Max withdrawal amount to stay out of higher rate tax

Lordturpin

Assuming you haven't taken any of your tax free lump sum and you have a £2m SIPP and have now hit retirement age.

Due to size of pot and assuming a strong desire not to die with a big pot.....what is the most  you could withdraw annually WITHOUGHT going into higher rate tax, this number would be mix of  the 25% TFLS and crystalized remainder - is it approx £67k ?

Any reason not to do this (outside of possibly running out in 35+ years ?)

NoMore

It would be £67026 until you hit the Lump sum limit of £268275 in tax free cash and then £50270 from then on.

Assuming no change in tax bands or the LSA and no other income then after 16 years you would have to reduce to the £50270.

But why worry so much about it, you're probably still going to have a significant sum left in the Pension, if it's still invested, doing this, just pay the extra tax and spend it/gift it.

molerat

What other income would you have, that is the all important question. But yes, with absolutely no other income source it would be £67026.  But at £16750 pa tax free withdrawal you will run out of tax free cash after 16 years.

Lordturpin

Thank you for clarifying and confirming how long until the TFLS runs out, useful info.

I am 55 so want to remove as much as possible at the lower rate obviously and will then put 20K of it into my S&S ISA each year.  Also conscious SP will kick in after 12 years time so that will further push me into/towards higher tax rate.

Outside of SIPP 200k in Prem Bonds, S&S ISA and Savings account so will have a little Interest each year

NoMore

Why the obsession with only paying basic rate tax, presumably with such a large pension you contributed at higher or additional rate tax ?  Withdrawing at the same rate as you contributed is still a gain while LSA still available and tax neutral when it runs out.

If you really have no desire to have a large sum left in your pension, you are going to have to start paying higher rate tax at some point, and when the state pension starts that reduces the amount you can get out before additional rate kicks in.

DRS1

Lordturpin said:

Thank you for clarifying and confirming how long until the TFLS runs out, useful info.

I am 55 so want to remove as much as possible at the lower rate obviously and will then put 20K of it into my S&S ISA each year.  Also conscious SP will kick in after 12 years time so that will further push me into/towards higher tax rate.

Outside of SIPP 200k in Prem Bonds, S&S ISA and Savings account so will have a little Interest each year

Of that £200k £150k could be in savings accounts and that could generate over £6k pa in interest.  Just because some of it may be taxed at 0% don't think you can ignore it.

Lordturpin

Not an obsession..... but surely just makes sense to withdraw as much as possible at a lower tax rate ? 

If I start now with £67k p/a the less tax I will pay on more of my pot at higher rate when S/P starts. I feel i have paid a lot of tax already !

I am single so when i pass it will be very heaving taxed via inheritance tax so i want to get it out as cost efficiently and fast as possible.

NoMore

Lordturpin said:

Not an obsession..... but surely just makes sense to withdraw as much as possible at a lower tax rate ? 

If I start now with £67k p/a the less tax I will pay on more of my pot. I feel i have paid a lot of tax already !

I am single so when i pass it will be very heaving taxed via inheritance tax so i want to get it out as cost efficiently and fast as possible.

Those two aims are at conflict though. Fast as possible would involve paying more tax, efficiently is less tax. It's finding the balance and I think only choosing to withdraw at basic rate tax would not achieve your fast aim for emptying the pot.

Lordturpin

DRS1 said:

Lordturpin said:

Thank you for clarifying and confirming how long until the TFLS runs out, useful info.

I am 55 so want to remove as much as possible at the lower rate obviously and will then put 20K of it into my S&S ISA each year.  Also conscious SP will kick in after 12 years time so that will further push me into/towards higher tax rate.

Outside of SIPP 200k in Prem Bonds, S&S ISA and Savings account so will have a little Interest each year

Of that £200k £150k could be in savings accounts and that could generate over £6k pa in interest.  Just because some of it may be taxed at 0% don't think you can ignore it.

Thank you - Saving account (because of tax is the last pot i save into after all other tax efficient ones are utilised) its approx. £70k at the moment so yes will need to reduce drawdown by 3-4k   Thanks

Lordturpin

NoMore said:

Lordturpin said:

Not an obsession..... but surely just makes sense to withdraw as much as possible at a lower tax rate ? 

If I start now with £67k p/a the less tax I will pay on more of my pot. I feel i have paid a lot of tax already !

I am single so when i pass it will be very heaving taxed via inheritance tax so i want to get it out as cost efficiently and fast as possible.

Those two aims are at conflict though. Fast as possible would involve paying more tax, efficiently is less tax. It's finding the balance and I think only choosing to withdraw at basic rate tax would not achieve your fast aim for emptying the pot.

I think you get my point....as i said  "withdraw as much as possible at a lower tax rate" is my objective.

Im aware i will very likely have to start paying higher tax at some point, its about withdraw as much as possible at a lower tax rate, whilst i can.

I am aware i could take the whole lot in one go if i didn't care about how much tax i paid !

Tks

Secret2ndAccount

Buy some government bonds. You can get just as good a rate of return (3,4,5%) and pay little or no tax because the gains are tax free. For a 20% taxpayer, maybe not worth the hassle (though I do it). For a 40% taxpayer, trying to maximise tax-free withdrawals, it's a no-brainer.