£2880 pay from drawdown

Easyjet77

Hello again, Retired, under 75yr, with only income from SP and  DB ( plus savings). Does it make any sense to withdraw funds from my drawdown  ac and pay into my pension account( subject to £2800 limit)? Money taken from drawdown would be taxed at 21% or thereabouts (Scotland). Payment is usually made from savings. Any thoughts or opinions welcome. Thanks

Both acs held with Vanguard, no charges either way.

Easyjet77

SVaz, thanks for reply. Yes the situation you describe is exactly  what happens at the moment, when I pay the £2800 from a savings account. I would like to know if there is any difference if I take the funds from my drawdown  ac , which would be taxable, and then pay into pension account. Thanks 

SVaz

You will probably lose out then as it will be taxed twice?    Sorry I didn’t see the part about withdrawing extra from a drawdown pot to do this. 

Easyjet77

SVaz, taxed upon eventual withdrawal but still receives uplift when paid into pension account.
       Only small amounts involved but I did wonder if any benefit (or loss) incurred if I withdrew the funds from drawdown ac  and left savings intact.
    Thanks for input.

SVaz

Right, I assumed you were planning the in/out  ‘trick’  not leaving the money in.
You have to take the tax free cash before age 75 so the rest will be taxed on withdrawal,  the more it grows, the more tax.  

I don’t see the point tbh.
21% tax now on £2880 then 21% on £2700 ( at minimum)  on withdrawal. 

You’ll be £200 worse off every time, unless my maths is way off. 

NoMore

SVaz said:

You will probably lose out then as it will be taxed twice?    Sorry I didn’t see the part about withdrawing extra from a drawdown pot to do this. 

Not really as he gets the tax back on contribution. By my calculations on Scottish tax rates he would need to draw £3418.40 from the pension to end up with £2880. Putting that back into the pension gives him £3600 plus he can claim the extra 1% tax from HMRC. So he ends up with more in the pension after doing it than he started with. The £3600 on further withdrawal will return him £3033 so higher than the initial £2880 contribution.

Easyjet77

NoMore, very helpful much appreciated.  Am I now correct that the benefit  is £153  appx gain  regardless if funded from drawdown ac or elsewhere? Thanks

NoMore

Easyjet77 said:

NoMore, very helpful much appreciated.  Am I now correct that the benefit  is £153  appx gain  regardless if funded from drawdown ac or elsewhere? Thanks

I think it will be £189 because you get the £36 back from HMRC for the 1% Scottish tax rate on your contribution. Note this may not come back directly as cash but as a change in your tax code, but you still get it back if you claim.

SVaz

So,  get £900 tax free cash on £3600 but pay 21% tax on £2880 drawdown to pay in and then 21% on £2700 when it’s eventually withdrawn.

That’s £1171 in tax 

Why would you pay £1171 to get back £900 ? 

 

It would be different if the £2880 was coming from savings or spare personal allowance but it’s coming from a fully taxable Drawdown pot. 

NoMore

SVaz said:

So,  get £900 tax free cash on £3600 but pay 21% tax on £2880 drawdown to pay in and then 21% on £2700 when it’s eventually withdrawn.

That’s £1171 in tax 

Why would you pay £1171 to get back £900 ? 

 

It would be different if the £2880 was coming from savings or spare personal allowance but it’s coming from a fully taxable Drawdown pot. 

It's still a gain after all the tax on withdrawal and then tax relief on the contribution, I'm not sure it makes a difference to the net gain where it comes from. It's just extra steps that you pay tax on the withdrawal but get that back again on the contribution.

You seem fundamentally just opposed to the tax, which is a philosophical position but doesn't make a difference to the maths.
 

SVaz

How is it a gain??

You are paying £1171 to get back £900.
 It. Doesn’t. Make. Sense.