Maxed out TFC what to do with small uncrystallised pot

ClashCityRocker1

NickPoole said:

DavidT67 said:

A decent pension provider will carve out three £10K pots for you from the whole in order to utilise the small pots option.

Blimey - that sounds like straightforward and obvious tax avoidance! probably means it's perfectly legal! What's the point of a small pot rule if you can just make all your pension into small pots?

(I suppose it is limited to 3 - but that might mean everybody can cash in 3 pots of £10K from their pension as long as provider happy to split 3 chunks off)

ex-pat_scot

NickPoole said:

DavidT67 said:

A decent pension provider will carve out three £10K pots for you from the whole in order to utilise the small pots option.

Blimey - that sounds like straightforward and obvious tax avoidance! probably means it's perfectly legal! What's the point of a small pot rule if you can just make all your pension into small pots?

It is perfectly straightforward. HL confirmed they could do it for me if i transferred in a £10,000 lump from another SIPP.
You can do this three times.
Why not do it?
(was unclear if, when crystallising the £2,500 TFLS, the remaining £7,500 had to be taken as income, or could be left not yet drawn down).
The other benefit is that it does not trigger MPAA, so you could continue to save up to £60,000 pa in your pension. (I'm not sure that would be a particular concern, as there aren't many reasons why you would normally want to continue with a pension pot over the "max" unless benefitting from employer contributions. Even the inheritance tax angle will disappear soon).

FIREDreamer

NickPoole said:

DavidT67 said:

A decent pension provider will carve out three £10K pots for you from the whole in order to utilise the small pots option.

Blimey - that sounds like straightforward and obvious tax avoidance! probably means it's perfectly legal! What's the point of a small pot rule if you can just make all your pension into small pots?

You only have 3 goes so not a massive loophole. Done this twice myself.

FIREDreamer

ex-pat_scot said:

NickPoole said:

DavidT67 said:

A decent pension provider will carve out three £10K pots for you from the whole in order to utilise the small pots option.

Blimey - that sounds like straightforward and obvious tax avoidance! probably means it's perfectly legal! What's the point of a small pot rule if you can just make all your pension into small pots?

It is perfectly straightforward. HL confirmed they could do it for me if i transferred in a £10,000 lump from another SIPP.
You can do this three times.
Why not do it?
(was unclear if, when crystallising the £2,500 TFLS, the remaining £7,500 had to be taken as income, or could be left not yet drawn down).
The other benefit is that it does not trigger MPAA, so you could continue to save up to £60,000 pa in your pension. (I'm not sure that would be a particular concern, as there aren't many reasons why you would normally want to continue with a pension pot over the "max" unless benefitting from employer contributions. Even the inheritance tax angle will disappear soon).

The £7,500 has to be taken as income and is taxed at BR (20%) regardless of your tax situation - with HMRC collecting the correct tax if any extra tax is due or refunding if too much tax has been taken.

Notepad_Phil

ex-pat_scot said:
...

(was unclear if, when crystallising the £2,500 TFLS, the remaining £7,500 had to be taken as income, or could be left not yet drawn down).
...

The entire value of the small pot has to be taken in one go as a lump sum - so no the £7.5k can't be left to draw down later, you'll get the £2.5k TFLS and with small pots rules I think the £7.5k will usually be paid out after being taxed at the basic rate of tax i.e. currently 20% regardless of your tax code. Any additional/repayment of tax will be picked up by the hmrc later.

FIREDreamer

FIREDreamer said:

ex-pat_scot said:

NickPoole said:

DavidT67 said:

A decent pension provider will carve out three £10K pots for you from the whole in order to utilise the small pots option.

Blimey - that sounds like straightforward and obvious tax avoidance! probably means it's perfectly legal! What's the point of a small pot rule if you can just make all your pension into small pots?

