Drawdown - finer points.

ColdIron

Veloflyer said:

ColdIron said:

Veloflyer said:

 Aha - that makes things clearer - many thanks. I assume I'll have access to some sort of web page to manage the crystallized bit as you suggest.

Yes, you will have 2 accounts instead of just the 1 on the dashboard that you are familiar with, they operate in the same way. You might, for instance, use growth funds in the SIPP and income producing ones in the new one if you want, with or without a cash buffer to smooth monthly withdrawals. It's up to you

I assume I can crystallize whenever with whatever amount from the uncrystallised portion - with the lump sum - until all the uncrystallised bit is exhausted.

Yes but it's not instant, you wouldn't want to do it every month

Excellent - and no I will not be doing it every month. Intention is initially withdraw enough from the uncrystallized bit to live off the lump sum for a year or so, (hopefully) do this for few years, then draw income from the crystallized bit. 

That's what it's designed for

NoMore

Veloflyer said:

ColdIron said:

Veloflyer said:

 Aha - that makes things clearer - many thanks. I assume I'll have access to some sort of web page to manage the crystallized bit as you suggest.

Yes, you will have 2 accounts instead of just the 1 on the dashboard that you are familiar with, they operate in the same way. You might, for instance, use growth funds in the SIPP and income producing ones in the new one if you want, with or without a cash buffer to smooth monthly withdrawals. It's up to you

I assume I can crystallize whenever with whatever amount from the uncrystallised portion - with the lump sum - until all the uncrystallised bit is exhausted.

Yes but it's not instant, you wouldn't want to do it every month

Excellent - and no I will not be doing it every month. Intention is initially withdraw enough from the uncrystallized bit to live off the lump sum for a year or so, (hopefully) do this for few years, then draw income from the crystallized bit. 

Will you have any other taxable income? If not then you will be leaving a lot of your Personal Allowance on the table by not taking any taxable income from the crystallised pot. With no other income you could get £12570 per year out of your crystallised pot.

Or do you mean you're using UFPLS from the non-crystallised portion? Whereby your taking 25% tax free and 75% taxable all at once? Doing this will not actually create a crystallised proportion within the pension.

Veloflyer

That's what it's designed for

Good - Naturally I am assuming the lump sum allowance remains as is for a few years at least. May be a stretch to assume as such. 

ColdIron

Veloflyer said: years9

That's what it's designed for

Good - Naturally I am assuming the lump sum allowance remains as is for a few years at least. May be a stretch to assume as such. 

That's beyond my, or anyone's, ability to predict but it would be prudent not to disregard it

NoMore makes a very good point in their first paragraph if you have, or will have, unused Personal Allowance. It's what I did and allowed me to take roughly 9 years of £12,000 pa without paying any tax on it

Veloflyer

NoMore makes a very good point in their first paragraph if you have, or will have, unused Personal Allowance. It's what I did and allowed me to take roughly 9 years of £12,000 pa without paying any tax on it

So a possibility if requiring say 30K is to transfer over 72K into drawdown with an associated lump sum of 18K -  and withdraw 12K from the crystallised 54K. 

Would this be beneficial?

MallyGirl

Yes - that would get you £30k and you would pay no tax. In reality you might pay tax initially and have to claim it back

Veloflyer

MallyGirl said:

Yes - that would get you £30k and you would pay no tax. In reality you might pay tax initially and have to claim it back

Cheers - I am just wondering how it may be beneficial over transferring 120K and receiving the 30K as a lump sum.  Thinking about it, I guess the tax free element of the SIPP would last longer if I did the way ColdIron suggests.... 

MallyGirl

Veloflyer said:

MallyGirl said:

Yes - that would get you £30k and you would pay no tax. In reality you might pay tax initially and have to claim it back

Cheers - I am just wondering how it may be beneficial over transferring 120K and receiving the 30K as a lump sum.  Thinking about it, I guess the tax free element of the SIPP would last longer if I did the way ColdIron suggests.... 

exactly right

ColdIron

Veloflyer said:

Would this be beneficial?

If you have spare unused personal allowance now, that will stop when you get your state pension, quite possibly before. It's a use it or lose it allowance. If you withdraw within you PA you won't pay tax on it in addition to your lump sum. I'd call that beneficial. How you slice it or dice it between lump sum/drawdown is up to you

If you moved £72,000 into drawdown £18,000 will be tax free leaving £54,000. If you took £12,570 pa (assuming you had that much spare allowance) in just over 4 years you would have exhausted the crystallised pot and paid no tax

Everyone's circumstances and objectives are different, I'm just looking at this from a tax PoV but it would be a shame to look back in a few years and realise you've paid more tax than you needed to with the allowance now lost

Veloflyer

ColdIron said:

Veloflyer said:

Would this be beneficial?

If you have spare unused personal allowance now, that will stop when you get your state pension, quite possibly before. It's a use it or lose it allowance. If you withdraw within you PA you won't pay tax on it in addition to your lump sum. I'd call that beneficial. How you slice it or dice it between lump sum/drawdown is up to you

If you moved £72,000 into drawdown £18,000 will be tax free leaving £54,000. If you took £12,570 pa (assuming you had that much spare allowance) in just over 4 years you would have exhausted the crystallised pot and paid no tax

Everyone's circumstances and objectives are different, I'm just looking at this from a tax PoV but it would be a shame to look back in a few years and realise you've paid more tax than you needed to with the allowance now lost

Yes - understood. Essentially by making the uncrystallized bit last longer by supplementing what is required - 30K in this example -  with an untaxed portion of the crystallized bit, one pays less tax overall.