of £75K you have a wide choice of options.  You could take it all tax free leaving about £9K tax free to be taken later.  Or you could take £2500 tax free and £7500 taxed, or something in between,

What you cannot do is to take any taxable money which is not covered by the correspondinjg 25% tax free being taken at the same time or previously.

Albermarle

Standishdale said:

I'm confused. If I take £10,000 out of a SIPP pension of £75,000, do I get the £10,000 tax free or just the first 25% of it tax free? Ie. £10,000 - 25% - £2,500 tax free and pay tax on the remaining £7,500?

You can do it either way that you describe., you just need to instruct the SIPP provider accordingly.

Note that in the second option, the £7500 is taxable income, but how much actual tax you pay on it depends on your other income, tax code etc.

dunstonh

Standishdale said:

I'm confused. If I take £10,000 out of a SIPP pension of £75,000, do I get the £10,000 tax free or just the first 25% of it tax free? Ie. £10,000 - 25% - £2,500 tax free and pay tax on the remaining £7,500?

Accessing your pension can be done in different ways.

You can take £10,000 as a lump where 25% of that is tax free and 75% is taxable.   Or you can crystallise £40,000 of your pension and take 25% of that tax free (£10000) but none of the taxable element (so no tax paid).

Your existing pension provider may not support all methods of drawdown (or even any methods).  However, the fact that you say it is a SIPP and not a different type of pension means nearly all, if not all, methods should be available to you.

MallyGirl

I changed the title to avoid confusion

Sam_666

If you take out a peny of taxable pension, your future contributions are limited to 10k per year, for life.

Albermarle

Sam_666 said:

If you take out a peny of taxable pension, your future contributions are limited to 10k per year, for life.

Plus that £10k limit includes tax relief and employer contributions.

Marcon

Sam_666 said:

If you take out a peny of taxable pension, your future contributions are limited to 10k per year, for life.

Three exceptions:

1. you buy a lifetime annuity
2. you join a defined benefit scheme (in which case the £10K limit doesn't apply)
3. you take your pension under the 'small pots' regime, which means taking a whole pot of no more than £10K in one go, with 25% tax free and the balance taxed at your marginal rate. You can do this 3 times with personal pensions;  and any number of times with true occupational schemes (in practice that's self limiting - most people would do it no more than once from such a scheme). It doesn't trigger the £10K a year limit, nor does it count towards your Lump Sum Allowance. Some SIPP providers (eg HL) will 'split' a larger pot into smaller pots if requested.