Flexi Drawdown v UFPLS

Mick70

Afternoon..

If my wife wishes to take £15k pa from her SIPP , does it matter if she uses flexi drawdown or UFPLS ? Is there any major benefit in using one over the other .

Our initial thought was that we would use UFPLS for £15kpa (once a year but increasing with rpi), am I right in saying £3750 (25%) tax free element hits the bank and the pension provider then sends the remaining 75% Less income tax , even though that 75% or £11250 should not be taxed it is likely to be taxed highly as HMRC will wrongly assume this will be a monthly income, so may tax it at 40% , in which case would only receive £6750 and then need to chase HMRC via a P55 form to get back the £4500 tax taken ? and this can take a month or two to get back ?

With this in mind, is it true that if you do a UFPSL of £100 it triggers correct tax code for rest of the year, or an urban myth ? and, is it true that if you do your annual UFPLS in March , rather than in April the correct tax code would be issued ?

OPTION2-

For drawdown, you would set up a monthly drawdown instruction to your SIPP provider of £1250 per month (£15k pa). From that 25% (£312.50) hits your bank tax free and then when you access the remainder from your drawdown pot the pension provider should release it tax free as it should have correct tax code ?

Is the above right ?

for the record, even though only using £15k pa for pension, we are likely to take £16760 as it should still fall under the standard tax allowance , and the extra £1760 pay back into pension or S&S ISA.

many thanks in advance

Mick

molerat

Your assumptions on taxing of the withdrawals is correct. For maximum benefit though, if you don't actually need £15K, taking £16760 and paying £2880 back in is better with the taxman adding £720 giving £13880 in your pocket for £13160 loss to your fund.

GenX0212

Option 2 (UFPLS) as you describe it might require submitting request forms every month?

Another option might be phased drawdown with scheduled payments e.g. crystallise £10k of a £100k pot giving an immediate lump sum of £2500 and then 12 scheduled monthly payments of £625 (£7500/12)?

It probably depends on your providers exact definition of 'drawdown'

Shimrod

https://forums.moneysavingexpert.com/discussion/6672806/flexi-drawdown-v-ufpls

For option two, flexi-drawdown, you would get the tax free lump sum up front and then a smaller amount every month. We do this for my wife's pension -£4000 tax free lump sum and then £1000 per month making £16K altogether.

We're with ii who do not allow regular monthly UFPLS instructions, and it's a hassle doing the form each month.

DRS1

£15kpa (once a year but increasing with rpi)

I think others have suggested making the taxable element use up her personal allowance so start higher than £15k (unless she has earnings using up some of the personal allowance already). No point wasting the personal allowance.

But I wanted to mention the increasing with rpi bit. If she does that then what she draws as taxable income will at some stage go over the personal allowance (which is not increasing at all let alone by rpi). This could have an impact on her starter rate for savings if she has significant taxable savings interest.

Mick70

Thanks all

I should have said if do UFPLS it would just be an annual transaction, not monthly. so £15k in one transaction not spread over 12 months

handful

https://forums.moneysavingexpert.com/discussion/comment/82037771#Comment_82037771

This what we do, it just seems the sensible option, one UFPLS from myself and another from the OH and top up with other savings and investments as and when required. We also both put £2880 back in both SIPPS

Mick70

https://forums.moneysavingexpert.com/discussion/comment/82038647#Comment_82038647

have you had issues with Tax when do annual UFPLS ?

molerat

There should be no issues with tax, the general issues are perceived ones where the individual does not understand how the tax system works. For instance taking the full £12570 taxable in July and complaining that as they are below their tax free limit tax should not have been deducted but that is not how the tax system works. Understand the system and work it to your advantage.

handful

https://forums.moneysavingexpert.com/discussion/comment/82039146#Comment_82039146

Apologies,missed this reply. We generally pay tax but claiming it back only takes a few weeks and is a simple process.

33scott

Do you trust the government not to change the UFPLS rules in the next 20 to 30 years. After all who would have thought they would tax cash held in a S&S ISA.