Which wrappers to take income from in retirement

aroominyork

I am trying to work out the most tax-efficient way to draw pension income from SIPPs and ISAs (dividends and interest). Our situation is:

Me: £2k-£5k earned income (might take on more work but unlikely), SP in 2028

OH: £14k in pensions and £6k earned income. 

Our investments/cash are about 50% in SIPPs, 25% in ISAs, 25% unwrapped. We will feed into ISAs (and small amounts into SIPPs) each year. 

Given impending 2027 SIPP/IHT changes and assuming the tax-free lump sum is not abolished, is the best order to:

-          First, take crystallised SIPP income up to my personal allowance until SP kicks in

-          At the same time, use up starter rate for savings from unwrapped cash/bonds, currently £6k

-          Then take from PCLS to reduce chances of it being unused before death

-          When PCLS is exhausted, take from ISA to maintain the maximum total across SIPP and ISA, since 1) SIPP and ISA will be equally subject to IHT after 2027 and 2) if we die before 75, SIPP is taken tax-free by our kids/beneficiaries.

Dazed_and_C0nfused

aroominyork said:

I am trying to work out the most tax-efficient way to draw pension income from SIPPs and ISAs (dividends and interest). Our situation is:

Me: £2k-£5k earned income (might take on more work but unlikely), SP in 2028

OH: £14k in pensions and £6k earned income. 

Our investments/cash are about 50% in SIPPs, 25% in ISAs, 25% unwrapped. We will feed into ISAs (and small amounts into SIPPs) each year. 

Given impending 2027 SIPP/IHT changes and assuming the tax-free lump sum is not abolished, is the best order to:

-          First, take crystallised SIPP income up to my personal allowance until SP kicks in

-          At the same time, use up starter rate for savings from unwrapped cash/bonds, currently £6k

-          Then take from PCLS to reduce chances of it being unused before death

-          When PCLS is exhausted, take from ISA to maintain the maximum total across SIPP and ISA, since 1) SIPP and ISA will be equally subject to IHT after 2027 and 2) if we die before 75, SIPP is taken tax-free by our kids/beneficiaries.

You know you cannot take taxable money from a pension without first taking the relevant TFLS/PCLS?

Assuming the £268k(?) lump sum limit hasn't been reached yet.

aroominyork

Dazed_and_C0nfused said:

aroominyork said:

I am trying to work out the most tax-efficient way to draw pension income from SIPPs and ISAs (dividends and interest). Our situation is:

Me: £2k-£5k earned income (might take on more work but unlikely), SP in 2028

OH: £14k in pensions and £6k earned income. 

Our investments/cash are about 50% in SIPPs, 25% in ISAs, 25% unwrapped. We will feed into ISAs (and small amounts into SIPPs) each year. 

Given impending 2027 SIPP/IHT changes and assuming the tax-free lump sum is not abolished, is the best order to:

-          First, take crystallised SIPP income up to my personal allowance until SP kicks in

-          At the same time, use up starter rate for savings from unwrapped cash/bonds, currently £6k

-          Then take from PCLS to reduce chances of it being unused before death

-          When PCLS is exhausted, take from ISA to maintain the maximum total across SIPP and ISA, since 1) SIPP and ISA will be equally subject to IHT after 2027 and 2) if we die before 75, SIPP is taken tax-free by our kids/beneficiaries.

You know you cannot take taxable money from a pension without first taking the relevant TFLS/PCLS?

Assuming the £268k(?) lump sum limit hasn't been reached yet.

Yes, I do know that but thanks for mentioning it. I took £10k PCLS last week to test the process so I have about £30k crystallised. And I won't reach £268k lump sum (unfortunately!). With that in mind, is my thinking correct?