25% Tax Free Question from a SIPP

Albermarle

For your wife, if she does not do self assessment, she has to wait until her final tax position for 24/25 is automatically calculated ( like Millions of others).
In theory this should all be done by now, but there are delays. Same as last year.

molerat

SVaz said:
It’s fine if you can live on savings for the first year and take an UFPLS in March,  that will cut out the rigmarole of claiming the tax back. 

And you don't need to take it all in one chunk in April, you can generally take more than one UFPLS in a year so pace it with a final dip in March to sort out the tax.

SVaz

My Sipp (CSD) charges £150 for each UFPLS so I won’t be doing that! 

I’ll just crystallise a year’s income,  take the tfls and take a monthly income instead. 

p00hsticks

Albermarle said:

For your wife, if she does not do self assessment, she has to wait until her final tax position for 24/25 is automatically calculated ( like Millions of others).
In theory this should all be done by now, but there are delays. Same as last year.

I've just (last couple of days) received e-mails from HMRC pointing me to my personal tax account for details on my adjusted tax code for the year now that they have worked out I've underpaid tax for 2024-25 due ot interest on savings. 

dunstonh

My Sipp (CSD) charges £150 for each UFPLS so I won’t be doing that! 

Never let a provider dictate what you can or cannot do (even with passive blockers like this).  Move to a provider that doesn't have old fashioned terms like that.   That is unless the bottom line keeps it competitive even if the charges are taken in unusual ways (unusual for 2025 that is)

SVaz

As soon as my CS direct Sipp is fully crystallised, I will transfer it.  It’s 70% done at the moment and I’m contributing just enough to get 2 years worth of UFPLS income out of it for my first two years of early retirement. 

 Although I suppose I could take all the tax free cash up front and then transfer it once it’s in drawdown.   In fact I could stop contributing and do that now.   I never thought of it before. 

I don’t think anyone accepts part crystallised transfers?  

artyboy

SVaz said:

My Sipp (CSD) charges £150 for each UFPLS so I won’t be doing that! 

I’ll just crystallise a year’s income,  take the tfls and take a monthly income instead. 

Doesn't surprise me... CSD are utter so-and-sos when it comes to milking you for fees. 

They are the ones I raised a complaint with for hiking their platform charge caps by 250% for holding ETFs, and doing so in an extremely sneaky way under the banner of a 'good news we are simplifying your charges' email.

They also charge exit fees for transferring your SIPP elsewhere, which is pretty much unheard of these days.

(I could go on... you can't place a buy order online for more than £50k so end up racking up trading charges... and they don't even use Origo for transfers so getting out takes ages...)

They are now in a very rare category of provider that I will boycott, no matter what cashback offers they have on!

dunstonh

I don’t think anyone accepts part crystallised transfers?  

Most providers will.

segovia

tacpot12 said:

You are correct; under the current rules, once you have had all the 25% tax-free amount, you are not eligible for any more tax-free cash from your pension. This method is often described as flexible drawdown (or FAD), because you don't acutally needed to take all the tax-free amount in one go.

But when you do, the provider's system makes a note of how much of your pot you have crystallised by taking some tax-free cash. You will always pay tax if you draw out from this crystallised amount.   

The regular 'salary' you describe is better off described using the abbreviation UFPLS, which stands for Uncrystallised Fund Pension Lump Sum. Don't let the 'Lump Sum' bit at the end fool you. UFPLS is a means of withdrawing money from your pension such that receive 25% of the sum tax-free and 75% taxed. I used this method with AJ Bell and it works well for me. They generate a payslip for the taxable portion (so it does feel very much like a 'salary') and a Benefit Crystalisation Letter that confirms how much tax-free you have taken, and and what remains of your life-time allowance. (Their system keeps track of these figures so you can see where you are up to with your crystallised and uncrystalised pots - anything that isn't crystallised by taking tax free cash is uncrystallised.) 

FAD and UFPLS are different ways of paying tax on your withdrawals. They don't affect how the money is invested or grows, so with either method, you can leave everything invested to grow or produce income as you see fit.

The key advantage of UFPLS for me is that it allows you to have more tax-free cash that FAD, especially if you take all your tax-free cash as soon as you retire. 

Take this example. 

You have a Personal Pension with £400,000 in it.
You retire and take £100,000 of tax-free cash from it. 
That's it, you've had all the tax-free cash you can ever have from your pension. 
You have a personal lump sum limit of £268,275 but you've only used £100,000 of it. 

If you start with the same pension, and make UFPLS withdrawals from it, you can, if you live long enough, take enough UFPLS payments to use all your lump sum limit. 
e.g. 

You start with £400,000
You withdraw £25000 per year using UFPLS. 25% of this is tax-free. You increase this each year to keep pace with inflation (which I assumed was 3% for the purposed of the model)
Your fund grows at 10% a year. (The process works for lower investment growths, but it won't allow you to withdraw to the same degree, and below about 5% return, there isn't enough in the pot to start with in this example to hit the lump sum limit). 
By age 87, you have had about £268,275 of tax-free lump sum payments.

UFPLS can be a good choice for those with relateively high proportions of DB pensions, and small personal pension amounts where the total tax free amount available is less than the personal lump sum limit. 

However for most people FAD will be a better option, especially if the tax-free cash is invested in an ISA to produce further tax-free income/growth. 

A good reply thanks.  

It seems a bit unfair that you can't continue to get the 25% tax-free benefit from investment growth after taking the max lump sum option.  However, the downside in my case is IHT, ideally I don't want anything remaining in my pot that will incur IHT, so I could argue growth is immaterial.       

segovia

To add additional complexity, how is the 25% and Lifetime Allowance tracked if you have two SIPP's ?