Taking Drawdown Whilst not Paying Tax

XzavierWalnut

Curious to see what peoples views are on below.

Currently 63 years old and retired at 59. Spouse has state pension and NHS pension which she pays 20% income tax.
House was paid off about 20 years ago worth approximately £280K.
No debts.
I receive about £4700 per annum in final salary pensions.
I have already taken out the tax free amount lump sums from both pensions, and the same for a private pension which is now in drawdown.
I top up my money needs from savings, which are not in ISAs. Currently maxed with ISAs.

As I will not be paying any income tax until 2030 when I receive the state pension, I am thinking of taking enough from my drawdown pension to keep below the tax threshold each year until state pension will be due.
Currently my drawdown is worth £71k and my wife and I have about £820k in cash ISAs, savings and a bit of gold. Only stocks and shares are in the drawdown fund.
Looks to me that I can take about £7k drawdown for the next 4 years whilst not paying tax.
Do people think this is a good or bad idea?

DRS1

Sounds like an excellent idea. What will you do with the money? Put it in an ISA is the usual thing if you don't spend it.

molerat

I would be tempted to take the maximum to get up to your tax allowance but then putting £2880 back in which would be topped up to £3600 to be later withdrawn tax free. Or you could start by putting the £2880 in now to make £3600 of this year's tax free take.

XzavierWalnut

https://forums.moneysavingexpert.com/discussion/comment/81862108#Comment_81862108

Would go towards daily living, and if there were any excess into cash ISAs. Although I am debating whether to get back into S&S Isas.

Isthisforreal99

Plenty threads on here where the advice is get it out tax free while ypu can.

DRS1

https://forums.moneysavingexpert.com/discussion/comment/81862118#Comment_81862118

Perfectly sensible. I mentioned ISAs because you said you were maxed out on ISAs and had savings outside ISAs so I thought you might already be planning to get as much of the non ISA savings into ISAs as possible and may have no room left for this money. In which case @molerat's idea is a good one.

SVaz

Why on earth wouldn’t you?

My Wife is going to completely empty her Sipp into ISAs over the next 6 years, completely free of tax. That’s around £18-20k of income tax saved once she hits State pension age in 2032.
One would have to be some kind of idiot not to do it .

Smudgeismydog

I would agree with getting money out of the SIPP ahead of State Pension

Can I just ask about your plans re; the Cash ISAs, that’s a lot of money for you to potentially add to. Are you in IHT territory?

XzavierWalnut

https://forums.moneysavingexpert.com/discussion/comment/81862386#Comment_81862386

Yes in IHT territory, which I do not want to get into.

XzavierWalnut

Thank you for all the replies.
Very comforting to find that other people think I am doing the correct thing.
I have already applied for £5k in drawdown for this tax year.

DRS1

https://forums.moneysavingexpert.com/discussion/comment/81862477#Comment_81862477

Not sure how you are doing drawdown but assuming you have not already taken all your tax free lump sum and are using UFPLS do bear in mind that 25% of any UFPLS payment is tax free lump sum so only 75% of it is taxable income measured against your personal allowance.

Also for tax purposes it is usually suggested you do a small drawdown first to get a tax code and then a larger one near the end of the tax year - otherwise you may find some tax being deducted from the first drawdown.