Should my wife take the tax free cash now, what would you do ?

segovia

Probably been asked many times before, but the question is should my wife take the tax-free cash from her £400K SIPP or opt for a regular income with 25% tax free

She is 63 and has a life expectancy of 92 with no known health conditions, she had a DB Pension indexed linked of £1,000.00 a month and gets her state pension in 4 years.  

Using the Guide Application calculations she will have an income of 30K a year after tax growing with inflation, with the assumption the pot will be empty at age 92 and a low growth of 3%.    

I have SIPP and will be taking my maximum allowance of £268K and will endeavour to spend the balance which is unlikely as I do have a health condition which reduces my life expectancy to 82. Anything left in my pot will go to my wife on my death.  

She is keen to take out 100K tax-free cash which isn't based on any theories other than to get it out while she can, probably based on the recent media hype and Rachel Reeve's Tax Raid.  

Am I right in my assertions? Much better to have an inflation linked 30K pension after tax for a lifetime than to take out 100K cash now.   

       

Albermarle

Rachel Reeve's Tax Raid.  

Unless she springs some surprise in the budget, I am not aware of any planned extra taxes on pensions.

As you will be bumping up against the £268K limit , it could make sense for you to take this out asap, as the real value is being eroded with inflation.
However you have to put it somewhere, and apart from ISA's it could be subject to tax.
Your wife also taking out a £100K in cash will have to find a home for it, when it is perfectly happy sitting where it is, with no CGT or dividend tax. So probably best to leave it in the pension.

segovia

Albermarle said:

Rachel Reeve's Tax Raid.  

Unless she springs some surprise in the budget, I am not aware of any planned extra taxes on pensions.

As you will be bumping up against the £268K limit , it could make sense for you to take this out asap, as the real value is being eroded with inflation.
However you have to put it somewhere, and apart from ISA's it could be subject to tax.
Your wife also taking out a £100K in cash will have to find a home for it, when it is perfectly happy sitting where it is, with no CGT or dividend tax. So probably best to leave it in the pension.

Knowing what to do with lump sums is a nice dilemma to have but strangely when you get to 70 the need for massive amounts of money diminishes, it would have been nice when I was 40. We want to pass some on to our daughter and avoid IHT, therefore passing on “surplus income” seems the best way forward in respect of my wife's SIPP drawdown.   For me, I don't think I have any choice, take the lump sum and try to spend what's left as quick as I can. 

NormalNorman

Life is more than just numbers. 63 is still young enough to get some travel in, realise a dream etc... So what are your plans?

segovia

NormalNorman said:

Life is more than just numbers. 63 is still young enough to get some travel in, realise a dream etc... So what are your plans?

We have enough holidays already, always come back knackered. Don't really have any dreams other that to stay fit and healthy and leave as much as we can to our daughter.   

ali_bear

Albermarle said:

:
As you will be bumping up against the £268K limit , it could make sense for you to take this out asap, as the real value is being eroded with inflation.
:

Lets quantify that rate of erosion. Assuming a basic rate tax payer and inflation at 3.5%. Each year the inflation reduces the TFLS in real terms by 3.5% that means you'll now be paying 20% tax on 3.5% of £268,275 so that is £1878 of additional taxation. Effectively 0.7% in other words big enough to consider but not to change one's plans over.