How much UFPLS can I take?

WitsEnd101

I have been getting a little bit confused about tax and I wonder if someone would be kind enough to help me calculate an UFPLS withdrawal I intend to make? I am trying to avoid paying higher rate tax and wish to use up my basic rate tax allowance with UFPLS withdrawals.

I am expecting to receive £26,361 gross in DB pensions for this 26/27 FY. Plus I am estimating around £295 interest from savings. I have no other income. I have a healthy SIPP with ii to make the UFPLS withdrawals from. So how much can I withdraw staying within the 20% basic rate band? Let me know if I need to provide any more info. Many thanks in advance.

DRS1

Is the £295 total taxable interest? That is interest outside an ISA. Or is it the amount of interest in excess of the PSA?

WitsEnd101

The £295 is interest from my current account and normal savings.

mrklaw

should just be 50270-26361=23,909 taxable. So 23909/3*4=31,878.667 gross. Of which 31878.667/4=7,969.667 will be tax free, and 31878.667-7969.667=23,909 will be taxable taking you to total gross income of 26361+23909=50,270

(actual total income estimate - DB £23602 net, UFPLS 7969 tax free, £19,127 net from the taxable part - total £50698 net

the interest will sit within the £1000 allowance so shouldn’t affect that

NoMore

As your £295 will be below both the £1000 (basic tax) and £500 (higher tax) allowance, I don't think we need to factor that into the calculation. Somebody will be along to correct me if I get that wrong.

So the calculation is (50270-earnings)/0.75 because the taxable part of the UFPLS is 75% of it. So you get £31878.66 with £7969.66 of that being tax free.

WitsEnd101

https://forums.moneysavingexpert.com/discussion/comment/82090491#Comment_82090491

Thanks mrklaw, I didn't know that the interest from savings wasn't included in the basic rate band - so I can ignore.

Just to be clear, I should apply to ii for an UFPLS withdrawal of £31,878, not £23,909?

MallyGirl

Is this your first drawdown? Note that you will likely pay too much tax if so as they have to assume you will take this much each month now

molerat

Yes you apply for the full amount, the 25%/75% will sort itself out. But, if you have never taken anything from this pension before you will have £9137.25 tax deducted instead of the £4781.60 due and will need to claim it back. The alternative would be to take a first dip UFPLS of under £1397 with no tax deducted and once HMRC have issued a code, most likely BR, take the remainder with the correct tax deducted.

WitsEnd101

https://forums.moneysavingexpert.com/discussion/comment/82090531#Comment_82090531

Thanks. I took a small UFPLS of around £1k last FY as I had read something about emergency tax.

molerat

What code is allocated to that pension this year ?

DRS1

https://forums.moneysavingexpert.com/discussion/comment/82090498#Comment_82090498

The savings interest will sit on top of whatever pension income you have. So it will be in the basic rate band or the higher rate band depending on the level of that pension income. But as @NoMore points out £295 is below the PSA for both basic rate and higher rate taxpayers so it is going to be taxed at 0% either way.

If the actual figure for interest was £1295 then it would have had an impact on the sums.