Correct me if I have got this wrong TFLS (again)

gonboating

I would be grateful for the hive mind to sense check my analysis of my “draw” from my SIPP with HL.
I am 70 and never taken any pension benefits. Personal allowance used pretty much by SP.
I want to draw out approx £75k from the SIPP. This is less than 25% of the value in the pot and there is enough cash in there.
I don't at this stage need to take income from the pot as well but might do in the near future.
My understanding is that to access that amount tax free I need to put £300k of the SIPP  into drawdown (crystallised ?) but can leave the balance uncrystallised if I want. 
The other route UFPLS would mean only 25% of the amount taken would be tax free.
Is my understanding correct?
Possibly a vagary of HL seems to be that as the 75k is not the full 25% I cant apply online but have to phone and use the post which seems bit old school but is what it is.
anyway would be grateful if you guys could confirm or otherwise I have got this right.

PS I would like to say that the contents of and contributors to this forum are awesome and have taught me so much - hope my homework passes muster

brewerdave

I did something similar with a SIPP with HL about 10 months ago - I wanted ~£30k for a private operation, so moved £120k into drawdown and took the £30k tax free. Didn't take any drawdown until relatively recently to avoid 40% tax. Had to decide which funds to put into the drawdown account..

The balance of the original SIPP is still invested and untouched..

I thought I did it all online tho' but can't be sure.

Albermarle

My understanding is that to access that amount tax free I need to put £300k of the SIPP  into drawdown (crystallised ?) but can leave the balance uncrystallised if I want.

That is correct. In practice you just need to request the tax free cash, and a new drawdown account will be created where the £225K will sit, alongside the existing SIPP account, where the still uncrystallised amount will sit.

The other route UFPLS would mean only 25% of the amount taken would be tax free. Correct

Possibly a vagary of HL seems to be that as the 75k is not the full 25% I cant apply online but have to phone and use the post which seems bit old school but is what it is.

This seems a bit odd for a modern SIPP provider. Will be interesting to see what other replies might say about this.

gonboating

thanks On draw point I am working off this on the website but will call to check.

To apply online you must be:

• Moving an existing HL SIPP into drawdown
• Over the age of 55
• Taking the maximum tax-free cash you're allowed (Normally 25%)

Can’t apply online? Or hold the HL Ready-Made Pension Plan in your SIPP? Apply by post.

dunstonh

My understanding is that to access that amount tax free I need to put £300k of the SIPP  into drawdown (crystallised ?)

Just a technical nit picking correction on process. You don't put into drawdown to then access the TFC. Drawdown is the transaction that results in you getting the 25% and having the 75% end up in the crystallised segment of the pension.

In the early days of drawdown (circa 30 years ago), income drawdown plans were typical (where income drawdown was in their product name) because most pensions couldn't do drawdown themselves as it was a non-mainstream transaction. However, post 2016, you generally found providers just splitting it as uncrystallised or crystallised. Although some added their in-house marketing names to their product.

Some providers rename the crystallised segment as post-retirement or drawdown or names to that effect, which muddy the water a little.

gonboating

So I called HL - v helpful desk btw. As Albermarle maybe predicted I was misunderstanding the extract above.

Once I apply for drawdown I specify the amount I want to crystallise (ie the 4x the lump sum I want) and they (1) create the drawdown/crystalised account and put x 3 into it and (2) pay out directly the x1 lump sum (as dunstoneh predicted).

So the ambiguous wording above which confused me is saying you or I cant ask them to send out less than the 25% I am crystallising which sort of makes sense.

Anyway many thanks for the reassurance and I'll let you know if the process is as smooth for me as for brewerdave

gonboating

well I have done it. Relatively straightforward although I found the website a bit clunky to work out the correct link to start the process.

Tip I would give is that as you manoeuvre around the website it suggests you fill in a risk questionnaire. Dont bother. I did it but as you go through the drawdown application it asks all the questions again.

Many thanks again for the assistance. I will do a final entry to confirm once I get the dough!

NoMore

Not an answer to your question, but now you have a lot of taxable money in your pension, Is IHT a concern for you ? Have you given thought to what you will do once Pensions come under IHT rules. You may find you want to start drawing some of that money out of the pension and gifting out of excess now to avoid IHT.

Trying to pay no income tax is a noble aim, but not necessarily the right thing long term for tax efficiency.

gonboating

It would be if someone would kindly tell me when I will peg it!

my vague previous plan was to leave the SIPP alone at least until 75 as it could be passed on IHT free. As it is likely that will go next year it did remove one consideration when raising funds (fairly vanilla - helping kid with deposit) about where to take the cash but thats as far as my thinking went

Albermarle

https://forums.moneysavingexpert.com/discussion/comment/81964021#Comment_81964021

Presume you understand that an unused pension pot on death ( after 2027) will not automatically incur IHT in itslef.

It will just be included in the calculations as to whether your estate will be subject to IHT or not. This calculation is affected by what your other assets are and what all your nil rate bands might add up to.

gonboating

indeed. Having just helped a friend with a horrible IHT application (even though all to widow so no tax anyway) I shudder to think what a horlicks the civil service will make of the IHT process to include pensions into the calculation