Frozen tax thresholds – should I over-withdraw from my pension at 40% now to fill our ISAs?

Aretnap

greatkingrat said:

DRS1 said:

Well I can imagine a scenario where it might make sense - eg if you knew that the 40% band was going to be taxed at 45% in the future.  But that would be acting on speculation (not recommended).  And doing it now exchanges the possibility of 40% tax for the certainty of 40% tax.  So I wouldn't do it if I were you.

Although on the other hand there is the potential growth to consider.

Take £10k now, pay £4k tax, stick rest in ISA, all growth tax-free
or leave in pension, it grows to say £12k, then you pay £4.8k tax to get it out.

It makes no difference - you end up with the same amount after tax and growth either way.

(10000 x 1.2) x 0.6 = (10000 x 0.6) x 1.2

The only reason to favour withdrawing it earlier rather than later (or vice versa) is if you think you'll be paying a higher (or lower) effective rate of tax in the future than you will now. Otherwise it's a wash.

Notepad_Phil

jim8888 said:

I've been thinking about this too, withdrawing from my SIPP at 40% tax to fill ISA allowances going forward. The alternative seems to be not touching it and then my family paying the 40% inheritance tax on the SIPP further down the line (a lot further, I hope!) Of course I could always withdraw £40k a year and spend it, so maybe parking it in an ISA while I learn how to spend money is a potential compromise.

If you don't spend it and the money remains in an ISA then your family will still have to pay inheritance tax on it whereas pensions only start from April 2027.

I can see reasons why someone would drawdown extra money up to the 40% tax line, but unless you're planning on some very big spends in the next few years that would then tip you into paying 45% tax then personally I'd keep it so that I only had to pay the basic rate on it.