It is perfectly straightforward. HL confirmed they could do it for me if i transferred in a £10,000 lump from another SIPP.
You can do this three times.
Why not do it?
(was unclear if, when crystallising the £2,500 TFLS, the remaining £7,500 had to be taken as income, or could be left not yet drawn down).
The other benefit is that it does not trigger MPAA, so you could continue to save up to £60,000 pa in your pension. (I'm not sure that would be a particular concern, as there aren't many reasons why you would normally want to continue with a pension pot over the "max" unless benefitting from employer contributions. Even the inheritance tax angle will disappear soon).

The £7,500 has to be taken as income and is taxed at BR (20%) regardless of your tax situation - with HMRC collecting the correct tax if any extra tax is due or refunding if too much tax has been taken.

Notepad_Phil said:

ex-pat_scot said:
...

(was unclear if, when crystallising the £2,500 TFLS, the remaining £7,500 had to be taken as income, or could be left not yet drawn down).
...

The entire value of the small pot has to be taken in one go as a lump sum - so no the £7.5k can't be left to draw down later, you'll get the £2.5k TFLS and with small pots rules I think the £7.5k will usually be paid out after being taxed at the basic rate of tax i.e. currently 20% regardless of your tax code. Any additional/repayment of tax will be picked up by the hmrc later.

Is there an echo in here? 🤣🤣🤣

Marcon

NickPoole said:

DavidT67 said:

A decent pension provider will carve out three £10K pots for you from the whole in order to utilise the small pots option.

Blimey - that sounds like straightforward and obvious tax avoidance! probably means it's perfectly legal! What's the point of a small pot rule if you can just make all your pension into small pots?

You can't - maximum of 3 from personal pensions, + an unlimited number from true occupational schemes (which in practice is rarely more than one per person per lifetime!).

Where does tax avoidance come into it? OP has only said they have taken 25% from their SIPP, not that they have hit the Lump Sum Allowance, so using the small pots rule wouldn't help them in that respect - they could take 25% from this tiddler pot regardless.

The small pot route would only be use if they wanted to pay in more than £10K a year to a DC scheme in future years, and didn't want to trigger the MPAA.

Marcon

NickPoole said:

NickPoole said:

DavidT67 said:

A decent pension provider will carve out three £10K pots for you from the whole in order to utilise the small pots option.

Blimey - that sounds like straightforward and obvious tax avoidance! probably means it's perfectly legal! What's the point of a small pot rule if you can just make all your pension into small pots?

(I suppose it is limited to 3 - but that might mean everybody can cash in 3 pots of £10K from their pension as long as provider happy to split 3 chunks off)

Yes. What's your point...?

DavidT67

NickPoole said:

DavidT67 said:

A decent pension provider will carve out three £10K pots for you from the whole in order to utilise the small pots option.

Blimey - that sounds like straightforward and obvious tax avoidance! probably means it's perfectly legal! What's the point of a small pot rule if you can just make all your pension into small pots?

Yes, Tax Avoidance is legal.  It's Tax Evasion which isn't.

No one is obliged to pay more tax than they might otherwise have to do by managing their affairs efficiently within the rules as written.  

If the govt. isn't happy with the law they are the ones who can change it.

DavidT67

Marcon said:

NickPoole said:

DavidT67 said:

A decent pension provider will carve out three £10K pots for you from the whole in order to utilise the small pots option.

Blimey - that sounds like straightforward and obvious tax avoidance! probably means it's perfectly legal! What's the point of a small pot rule if you can just make all your pension into small pots?

You can't - maximum of 3 from personal pensions, + an unlimited number from true occupational schemes (which in practice is rarely more than one per person per lifetime!).

Where does tax avoidance come into it? OP has only said they have taken 25% from their SIPP, not that they have hit the Lump Sum Allowance, so using the small pots rule wouldn't help them in that respect - they could take 25% from this tiddler pot regardless.

The small pot route would only be use if they wanted to pay in more than £10K a year to a DC scheme in future years, and didn't want to trigger the MPAA.

Small pots are outside and above the Lump Sum Allowance.  Taking a small pot includes taking taxable income, so they do trigger Money Purchase Annual Allowance restriction.