Looking to Protect My 25% Tax-Free Lump Sum

Bostonerimus1

Do not make decisions based on rumours and conspiracy theories. It amazes me that people are so easily influenced by what they read in newspapers and particularly online. Anyway the 25% tax free lump sum always struck me as strange as why should you get a tax break on the way into an pension and also on the way out? That's "double non-taxation". From an objective stand point all tax deferred contributions and growth should be taxed when taken out of a pension and the transfer of wealth when a DC pension passes to beneficiaries should come under the IHT regime. The allowances and level of those taxes are a more valid point of debate IMO.

Notfarfromtheborder

Without wanting to hijack, if one was able  to take TFLS and put into Isa (I am), would the general advice still to leave 25% TFLS in the pension or withdraw before any potential budget changes?

I have flexible isa's with enough headroom to swallow 25% TFLS

This would safeguard any potential changes to TFLS amounts whilst maintaining in a tax free environment, are there any downsides? I'm struggling to see them.

NormalNorman

My take on protecting the lump sum component was simply to hold a cash buffer within the sipp. This was more to protect against a downturn not a policy change which seems unlikely. Of course, the cash buffer can exist outside a pension wrapper and depends on your overall strategy. Cheers!

Dazed_and_C0nfused

Notfarfromtheborder said:

Without wanting to hijack, if one was able  to take TFLS and put into Isa (I am), would the general advice still to leave 25% in the pension?

I have flexible isa's with enough headroom to swallow 25% TFLS

This would safeguard any potential changes to TFLS amounts whilst maintaining in a tax free environment, are there any downsides? I'm struggling to see them.

I presume you mean 75%?

What is your view on all of the crystallised pot being taxable when withdrawn?  That is the 75% you have after taking the TFLS and any subsequent growth?  You don't get another 25% TFLS on the growth.

Notfarfromtheborder

Dazed_and_C0nfused said:

Notfarfromtheborder said:

Without wanting to hijack, if one was able  to take TFLS and put into Isa (I am), would the general advice still to leave 25% in the pension?

I have flexible isa's with enough headroom to swallow 25% TFLS

This would safeguard any potential changes to TFLS amounts whilst maintaining in a tax free environment, are there any downsides? I'm struggling to see them.

I presume you mean 75%?

What is your view on all of the crystallised pot being taxable when withdrawn?  That is the 75% you have after taking the TFLS and any subsequent growth?  You don't get another 25% TFLS on the growth.

Edited initial post, I meant leave 25%TFLS in the pension or withdraw and put into ISA

Fair point re growth on crystalized pot, not one I had considered

MK62

Dazed_and_C0nfused said:

Notfarfromtheborder said:

Without wanting to hijack, if one was able  to take TFLS and put into Isa (I am), would the general advice still to leave 25% in the pension?

I have flexible isa's with enough headroom to swallow 25% TFLS

This would safeguard any potential changes to TFLS amounts whilst maintaining in a tax free environment, are there any downsides? I'm struggling to see them.

I presume you mean 75%?

What is your view on all of the crystallised pot being taxable when withdrawn?  That is the 75% you have after taking the TFLS and any subsequent growth?  You don't get another 25% TFLS on the growth.

Not sure I see your point here.......if he/she took £20k TFLS from the pension and put it into an ISA using the same investments, won't the position be the same either way, even after growth?.....or am I missing something?

Dazed_and_C0nfused

MK62 said:

Dazed_and_C0nfused said:

Notfarfromtheborder said:

Without wanting to hijack, if one was able  to take TFLS and put into Isa (I am), would the general advice still to leave 25% in the pension?

I have flexible isa's with enough headroom to swallow 25% TFLS

This would safeguard any potential changes to TFLS amounts whilst maintaining in a tax free environment, are there any downsides? I'm struggling to see them.

I presume you mean 75%?

What is your view on all of the crystallised pot being taxable when withdrawn?  That is the 75% you have after taking the TFLS and any subsequent growth?  You don't get another 25% TFLS on the growth.

Not sure I see your point here.......if he/she took £20k TFLS from the pension and put it into an ISA using the same investments, won't the position be the same either way, even after growth?.....or am I missing something?

Only that lots of people have an aversion to paying tax and the thought that they are paying tax on money they don't necessarily need to (and at a tax rate unknown when the TFLS is taken) isn't attractive to everyone.

And it seems to be a relatively common misconception that the growth would have its own TFLS element.

QrizB

Notfarfromtheborder said:

Without wanting to hijack, if one was able  to take TFLS and put into Isa (I am), would the general advice still to leave 25% TFLS in the pension or withdraw before any potential budget changes?

If you're close to retirement, and definitely won't have any other use for the ISA allowance this tax year, and plan to invest the TFLS as though it was still inside your pension, I can't see a problem.

If you have 100% inside your pension in fund X, you'll be no worse off with the taxable 75% inside the pension and the 25% in a SSISA if they're both also in Fund X. (Check for charges, though.)

Sugar62

Another thought. If I take all of the 25% TFLS, clear my mortgage and gift remainder to my children. Leave 75% in drawdown pension which they will inherit eventually. Then I reduce inheritance tax liability too (provided I live another 7 years).  As I understand it, the 25% TFLS dies with me. I don’t have spouse to leave it tax-free. Are there other implication in this thinking?

michaels

MK62 said:

Dazed_and_C0nfused said:

Notfarfromtheborder said:

Without wanting to hijack, if one was able  to take TFLS and put into Isa (I am), would the general advice still to leave 25% in the pension?

I have flexible isa's with enough headroom to swallow 25% TFLS

This would safeguard any potential changes to TFLS amounts whilst maintaining in a tax free environment, are there any downsides? I'm struggling to see them.

I presume you mean 75%?

What is your view on all of the crystallised pot being taxable when withdrawn?  That is the 75% you have after taking the TFLS and any subsequent growth?  You don't get another 25% TFLS on the growth.

Not sure I see your point here.......if he/she took £20k TFLS from the pension and put it into an ISA using the same investments, won't the position be the same either way, even after growth?.....or am I missing something?

Only that mathematics is not taught well in the UK